As filed with the Securities and Exchange Commission on January 13, 2014.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
CONCERT PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 2834 | 20-4839882 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code No.) |
(I.R.S. Employer Identification No.) |
99 Hayden Avenue, Suite 500
Lexington, MA 02421
(781) 860-0045
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Roger D. Tung, Ph.D.
President and Chief Executive Officer
99 Hayden Avenue, Suite 500
Lexington, MA 02421
(781) 860-0045
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
David E. Redlick, Esq. Lia Der Marderosian, Esq. Wilmer Cutler Pickering Hale and Dorr LLP 60 State Street Boston, MA 02109 (617) 526-6000 |
Glenn R. Pollner, Esq. Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, NY 10166 (212) 351-4000 |
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
|
||||||
Title of each class of securities to be registered |
Proposed
maximum
|
Amount of
registration fee (2) |
||||
Common stock, par value $0.001 per share |
$74,750,000 | $9,627.80 | ||||
|
(1) | Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(o) under the Securities Act. |
(2) | Calculated pursuant to Rule 457(o) based on a bona fide estimate of the 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. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS | Subject to Completion | January 13, 2014 |
Shares
Common Stock
This is the initial public offering of our common stock. No public market currently exists for our common stock. We are offering all of the shares of common stock offered by this prospectus. We expect the public offering price to be between $ and $ per share.
We have applied to list our common stock on The NASDAQ Global Market under the symbol CNCE.
We are an emerging growth company under applicable Securities and Exchange Commission rules and will be eligible for reduced public company disclosure requirements. See Prospectus summaryImplications of being an emerging growth company.
Investing in our common stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common stock in Risk factors beginning on page 12 of this prospectus.
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 .
Per share | Total | |||||||
Price to the public |
$ | $ | ||||||
Underwriting discounts and commissions |
$ | $ | ||||||
Proceeds to us (before expenses) |
$ | $ |
The underwriters may also purchase up to an additional shares of our common stock at the public offering price, less the underwriting discounts and commissions payable by us, to cover over-allotments, if any, within 30 days from the date of this prospectus. If the underwriters exercise this option in full, the total underwriting discounts and commissions will be $ and our total proceeds, before expenses, will be $ .
The underwriters are offering the common stock as set forth under Underwriting. Delivery of the shares will be made on or about , 2014.
UBS Investment Bank | Wells Fargo Securities |
JMP Securities
Roth Capital Partners
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, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus or any such free writing prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock.
Page | ||||
1 | ||||
12 | ||||
Special note regarding forward-looking statements and industry data |
55 | |||
57 | ||||
58 | ||||
59 | ||||
61 | ||||
63 | ||||
Managements discussion and analysis of financial condition and results of operations |
65 | |||
93 | ||||
138 |
Page | ||||
144 | ||||
153 | ||||
156 | ||||
160 | ||||
164 | ||||
Material U.S. federal tax considerations for non-U.S. holders of common stock |
167 | |||
171 | ||||
178 | ||||
178 | ||||
178 | ||||
F-1 |
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.
This summary highlights selected information appearing elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the Risk factors section beginning on page 12 and our consolidated financial statements and the related notes appearing at the end of this prospectus before making an investment decision. Unless the context otherwise requires, we use the terms Concert, our company, we, us and our in this prospectus to refer to Concert Pharmaceuticals, Inc. and its consolidated subsidiary, Concert Pharmaceuticals Securities Corporation.
OUR BUSINESS
We are a clinical stage biopharmaceutical company applying our extensive knowledge of deuterium chemistry to discover and develop novel small molecule drugs. Our approach starts with approved drugs, advanced clinical candidates or previously studied compounds that we believe can be improved with deuterium substitution to provide better pharmacokinetic or metabolic properties and thereby enhance clinical safety, tolerability or efficacy. We believe our approach may enable drug discovery and clinical development that is more efficient and less expensive than conventional small molecule drug research and development.
We have a robust pipeline, including three clinical-stage candidates and a number of preclinical compounds that we are actively developing. Our clinical programs are CTP-354 for spasticity associated with multiple sclerosis and spinal cord injury, CTP-499 for diabetic kidney disease and AVP-786 for neurologic and psychiatric disorders under our collaboration with Avanir. We also have ongoing collaborations with Celgene, for deuterated compounds including CTP-730, which is in preclinical development for inflammatory diseases, and Jazz Pharmaceuticals, for JZP-386, a deuterated analog of sodium oxybate, the active ingredient in its marketed drug Xyrem ® , which is in preclinical development for narcolepsy. Between our wholly owned and collaboration programs, we expect to have up to five product candidates in clinical development by the end of 2014, including at least two product candidates in Phase 2 clinical trials.
We believe that our application of deuterium chemistry, which we refer to as deuteration, is an efficient way to build on existing knowledge to create important new medicines. Deuterium is similar to hydrogen in size and shape. However, deuterium differs from hydrogen in one pharmaceutically important respect deuterium forms a more stable chemical bond with carbon. This increased stability has the potential, through the selective substitution of deuterium for hydrogen, to improve pharmacokinetic and metabolic properties without changing a compounds intrinsic biological activity.
Our approach allows us to efficiently identify lead compounds for deuteration and, in some cases, shorten the amount of time necessary to initiate clinical trials as compared to conventional small molecule drug research and development. In clinical development, we believe that the U.S. Food and Drug Administration, or FDA, and comparable foreign regulatory authorities may allow some of our compounds that are deuterated analogs of approved products, or of compounds for which approval is pending, to follow an expedited development pathway by relying on previous clinical and preclinical data related to the non-deuterated compound. For example, in June 2013, Avanir reported that the FDA agreed to an expedited development pathway for AVP-786, permitting Avanir to reference data from its development of dextromethorphan and quinidine in its investigational new drug application, or IND, and any future New Drug Application, or NDA, for AVP-786.
Our senior management team has extensive experience in drug discovery and development. Collectively, our team has been involved in the research, development or approval of 12 drugs. Dr. Roger D. Tung, our Chief Executive Officer and one of our founders, is an accomplished leader in drug research and development. Prior to founding our company, Dr. Tung was the Vice President of Drug Discovery at Vertex Pharmaceuticals, Inc., or Vertex. At Vertex, he was a co-inventor of two drugs that were approved for the treatment of HIV, amprenavir and fosamprenavir, and oversaw the discovery of two other approved drugs, ivacaftor (Kalydeco ® ) for cystic fibrosis and telaprevir (Incivek ® ) for hepatitis C.
1
Through September 30, 2013, we had received an aggregate of $105.4 million in upfront and milestone payments, equity investments and research and development funding from current and former collaborations. Under our current collaborations, we have the potential to receive up to $1.6 billion in future milestone payments, including over $1.2 billion in research, development and regulatory milestones, as well as royalties on any future net product sales.
OUR DCE PLATFORM
We believe we are the leader in applying deuterium chemistry in drug discovery and development. We have built a deuterated chemical entity platform, which we refer to as our DCE Platform ® . Our platform comprises the proprietary know-how, techniques and information that we have accumulated since our inception in 2006. Due to our significant experience in deuterium chemistry and pharmaceutical research and development, we believe we are well-positioned to efficiently identify compounds for deuteration and to design, evaluate, develop and manufacture deuterated compounds. Our DCE Platform includes the following capabilities, which we believe provide us with key competitive advantages:
Ø |
Selection of attractive compounds for deuteration . We identify candidate compounds for selective deuteration through the efforts of a team that integrates chemistry, biology, medical, regulatory, intellectual property and commercial expertise. |
Ø |
Medicinal chemistry and chemical and biological testing of deuterated compounds . We have developed significant proprietary know-how in the design, synthesis, chemical analysis, bioanalytical assessment, preclinical evaluation and clinical development of deuterated compounds. |
Ø |
Manufacturing of deuterated compounds . We apply our manufacturing and analytical know-how and capabilities to reproducibly manufacture deuterated compounds. We have also successfully transferred our methods to manufacturing vendors that can produce multi-kilogram quantities of clinical trial materials. |
OUR PRODUCT CANDIDATES
We are utilizing our DCE Platform to discover and develop product candidates for a variety of indications. The following table summarizes key information about our priority programs:
2
CTP-354
CTP-354 is a novel, potentially first-in-class, non-sedating treatment for spasticity that we are initially developing for use in patients with multiple sclerosis and in patients with spinal cord injury. CTP-354 is a subtype selective GABA A receptor modulator. GABA A receptors are found in the nervous system and, when activated, reduce the transmission of certain nerve signals. Several classes of widely used drugs target GABA A receptors, including benzodiazepines and some sleep agents, none of which have the receptor subtype selectivity that we believe CTP-354 possesses. We hold issued U.S. and Japanese patents and allowed European claims covering the composition of matter of CTP-354 that expire in 2029.
Spasticity is a chronic condition characterized by involuntary tightness, stiffness or contraction of muscles and can range from mild muscle tightness to more severe symptoms, including crippling and painful inability to move limbs that can result in disability and diminished quality of life. Spasticity can result from a wide range of disorders, including multiple sclerosis, spinal cord injury, cerebral palsy, amyotrophic lateral sclerosis, stroke and hereditary spastic paraplegia.
While pharmacotherapy, physical therapy and surgical intervention treatments currently exist to treat spasticity, current therapies are frequently limited by inadequate relief of symptoms, severe sedative effects, toxicity, frequent dosing or invasiveness. For example, the strong sedative effects of benzodiazepines such as diazepam (Valium ® ) severely limit their therapeutic use in spasticity and certain other indications. We designed CTP-354 to provide therapeutic benefits associated with benzodiazepines, but with significantly reduced sedative effects. We believe, and our data to date support, that CTP-354 has the potential to be a non-sedating treatment that addresses a significant unmet medical need in the treatment of spasticity.
We have completed a 71-subject Phase 1 single ascending dose clinical trial of CTP-354 and are currently conducting a Phase 1 imaging study. Our initial Phase 1 clinical trial results indicate that CTP-354 has a favorable pharmacokinetic profile that supports once-daily dosing. The results also indicate that CTP-354 did not cause sedation at levels of GABA A receptor occupancy well above the levels achieved by benzodiazepines at doses that are typically prescribed. GABA A receptor occupancy is a measure of the percentage of GABA A receptors to which a compound binds, which in the case of CTP-354 we believe may correlate to therapeutic activity.
We currently plan to initiate a multiple ascending dose Phase 1 clinical trial evaluating daily doses of 2 mg and 6 mg of CTP-354 in healthy volunteers during the first quarter of 2014. Assuming successful completion of the multiple ascending dose Phase 1 clinical trial, we plan to initiate a Phase 2 clinical program for CTP-354 in the second half of 2014. We expect that the Phase 2 clinical program will include one clinical trial for the treatment of spasticity associated with multiple sclerosis and one clinical trial for the treatment of spasticity associated with spinal cord injury. In our previous preclinical testing, minimal, if any, toxicity was observed for CTP-354, and a maximum feasible dose or a maximum tolerated dose was not determined. As a result, the FDA has informed us that we may not administer multiple doses of CTP-354 in excess of 6 mg per day in clinical trials without first conducting an additional higher dose preclinical toxicology study. We believe that multiple doses of 6 mg per day would be sufficient for the treatment of spasticity; however, we intend to conduct the additional preclinical toxicology study to enable us to evaluate higher doses of CTP-354, if needed in our spasticity trials, as well as to support clinical development in other disease indications. Based on the well-known efficacy of benzodiazepines and other GABA A modulators, we believe CTP-354 has potential in a number of other indications, including anxiety, chronic pain, muscle tension and epilepsy.
CTP-499
CTP-499 is a novel, potentially first-in-class, treatment for type 2 diabetic kidney disease that we are developing as an additive treatment to the current standard of care. CTP-499 is a multi-subtype selective inhibitor of phosphodiesterases, or PDEs, which are enzymes that we believe play an important role in
3
type 2 diabetic kidney disease. We hold issued U.S. and Japanese patents that cover the composition of matter of CTP-499 and have composition of matter patent applications in Europe. The U.S. patent expires in 2029, the Japanese patents expire in 2029 and 2030 and patents that issue from the European patent applications would expire in 2029 and 2030.
We are currently conducting a three-part Phase 2 clinical trial of CTP-499 in which we have enrolled patients with type 2 diabetic kidney disease and macroalbuminuria, which is high levels of the blood protein albumin in the urine, who were receiving standard-of-care treatment. In 2013, we completed the first part of this trial, a 24-week, double-blind, parallel, two-arm, placebo-controlled study in 182 patients. In addition, we have completed dosing in the second part of the trial, a blinded 24-week extension study, which, combined with the data from the first part of the trial, has provided 48 weeks of placebo-controlled data in 123 patients. We have conducted preliminary analyses of these 48 weeks of data, but have not yet completed a full analysis. We expect to report the final top line results for the first 48 weeks of the trial in the first half of 2014.
We believe that the preliminary data we have analyzed to date support the potential of CTP-499 to help protect kidney function in patients with rapidly progressing type 2 diabetic kidney disease. Although, as described below, we did not achieve statistical significance in the primary endpoint of the trial, key secondary endpoints showed potential benefits including a nearly statistically significant impact on serum creatinine levels and a positive trend in estimated glomerular filtration rate, or eGFR. Serum creatinine levels and eGFR are measures of renal function. Although our Phase 2 clinical trial was not intended to be powered for statistical significance with respect to serum creatinine or eGFR, and 48 weeks is a limited duration for measuring kidney function, the improvement in serum creatinine was nearly statistically significant after 48 weeks (p = 0.07). Furthermore, our preliminary analyses of our data at 48 weeks suggest that patients on placebo were more likely to experience a 30% or greater decline in eGFR over the 48 weeks of treatment as compared to patients receiving CTP-499, with an incidence of 14% among patients receiving placebo compared to 6% for patients receiving CTP-499 (p = 0.11). Declining eGFR is believed to indicate worsening of kidney function. We believe that the incidence of large declines in eGFR in drug-treated versus placebo-treated patients may be an acceptable primary endpoint for Phase 3 clinical development of a drug candidate for the treatment of type 2 diabetic kidney disease. Our belief is based on the findings of a December 2012 scientific workshop sponsored by the National Kidney Foundation, or the NKF, and the FDA, and subsequent presentations by the NKF and the FDA. We intend to request in mid-2014 an end of Phase 2 meeting with the FDA to discuss endpoints for Phase 3 clinical development of CTP-499.
The primary endpoint of our Phase 2 clinical trial of CTP-499 was the change at 24 weeks in urinary albumin to creatinine ratio, or UACR. Albumin is a common protein in the blood, and urine creatinine is used to normalize measurements of albumin excretion. Urinary excretion of albumin is believed to indicate kidney damage if sustained for longer than three months. While CTP-499 was generally well tolerated over the 24 weeks of treatment, we did not achieve statistical significance in this primary endpoint of the trial. However, our preliminary analyses after 48 weeks of treatment suggested a favorable trend, which was not statistically significant, in UACR for patients receiving CTP-499 as compared to placebo. While UACR has been commonly used as an indicator of efficacy in Phase 2 trials in type 2 diabetic kidney disease, it is not accepted by the FDA as an endpoint for a Phase 3 clinical trial for the treatment of type 2 diabetic kidney disease.
We may seek one or more collaborators for future development of CTP-499 and we expect that we would conduct any large Phase 3 clinical trial of CTP-499 in type 2 diabetic kidney disease in collaboration with one or more partners.
AVP-786
AVP-786 is a combination of a deuterium-substituted dextromethorphan analog and an ultra-low dose of quinidine. In February 2012, we granted Avanir Pharmaceuticals, Inc., or Avanir, an exclusive license to develop and commercialize deuterated dextromethorphan analogs, including the analog in AVP-786.
4
In February 2013, Avanir reported positive results from a Phase 1 clinical trial of AVP-786. In June 2013, Avanir reported that the FDA had agreed to an expedited development pathway for AVP-786, permitting Avanir to reference data from its development of dextromethorphan and quinidine in its IND, and any future NDA, for AVP-786. In October 2013, Avanir reported plans to advance AVP-786 into a Phase 2 clinical trial in the second half of 2014 for treatment-resistant major depressive disorder in patients with insufficient response to conventional anti-depressants.
Avanir has stated that it plans to develop AVP-786 for the treatment of neurologic and psychiatric disorders, including pain, behavioral disorders, mood disorders and movement disorders. Avanir has also reported that it plans to integrate its development of AVP-786 into its ongoing clinical development program for AVP-923, a dextromethorphan and quinidine combination product candidate. Avanir reported that AVP-786, which includes a lower dose of quinidine than AVP-923, provided approximately the same pharmacokinetic exposure as AVP-923 in a Phase 1 clinical trial.
We hold issued U.S., European and Japanese patents covering the composition of matter of the deuterated dextromethorphan analog in AVP-786. These patents have expirations from 2028 to 2030.
Our additional collaborations and product candidates
We have a collaboration with Celgene Corporation and Celgene International Sàrl, which we collectively refer to as Celgene, to research, develop and commercialize certain deuterated compounds for the treatment of cancer or inflammation. We are initially focusing on one program; however, the collaboration has the potential to encompass multiple programs. In the initial program, we have selected CTP-730, a product candidate for the treatment of inflammatory diseases, and expect to begin clinical trials in 2014.
In addition, we have entered into a development and license agreement with Jazz Pharmaceuticals Ireland Limited, or Jazz Pharmaceuticals, to research, develop and commercialize products containing deuterated sodium oxybate. Pursuant to the agreement, we have licensed Jazz Pharmaceuticals our rights to JZP- 386, a product candidate containing a deuterated analog of sodium oxybate. Sodium oxybate is approved by the FDA for use in patients with narcolepsy, which is a chronic neurologic disorder and a rare disease. The primary symptoms of narcolepsy include excessive daytime sleepiness and cataplexy, which is a sudden loss of muscle tone often triggered by emotions such as laughing or crying. Sodium oxybate is the active ingredient in the marketed drug Xyrem. In December 2013, an Investigational Medicinal Product Dossier, or IMPD, the basis for initiating clinical trials in the European Union, was filed for JZP-386. Jazz Pharmaceuticals has reported that, subject to approval of the IMPD, it expects a first-in-human clinical trial of JZP-386 to commence in 2014.
We have a broad pipeline of additional product candidates, including C-10068, which is a novel oral deuterium-substituted analog of dextroethorphan, a compound with preclinical pharmacological activities qualitatively similar to those of dextromethorphan. We believe that C-10068 may be effective in the treatment of pain and seizure-generating diseases and injuries, such as epilepsy, ischemic stroke and traumatic brain injury. We are conducting further preclinical evaluation of C-10068.
OUR STRATEGY
Our strategy is to apply our extensive knowledge of deuterium chemistry to discover, develop and commercialize novel small molecule drugs. Key components of our strategy include:
Ø |
rapidly advancing our deuterated product candidates; |
Ø |
establishing collaborations to develop and commercialize deuterated product candidates; |
5
Ø |
capitalizing on our DCE Platform to build a robust pipeline of additional deuterated product candidates; |
Ø |
retaining commercialization rights on a selective basis and building a specialized commercialization capability in the United States; and |
Ø |
expanding our broad patent estate covering deuterated compounds and related technology. |
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:
Ø |
We have incurred significant losses since inception, expect to incur losses for at least the next several years and may never sustain profitability. Our accumulated deficit was $107.7 million as of September 30, 2013. |
Ø |
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. |
Ø |
Our approach to the discovery and development of product candidates based on selective deuteration is unproven, and we do not know whether we will be able to develop any products of commercial value. |
Ø |
We are particularly dependent on the success of our product candidate, CTP-354, and our ability to develop, obtain marketing approval for and successfully commercialize CTP-354. CTP-354 is currently subject to a partial clinical hold that prevents us from administering doses in excess of 6 mg per day in multiple dose clinical trials without an additional preclinical study. If we are unable to develop, obtain marketing approval for or successfully commercialize CTP-354, either alone or through a collaboration, or experience significant delays in doing so, our business could be materially harmed. |
Ø |
Clinical drug development involves a lengthy and expensive process with an uncertain outcome. In addition, while we believe our DCE Platform may enable drug discovery and clinical development that is more efficient and less expensive than conventional small molecule drug research and development, we may not be able to realize the advantages that we expect. |
Ø |
We depend on collaborations with third parties for the development and commercialization of some of our product candidates and expect to continue to do so in the future. Our prospects with respect to those product candidates will depend in significant part on the success of those collaborations. |
Ø |
We believe we, or our collaborators, may in some instances be able to secure clearances from the FDA or comparable foreign regulatory authorities to use expedited development pathways. If unable to obtain such clearances, we, or they, may be required to conduct additional preclinical studies or clinical trials beyond those contemplated, which could increase the expense of obtaining, and delay the receipt of, necessary marketing approvals. |
Ø |
If we are unable to obtain and maintain sufficient patent protection for our product candidates, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our product candidates may be adversely affected. |
OUR COMPANY
We were incorporated under the laws of the State of Delaware on April 12, 2006 under the name Concert Pharmaceuticals, Inc. Our principal executive offices are located at 99 Hayden Avenue, Suite 500,
6
Lexington, Massachusetts 02421, and our telephone number is (781) 860-0045. Our website address is www.concertpharma.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.
Concert ® , the Concert logo and DCE Platform ® are our registered trademarks. The other trademarks, trade names and service marks appearing in this prospectus are the property of the 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 are permitted and intend to rely on exemptions from specified disclosure and other requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
Ø |
being permitted to provide 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; |
Ø |
not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting; |
Ø |
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; |
Ø |
reduced disclosure obligations regarding executive compensation; and |
Ø |
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
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 or 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 provision 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.
7
The offering
Common stock offered by us |
shares |
Common stock to be outstanding after this offering |
shares |
Over-allotment option |
The underwriters have an option for a period of 30 days to purchase up to additional shares of our common stock to cover over-allotments. |
Use of proceeds |
We estimate that the net proceeds to us from this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, 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 estimated price range set forth on the cover page of this prospectus. We plan to use the net proceeds from this offering to fund our ongoing development of CTP-354, our research and development efforts to advance our pipeline of additional product candidates and for working capital and other general corporate purposes. See Use of proceeds for more information. |
Risk factors |
You should read the Risk factors section starting on page 12 of this prospectus 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 |
CNCE |
The number of shares of our common stock to be outstanding after this offering is based on the 7,335,534 shares of our common stock outstanding as of December 31, 2013, and gives effect to the conversion of all outstanding shares of our preferred stock into 56,047,067 shares of common stock that will become effective upon the closing of this offering.
The number of shares of our common stock to be outstanding after this offering excludes:
Ø |
400,000 shares of our common stock issuable upon the exercise of a warrant outstanding as of December 31, 2013, at an exercise price of $2.50 per share; |
Ø |
11,032,977 shares of our common stock issuable upon the exercise of stock options outstanding as of December 31, 2013, at a weighted average exercise price of $0.56 per share; |
Ø |
951,489 shares of our common stock available for future issuance under our equity compensation plans as of December 31, 2013; and |
Ø |
an additional shares of our common stock that become available for future issuance under our 2014 Stock Incentive Plan, or the 2014 Plan, in connection with this offering. |
8
Except as otherwise noted, all information in this prospectus:
Ø |
assumes no exercise of the outstanding options or warrant described above; |
Ø |
assumes no exercise by the underwriters of their over-allotment option to purchase up to additional shares of common stock from us; |
Ø |
gives effect to the automatic conversion of all outstanding shares of our preferred stock into 56,047,067 shares of our common stock upon the closing of this offering; and |
Ø |
gives effect to the restatement of our certificate of incorporation and bylaws 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 statements of operations data for the years ended December 31, 2011 and 2012 from our audited consolidated financial statements appearing elsewhere in this prospectus. The statements of operations data for the nine months ended September 30, 2012 and 2013 and the balance sheet data as of September 30, 2013 have been derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements included in this prospectus and include, in our opinion, all adjustments, consisting only of normal recurring adjustments, necessary to fairly present our financial position as of September 30, 2013 and results of operations for the nine months ended September 30, 2012 and 2013. 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, 2013 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.
Year ended December 31, | Nine months ended September 30, | |||||||||||||||
Consolidated statements of operations data: | 2011 | 2012 | 2012 | 2013 | ||||||||||||
(unaudited) | ||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Revenue: |
||||||||||||||||
License and research and development revenue |
$ | 13,967 | $ | 11,349 | $ | 11,126 | $ | 21,995 | ||||||||
Milestone revenue |
5,500 | 1,500 | 1,500 | 2,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
19,467 | 12,849 | 12,626 | 23,995 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses: |
||||||||||||||||
Research and development |
23,436 | 24,193 | 18,384 | 16,460 | ||||||||||||
General and administrative |
7,377 | 7,266 | 5,620 | 6,366 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
30,813 | 31,459 | 24,004 | 22,826 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
(Loss) income from operations |
(11,346 | ) | (18,610 | ) | (11,378 | ) | 1,169 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Investment income |
44 | 22 | 17 | 17 | ||||||||||||
Interest and other expense |
(18 | ) | (1,856 | ) | (1,324 | ) | (1,327 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (11,320 | ) | $ | (20,444 | ) | $ | (12,685 | ) | $ | (141 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Accretion on redeemable convertible preferred stock |
(1,069 | ) | (388 | ) | (290 | ) | (296 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss applicable to common stockholdersbasic and diluted |
$ | (12,389 | ) | $ | (20,832 | ) | $ | (12,975 | ) | $ | (437 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share applicable to common stockholdersbasic and diluted (1) |
$ | (1.71 | ) | $ | (2.86 | ) | $ | (1.78 | ) | $ | (0.06 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average number of common shares used in net loss per share applicable to common stockholdersbasic (1) |
7,251 | 7,290 | 7,290 | 7,295 | ||||||||||||
Weighted-average number of common shares used in net loss per share applicable to common stockholdersdiluted (1) |
7,251 | 7,290 | 7,290 | 7,295 | ||||||||||||
Pro forma net loss per share applicable to common stockholders (1)(2) : |
||||||||||||||||
Basic: |
$ | (0.32 | ) | $ | (0.00 | ) | ||||||||||
|
|
|
|
|||||||||||||
Diluted: |
$ | (0.32 | ) | $ | (0.00 | ) | ||||||||||
|
|
|
|
|||||||||||||
Pro forma weighted average number of common shares outstanding (1)(2) : |
||||||||||||||||
Basic: |
63,337 | 63,342 | ||||||||||||||
Diluted: |
63,337 | 63,342 |
Footnotes on the following page
10
As of September 30, 2013 | ||||||||||
Consolidated balance sheet data: | Actual | Pro forma (2) |
Pro forma
As adjusted (3)(4) |
|||||||
(unaudited) (in thousands) |
||||||||||
Cash and cash equivalents |
$ | 18,612 | $ | 18,612 | ||||||
Investments, available for sale |
23,961 | 23,961 | ||||||||
Working capital |
27,050 | 27,050 | ||||||||
Total assets |
48,969 | 48,969 | ||||||||
Current liabilities |
15,851 | 15,851 | ||||||||
Long-term liabilities |
27,282 | 26,793 | ||||||||
Redeemable convertible preferred stock |
112,144 | | ||||||||
Total stockholders (deficit) equity |
$ | (106,308 | ) | $ | 6,325 |
(1) | See Notes 2 and 15 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 share applicable to common stockholders and pro forma basic and diluted net loss per share applicable to common stockholders. |
(2) | Pro forma to reflect the automatic conversion of all outstanding shares of our preferred stock into 56,047,067 shares of common stock, and the conversion of our outstanding warrant to purchase 400,000 shares of preferred stock into a warrant to purchase 400,000 shares of 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 estimated 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. |
(4) | A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated 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. |
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 consolidated 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 could 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 RELATED 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 sustain profitability.
We have incurred significant annual net operating losses in every year since our inception and expect to incur a net operating loss in 2013. Our net loss was $11.3 million for the year ended December 31, 2011 and $20.4 million for the year ended December 31, 2012. As of September 30, 2013, we had an accumulated deficit of $107.7 million. We have not generated any revenues from product sales and have financed our operations to date primarily through private placements of our preferred stock, debt financings and funding from collaborations. 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 studies and our clinical development programs. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders equity (deficit) and working capital.
We anticipate that our expenses will increase substantially if and as we:
Ø |
continue to develop and conduct clinical trials with respect to CTP-354; |
Ø |
initiate and continue research, preclinical and clinical development efforts for our other product candidates and potential product candidates; |
Ø |
seek to identify additional product candidates; |
Ø |
seek marketing approvals for our product candidates that successfully complete clinical trials; |
Ø |
establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various products for which we may obtain marketing approval; |
Ø |
require the manufacture of larger quantities of product candidates for clinical development and potentially commercialization; |
Ø |
maintain, expand and protect our intellectual property portfolio; |
Ø |
hire additional personnel, such as clinical, quality control and scientific personnel; |
Ø |
add operational, financial and management information systems and personnel, including personnel to support our product development and personnel and infrastructure necessary to help us comply with our obligations as a public company; and |
Ø |
add equipment and physical infrastructure to support our research and development. |
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 are, or one of our collaborators is, able to obtain marketing approval for, and successfully commercialize, one or more of our product candidates. This will
12
Risk factors
require success in a range of challenging activities, including completing clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products for which we, or our collaborators, may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from private insurance or government payors. We, and our collaborators, may never succeed in these activities and, even if we do, or one of our collaborators does, we may never generate revenues that are large enough for us to 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, maintain our research and development efforts, diversify our pipeline of product candidates or continue our operations. A decline in the value of our company could cause you to lose all or part of your investment.
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 second quarter of 2006. Our operations to date have been limited to financing and staffing our company, developing our technology and product candidates and establishing collaborations. We have not yet demonstrated an ability to successfully conduct a multi-center international clinical trial, conduct a large-scale pivotal clinical trial, obtain marketing approvals, 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.
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 very time-consuming, expensive and uncertain process that takes years to complete. We expect our expenses to increase in connection with our ongoing activities, particularly as we initiate new clinical trials of, initiate new research and preclinical development efforts for and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we may incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing and distribution are not the responsibility of one of our collaborators. In particular, the costs that we may be required to incur for the manufacture of any product candidate that receives marketing approval may be substantial. To our knowledge, no deuterated drug has ever been successfully commercialized. Manufacturing a deuterated drug at commercial scale may require expensive and specialized facilities, processes and materials. Furthermore, upon the closing of this offering, we expect to incur significant additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.
We plan to use the net proceeds of this offering primarily to fund our ongoing research and development efforts. We will be required to expend significant funds in order to advance the development of CTP-354 and our other product candidates. In addition, while may seek one or more collaborators for future development of CTP-499 and expect that we would conduct any large Phase 3 clinical trial of CTP-499 in type 2 diabetic kidney disease in collaboration with one or more partners that would pay most of the associated costs, we may not be able to enter into a collaboration for CTP-499 on suitable terms or at all. In any event, the net proceeds of this offering and our existing cash and cash equivalents and
13
Risk factors
short-term investments will not be sufficient to fund all of the efforts that we plan to undertake or to fund the completion of development of any of our product candidates. 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 ability to obtain debt financing may be limited by covenants we have made under our loan and security agreement with Hercules Technology Growth Capital, Inc., or Hercules, and our pledge to Hercules of substantially all of our assets, other than our intellectual property, as collateral. The negative pledge in favor of Hercules with respect to our intellectual property under the loan and security agreement could further limit our ability to obtain additional debt financing. 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 and investments as of September 30, 2013, will enable us to fund our operating expenses, debt service and capital expenditure requirements for at least the next months, without giving effect to potential milestone payments that we may receive under existing collaboration agreements. This estimate assumes we either enter into a collaboration agreement pursuant to which a partner funds further development of CTP-499 or we do not otherwise expend significant funds for further development of this product candidate. Our estimate as to how long we expect the net proceeds from this offering, together with our existing cash and cash equivalents and investments, to be able to continue to fund our operations 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:
Ø |
the progress, timing, costs and results of clinical trials of, and research and preclinical development efforts for, our product candidates and potential product candidates, including current and future clinical trials; |
Ø |
our ability to identify a collaborator for CTP-499 and the terms and timing of any collaboration agreement that we may establish for the development and commercialization of CTP-499; |
Ø |
our current collaboration agreements remaining in effect and achievement of milestones under these agreements; |
Ø |
our ability to enter into and the terms and timing of any additional collaborations, licensing or other arrangements that we may establish; |
Ø |
the number of product candidates that we pursue and their development requirements; |
Ø |
the outcome, timing and costs of seeking regulatory approvals; |
Ø |
the costs of commercialization activities for any of our product candidates that receive marketing approval, to the extent such costs are not the responsibility of one of our collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities; |
Ø |
subject to receipt of marketing approval, revenue, if any, received from commercial sales of our product candidates; |
Ø |
our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure; |
Ø |
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims; and |
Ø |
the costs of operating as a public company. |
14
Risk factors
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.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings and additional collaborations and licensing arrangements. We do not have any committed external source of funds, other than potential milestone payments and royalties under our collaborations with Celgene, Avanir and Jazz Pharmaceuticals, each of which is subject to the achievement of development, regulatory or sales-based milestones with respect to our product candidates. 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 Hercules contains restrictive covenants that, among other things and subject to certain exceptions, prohibit us from transferring any of our material assets, merging with or acquiring another entity, entering into a transaction that would result in a change of control, incurring additional indebtedness, creating any lien on our property, making investments in third parties or redeeming stock or paying dividends. Future debt securities or other financing arrangements could contain similar or more restrictive negative covenants. In addition, securing additional financing could 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 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 grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Our existing and any future indebtedness could adversely affect our ability to operate our business.
As of September 30, 2013, we had $17.0 million of outstanding borrowings under our loan and security agreement with Hercules, which we are required to repay in monthly installments through October 2015. We do not intend to use the net proceeds of this offering to prepay any of these borrowings. We could in the future incur additional indebtedness beyond our borrowings from Hercules.
Our outstanding indebtedness combined with our other financial obligations and contractual commitments, including any additional indebtedness beyond our borrowings from Hercules, could have significant adverse consequences, including:
Ø |
requiring us to dedicate a portion of our cash resources to the payment of interest and principal, reducing money available to fund working capital, capital expenditures, product development and other general corporate purposes; |
Ø |
increasing our vulnerability to adverse changes in general economic, industry and market conditions; |
Ø |
subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing; |
15
Risk factors
Ø |
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and |
Ø |
placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options. |
In addition, although the rate of interest that we are required to pay under the loan and security agreement is capped, our indebtedness under the loan and security agreement bears interest at a variable rate below that cap, making us vulnerable to increases in the market rate of interest. If the market rate of interest increases substantially, we will have to pay additional interest on this indebtedness, which would reduce cash available for our other business needs.
We intend to satisfy our current and future debt service obligations with our existing cash and cash equivalents and investments and funds from external sources. However, we may not have sufficient funds, and may be unable to arrange for additional financing, to pay the amounts due under our existing debt instruments. Failure to make payments or comply with other covenants under our existing debt instruments could result in an event of default and acceleration of amounts due. Under our loan and security agreement with Hercules, the occurrence of an event that would reasonably be expected to have a material adverse effect on our business, operations, assets or condition is an event of default. If an event of default occurs and the lender accelerates the amounts due, we may not be able to make accelerated payments, and the lender could seek to enforce security interests in the collateral securing such indebtedness, which includes substantially all of our assets other than our intellectual property. In addition, the covenants under our existing debt instruments, the pledge of our assets as collateral and the negative pledge with respect to our intellectual property could limit our ability to obtain additional debt financing.
RISKS RELATED TO THE DISCOVERY, DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCT CANDIDATES
Our approach to the discovery and development of product candidates based on selective deuteration is unproven, and we do not know whether we will be able to develop any products of commercial value.
We are focused on discovering and developing novel small molecule drugs that have improved metabolic or pharmacokinetic characteristics as a result of our selective substitution of deuterium for hydrogen. We apply our proprietary platform to systematically identify approved drugs, advanced clinical candidates or previously studied compounds that we believe can be improved with deuterium substitution to provide better pharmacokinetic or metabolic properties and thereby enhance clinical safety, tolerability or efficacy. To our knowledge, no deuterated drug has ever been approved for sale in the United States. While we believe that selective deuteration can produce compounds that possess favorable pharmaceutical properties, and preclinical studies and early-stage clinical trials have indicated that certain of our product candidates may possess these properties, we have not yet succeeded and may not succeed in demonstrating efficacy and safety for any of our product candidates in later stage clinical trials or in obtaining marketing approval thereafter. For example, although we have discovered and evaluated numerous deuterated compounds, we have not yet advanced a compound beyond Phase 2 clinical development. Moreover, the only compound that we have advanced into Phase 2 clinical development, CTP-499 for the potential treatment of type 2 diabetic kidney disease in patients with high levels of the blood protein albumin in the urine, or macroalbuminuria, failed to achieve statistical significance in the primary and some secondary efficacy endpoints for its Phase 2 clinical trial.
16
Risk factors
We are particularly dependent on the success of our product candidate, CTP-354, and our ability to develop, obtain marketing approval for and successfully commercialize CTP-354. CTP-354 is currently subject to a partial clinical hold that prevents us from administering doses in excess of 60 mg per day in single dose clinical trials and 6 mg per day in multiple dose clinical trials without an additional preclinical study. If we are unable to develop, obtain marketing approval for or successfully commercialize CTP-354, either alone or through a collaboration, or experience significant delays in doing so, our business could be materially harmed.
We currently have no products approved for sale and are investing a significant portion of our efforts and financial resources in the development of CTP-354 for the treatment of spasticity. Our prospects are substantially dependent on our ability, or that of any future partner, to develop, obtain marketing approval for and successfully commercialize CTP-354.
In November 2013, we received notice from the FDA of a partial clinical hold on CTP-354 that prevents us from administering single doses in excess of 60 mg per day and multiple doses in excess of 6 mg per day and the FDA subsequently informed us that we may not administer multiple doses of CTP-354 in excess of 6 mg per day in clinical trials without first conducting an additional higher dose preclinical study. We do not intend to conduct single dose clinical trials of CTP-354 with doses in excess of 60 mg. While we believe that multiple doses of 6 mg per day would be sufficient for the treatment of spasticity, we intend to conduct the additional preclinical toxicology study to enable us to evaluate higher doses of CTP-354, if needed in our spasticity trials, as well as to support clinical development in other disease indications. If we are required to perform additional preclinical studies to support the lifting of the partial clinical hold, it will increase our expected development costs and could delay the clinical development of CTP-354. If we are delayed in addressing, or unable to address, the FDAs concerns, we could be delayed, or prevented, from studying higher doses of CTP-354, which higher doses may be necessary to show efficacy. If these higher doses are necessary to show efficacy, we could be delayed or prevented from obtaining marketing approval of CTP-354.
The success of CTP-354 will depend on several factors, including the following:
Ø |
successful completion of clinical trials, which could require lifting of the partial clinical hold on CTP-354 or agreement by the FDA that the dosing protocols necessary to support successful completion of clinical trials are not subject to the partial clinical hold; |
Ø |
receipt of marketing approvals from applicable regulatory authorities; |
Ø |
our ability to develop a solid dose formulation of CTP-354; |
Ø |
the performance of our future collaborators for CTP-354, if any; |
Ø |
the extent of any required post-marketing approval commitments to applicable regulatory authorities; |
Ø |
establishment of supply arrangements with third party raw materials suppliers and manufacturers; |
Ø |
establishment of arrangements with third party manufacturers to obtain finished drug products that are appropriately packaged for sale; |
Ø |
obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the United States and internationally; |
Ø |
protection of our rights in our intellectual property portfolio; |
Ø |
launch of commercial sales if and when approved; |
17
Risk factors
Ø |
a continued acceptable safety profile of CTP-354 following any marketing approval; |
Ø |
commercial acceptance, if and when approved, by patients, the medical community and third party payors; and |
Ø |
competition with other therapies, including baclofen, tizanidine, benzodiazepines and injected botulinum toxin. |
If we are unable to develop, receive marketing approval for, or successfully commercialize CTP-354, or experience delays as a result of any of these factors or otherwise, our business could be materially harmed.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome.
Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. The clinical development of our product candidates is susceptible to the risk of failure inherent at any stage of drug development, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of severe or medically or commercially unacceptable 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. It is possible that even if one or more of our product candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any. Similarly, in our clinical trials we may fail to detect toxicity of or intolerability caused by our product candidates, or mistakenly believe that our product candidates are toxic or not well tolerated when that is not in fact the case.
While we believe that our DCE Platform may enable drug discovery and clinical development that is more efficient and less expensive than conventional small molecule drug research and development, we may not be able to realize the advantages that we expect. In addition, while a key element of our drug discovery and development strategy involves utilizing existing information regarding non-deuterated compounds to assist the discovery and development of deuterated analogs of those compounds, not all of the product candidates that we develop are based on drugs or drug candidates that progressed into advanced clinical development. Particularly in these situations, existing information regarding the corresponding non-deuterated compound may not be sufficient to mitigate drug development risks. For example, we have pursued clinical development of CTP-499 for the potential treatment of type 2 diabetic kidney disease in patients with macroalbuminuria. CTP-499 is a deuterated analog of a metabolite of a drug that was not approved for this indication. CTP-499 failed to achieve statistical significance in the primary efficacy endpoint for a Phase 2 clinical trial that we are currently completing. CTP-354 is subject to development risks normally inherent in clinical development because no corresponding non-deuterated compound has been clinically evaluated. While Merck & Co. reported that the non-deuterated analog of CTP-354 activated the a 2, a 3 and a 5 GABA A receptors, which are associated with anti-spasticity, muscle relaxation, anti-anxiety, anti-seizure and, potentially, anti-pain activities, with approximately 40% of the in vitro activity of a benzodiazepine, we do not know if the pharmacological profile of CTP-354 will be clinically effective for treating spasticity at doses of CTP-354 that are well tolerated.
In addition to the risk of failure inherent in drug development, certain of the deuterated compounds that we, and our collaborators, are developing and may develop in the future may be particularly susceptible to failure to the extent they are based on compounds that others have previously studied or tested, but did not progress in development due to safety, tolerability or efficacy concerns or otherwise. Deuteration of these compounds may not be sufficient to overcome the problems experienced with the corresponding non-deuterated compound.
18
Risk factors
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, such as the results of our preliminary analyses of data from our Phase 2 clinical trial of CTP-499 that are presented in this prospectus, do not necessarily predict final results. For example, although Phase 1 clinical trials of CTP-499 supported advancement into Phase 2 clinical trials, CTP-499 failed to achieve statistical significance in the primary efficacy endpoint for the Phase 2 clinical trial we are currently completing. In addition, we believe that the incidence of large declines in eGFR in drug-treated versus placebo-treated patients could become the primary efficacy endpoint required by the FDA for Phase 3 clinical development of a drug candidate for the treatment of type 2 diabetic kidney disease. While this was a secondary endpoint of our ongoing Phase 2 clinical trial, preliminary analyses of our current data from the trial indicate that we have not achieved a statistically significant result in this endpoint. Even if our Phase 2 clinical trial of CTP-499 ultimately demonstrates positive results with respect to this metric as a secondary endpoint, any such results may not be indicative of the results that we may achieve in Phase 3 clinical trials. Furthermore, the FDA has not yet approved incidence of large declines in eGFR as an acceptable endpoint for a Phase 3 clinical trial for the treatment of type 2 diabetic kidney disease. If the endpoints approved by the FDA for Phase 3 clinical trials in this indication differ from the endpoints of the clinical trials we have conducted of CTP-499, we may need to conduct additional clinical trials of CTP-499 to support entry into Phase 3 clinical evaluation.
Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we cannot be certain that we will not face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. 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, or our collaborators, believe that the results of clinical trials for our product candidates 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 or efficacy results between different clinical 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, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. For example, while we have conducted Phase 1 clinical trials to evaluate the safety and tolerability of single doses of CTP-354, we have not yet evaluated the safety or efficacy of CTP-354 administered in multiple doses or in the intended patient population, each of which will be required for FDA approval, and the FDA has placed a partial clinical hold on CTP-354 that prevents us from administering doses in excess of 60 mg per day in single dose clinical trials and 6 mg per day in multiple dose clinical trials. Any Phase 2, Phase 3 or other clinical trials that we, or our collaborators, may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidates.
If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to the FDA and other regulators, we, or our collaborators, may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these product candidates.
We, and our collaborators, are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Comparable foreign regulatory authorities, such as the European Medicines Agency, or EMA, impose similar restrictions. We,
19
Risk factors
and our collaborators, may never receive such approvals. We, and our collaborators, must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our product candidates in humans before we, or they, will be able to obtain these approvals. For example, as described above, the FDA has placed a partial clinical hold on CTP-354 that prevents us from administering doses in excess of 60 mg per day in single dose clinical trials and 6 mg per day in multiple dose clinical trials. If we are delayed in addressing, or unable to address, the FDAs concerns, we could be delayed, or prevented, from studying higher doses of CTP-354, which higher doses may be necessary to show efficacy. If these higher doses are necessary to show efficacy, we could be delayed or prevented from obtaining marketing approval of CTP-354.
Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We, and our collaborators, 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.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us, or our collaborators, and impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if (1) we, or our collaborators, are required to conduct additional clinical trials or other testing of our product candidates beyond the trials and testing that we, or they contemplate, (2) we, or our collaborators, are unable to successfully complete clinical trials of our product candidates or other testing, (3) the results of these trials or tests are unfavorable, uncertain or are only modestly favorable, or (4) there are unacceptable safety concerns associated with our product candidates, we, or our collaborators, in addition to incurring additional costs, may:
Ø |
be delayed in obtaining marketing approval for our product candidates; |
Ø |
not obtain marketing approval at all; |
Ø |
obtain approval for indications or patient populations that are not as broad as intended or desired; |
Ø |
obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings; |
Ø |
be subject to additional post-marketing testing or other requirements; or |
Ø |
be required to remove the product from the market after obtaining marketing approval. |
If we, or our collaborators, experience any of a number of possible unforeseen events in connection with clinical trials of our product candidates, potential marketing approval or commercialization of our product candidates could be delayed or prevented.
We, or our collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent marketing approval of our product candidates, including:
Ø |
clinical trials of our product candidates may produce unfavorable or inconclusive results, such as with our Phase 2 clinical trial for CTP-499; |
Ø |
we, or our collaborators, may decide, or regulators may require us or them, to conduct additional clinical trials or abandon product development programs; |
Ø |
the number of patients required for clinical trials of our product candidates may be larger than we, or our collaborators, anticipate, patient enrollment in these clinical trials may be slower than we, or our |
20
Risk factors
collaborators, anticipate or participants may drop out of these clinical trials at a higher rate than we, or our collaborators, anticipate; |
Ø |
our third party contractors or those of our collaborators, including those manufacturing our product candidates or components or ingredients thereof or conducting clinical trials on our behalf or on behalf of our collaborators, may fail to comply with regulatory requirements or meet their contractual obligations to us or our collaborators in a timely manner or at all; |
Ø |
regulators or institutional review boards may not authorize us, our collaborators or our or their investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; |
Ø |
we, or our collaborators, may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites; |
Ø |
patients that enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial or extend the clinical trials duration; |
Ø |
we, or our collaborators, 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; |
Ø |
regulators or institutional review boards may require that we, or our collaborators, or our or their investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate or findings of undesirable effects caused by a chemically or mechanistically similar drug or drug candidate; |
Ø |
the FDA or comparable foreign regulatory authorities may disagree with our or our collaborators clinical trial design or our or their interpretation of data from preclinical studies and clinical trials; |
Ø |
the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities of third party manufacturers with which we, or our collaborators, enter into agreements for clinical and commercial supplies; |
Ø |
the supply or quality of raw materials or manufactured product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply; and |
Ø |
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient to obtain marketing approval. |
Product development costs for us, or our collaborators, will increase if we, or they, experience delays in testing or pursuing marketing approvals and we, or they, may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of our product candidates. We, and our collaborators, do not know whether any preclinical tests or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we, or our collaborators, may have the exclusive right to commercialize our product candidates or allow our competitors, or the competitors of our collaborators, to bring products to market before we, or our collaborators, do and impair our ability, or the ability of our collaborators, to successfully commercialize our product candidates and 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 marketing approval of any of our product candidates.
21
Risk factors
If we, or our collaborators, experience delays or difficulties in the enrollment of patients in clinical trials, our, or their, receipt of necessary regulatory approvals could be delayed or prevented.
We, or our collaborators, may not be able to initiate or continue clinical trials for CTP-354 or any of our other product candidates if we, or they, are unable to locate and enroll a sufficient number of eligible patients to participate in clinical trials 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:
Ø |
the size and nature of the patient population; |
Ø |
the severity of the disease under investigation; |
Ø |
the proximity of patients to clinical sites; |
Ø |
the eligibility criteria for the trial; |
Ø |
the design of the clinical trial; |
Ø |
efforts to facilitate timely enrollment; |
Ø |
competing clinical trials; and |
Ø |
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. |
Our inability, or the inability of our collaborators, to enroll a sufficient number of patients for our, or their, clinical trials could result in significant delays or may require us or them to abandon one or more clinical trials altogether. Enrollment delays in our, or their, clinical trials may result in increased development costs for our product candidates, delay or halt the development of and approval processes for our product candidates and jeopardize our, or our collaborators, ability to commence sales of and generate revenues from our product candidates, which could cause the value of our company to decline and limit our ability to obtain additional financing, if needed.
We believe we, or our collaborators, may in some instances be able to secure clearances from the FDA or comparable foreign regulatory authorities to use expedited development pathways. If unable to obtain such clearances, we, or they, may be required to conduct additional preclinical studies or clinical trials beyond those that we, or they, contemplate, which could increase the expense of obtaining, and delay the receipt of, necessary marketing approvals.
The deuterated compounds that we produce and seek to develop can have similar pharmacological properties as their corresponding non-deuterated compounds. Therefore, we believe that we, or our collaborators, may, in some instances, be able to obtain clearance from the FDA or comparable foreign regulatory authorities to follow expedited development programs for some deuterated compounds that reference and rely on findings previously obtained from prior preclinical studies or clinical trials of the corresponding non-deuterated compounds. For example, our collaborator Avanir reported in June 2013 that the FDA has agreed to an expedited development pathway for AVP-786, a product candidate Avanir is developing that includes our licensed deuterated dextromethorphan compound, permitting Avanir to reference data from its development of dextromethorphan and quinidine in its IND, and any future NDA, for AVP-786.
While we anticipate that following an expedited development pathway may be possible for some of our current and future product candidates, we cannot be certain that we, or our collaborators, will be able to
22
Risk factors
secure clearance to follow such expedited development pathways from the FDA or comparable foreign regulatory authorities. In addition, if we follow, or one of our collaborators follows, such an expedited regulatory pathway and the FDA or comparable foreign regulatory authorities are not satisfied with the results of our having done so, such as might be the case if a deuterated compound is found to have undesirable side effects or other undesirable properties that were not anticipated based on the corresponding non-deuterated compound, the FDA or foreign regulatory authorities may be unwilling to grant clearance to follow expedited development pathways for other deuterated compounds.
Consequently, we, or our collaborators, may be required to pursue full development programs with respect to any product candidates that we, or they, previously anticipated would be able to follow an expedited development pathway, including conducting a full range of preclinical and clinical studies to attempt to establish the safety and efficacy of these product candidates. A need to conduct a full range of development activities would significantly increase the costs of development and length of time required before we, or our collaborators, could seek marketing approval of such a product candidate as compared to the costs and timing that we or they anticipate. While we have been able to reference, for purposes of some of our IND-enabling studies, data generated during development of the corresponding non-deuterated compound, we have not ourselves obtained clearance from the FDA or any comparable foreign regulatory authority to reference such data in connection with more advanced stages of development.
Serious adverse events or undesirable side effects or other unexpected properties of CTP-354 or any of our other product candidates, including those that we have licensed to collaborators, may be identified during development that could delay or prevent the product candidates marketing approval.
Serious adverse events or undesirable side effects caused by, or other unexpected properties of, our product candidates could cause us, one of our collaborators, an institutional review board or regulatory authorities to interrupt, delay or halt clinical trials of one or more of our product candidates and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or comparable foreign regulatory authorities. A dose of a deuterated compound could, in comparison to an equal dose of the corresponding non-deuterated compound, result in increased exposure levels, distribution and half-life in the body and alter the levels of particular metabolites that are present in the body. These changes may cause serious adverse events or undesirable side effects that we or our collaborators did not anticipate, whether based on the characteristics of the corresponding non-deuterated compound or otherwise. If any of our other product candidates is associated with serious adverse events or undesirable side effects or have properties that are unexpected, we, or our collaborators, may need to abandon development or limit development of that product candidate 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.
For CTP-354, we are seeking to achieve GABA A receptor occupancy levels that are well above those attained by other GABA A modulators, such as benzodiazepines, and we do not know what adverse effects may be associated with such high GABA A receptor occupancy. In our clinical trials of CTP-354, moderate adverse events have been reported including dizziness, drowsiness and nausea at single doses. Additional or more serious adverse events, undesirable side effects or other unexpected properties of CTP-354 or any of our other product candidates could arise or become known either during further clinical development or, if approved, after the approved product has been marketed. If such an event occurs during development, clinical trials for our product candidates could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us or our collaborators to cease further development, require us to conduct additional clinical trials or other tests or studies or deny approval of the applicable product candidate.
23
Risk factors
Even if one of our product candidates 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 the product candidate may be smaller than we estimate.
We have never commercialized a product. Even if CTP-354 or any of our other product candidates, including those licensed to our collaborators, is approved by the appropriate regulatory authorities for marketing and sale, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third party payors and others in the medical community. For example, physicians are often reluctant to switch their patients from existing therapies even when new and potentially more effective or convenient treatments enter the market. Further, patients often acclimate to the therapy that they are currently taking and do not want to switch unless their physicians recommend switching products or they are required to switch therapies due to lack of reimbursement for existing therapies.
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 any of our product candidates is approved but does not achieve an adequate level of market acceptance, we may not generate significant revenues and we may not become profitable. The degree of market acceptance of CTP-354 or any of our other product candidates, including those licensed to our collaborators, if approved for commercial sale, will depend on a number of factors, including:
Ø |
the efficacy and safety of the product; |
Ø |
the potential advantages of the product compared to alternative treatments; |
Ø |
the prevalence and severity of any side effects; |
Ø |
the clinical indications for which the product is approved; |
Ø |
whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy; |
Ø |
limitations or warnings, including distribution or use restrictions, contained in the products approved labeling; |
Ø |
our ability, or the ability of our collaborators, to offer the product for sale at competitive prices; |
Ø |
the products convenience and ease of administration compared to alternative treatments; |
Ø |
the willingness of the target patient population to try, and of physicians to prescribe, the product; |
Ø |
the strength of sales, marketing and distribution support; |
Ø |
the approval of other new products for the same indications; |
Ø |
changes in the standard of care for the targeted indications for the product; |
Ø |
the timing of market introduction of our approved products as well as competitive products; |
Ø |
availability and amount of reimbursement from government payors, managed care plans and other third party payors; |
Ø |
adverse publicity about the product or favorable publicity about competitive products; and |
Ø |
potential product liability claims. |
The potential market opportunities for our product candidates are difficult to precisely estimate. Our estimates of the potential market opportunities are predicated on many assumptions including industry knowledge and publications, third party research reports and other surveys. While we believe that our
24
Risk factors
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, the actual markets for our product candidates could be smaller than our estimates of the potential market opportunities.
If any of our product candidates receives marketing approval and we, or others, later discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, our ability to market the drug, or that of our collaborators, could be compromised.
Clinical trials of our product candidates are conducted in carefully defined subsets of patients who have agreed to enter into clinical trials. Consequently, it is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If, following approval of a product candidate, we, or others, discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, any of the following adverse events could occur:
Ø |
regulatory authorities may withdraw their approval of the drug or seize the drug; |
Ø |
we, or our collaborators, may be required to recall the drug or change the way the drug is administered; |
Ø |
additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular drug; |
Ø |
we may be subject to fines, injunctions or the imposition of civil or criminal penalties; |
Ø |
regulatory authorities may require the addition of labeling statements, such as a black box warning or a contraindication; |
Ø |
we, or our collaborators, may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution to patients; |
Ø |
we, or our collaborators, could be sued and held liable for harm caused to patients; |
Ø |
the drug may become less competitive; and |
Ø |
our reputation may suffer. |
Any of these events could have a material and adverse effect on our operations and business and could adversely impact our stock price.
If we are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and distribution arrangements with third parties, we may not be successful in commercializing any product candidates that we develop if and when those 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 plan to use a combination of third party collaboration, licensing and distribution arrangements and a focused in-house commercialization capability to sell any products that receive marketing approval.
We generally plan to seek to retain full commercialization rights for the United States for products that we can commercialize with a specialized sales force and to retain co-promotion or similar rights for the
25
Risk factors
United States when feasible in indications requiring a larger commercial infrastructure. 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 could have prematurely or unnecessarily incurred these commercialization costs. This may be costly, and our investment could be lost if we cannot retain or reposition our sales and marketing personnel. In addition, we may not be able to hire or retain a sales force in the United States that is sufficient in size or has adequate expertise in the medical markets that we plan to target. If we are unable to establish or retain a sales force and marketing and distribution capabilities, our operating results may be adversely affected. If a potential partner has development or commercialization expertise that we believe is particularly relevant to one of our products, then we may seek to collaborate with that potential partner even if we believe we could otherwise develop and commercialize the product independently.
We plan to collaborate with third parties for commercialization in the United States of any products that require a large sales, marketing and product distribution infrastructure. We also plan to commercialize our product candidates outside the United States through collaboration, licensing and distribution arrangements with third parties. 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 may be lower, perhaps substantially 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 may have little or no 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, either on our own or in collaboration with third parties, we will not be successful in commercializing any of our product candidates that receive marketing approval.
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 expect that we, and our collaborators, will face significant competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide with respect to CTP-354 and any other of our product candidates that we, or they, may seek to develop or commercialize in the future. Specifically, 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 the key indications of our priority programs, including spasticity, neurologic disorders, cancer and inflammation. Our competitors may succeed in developing, acquiring or licensing technologies and drug products that are more effective, have fewer or more tolerable side effects or are less costly than any product candidates that we are currently developing or that we may develop, which could render our product candidates obsolete and noncompetitive.
We are initially developing CTP-354 for the treatment of spasticity in multiple sclerosis and spinal cord injury. Current first-line treatment for spasticity includes oral and local agents and physical and occupational therapy. Four oral drugs have been approved in the United States for the treatment of spasticity: baclofen (Lioresal ® ), tizanidine (Zanaflex ® ), diazepam (Valium) and dantrolene (Dantrium ® ), each of which is available on a generic basis. Spasticity is also treated through localized injections of botulinum toxin. In addition, there are several potentially competitive product candidates in Phase 3 clinical development being pursued by pharmaceutical and biotechnology companies, including GW Pharmaceuticals plc and Osmotica Pharmaceuticals Corp.
26
Risk factors
We are developing CTP-499 for the treatment of type 2 diabetic kidney disease in patients with macroalbuminuria. The current standard of care in this indication is angiotensin modulation, which is treatment with an angiotensin converting enzyme inhibitor, which we refer to as an ACEi, or an angiotensin receptor blocker, which we refer to as an ARB. Both of these types of drugs are available on a generic basis. We are developing CTP-499 for administration in combination with these drugs. These drugs are well established therapies that are widely accepted by physicians, patients and third party payors. Physicians, patients and third party payors may not accept the addition of CTP-499 to their current treatment regimens for a variety of potential reasons, including a desire not to incur the additional cost of CTP-499 or a perception that the addition of CTP-499 would be poorly tolerated or of limited benefit. If CTP-499 receives marketing approval, it may also face competition from a number of product candidates that are currently in clinical development including one potentially competitive product candidate in Phase 3 clinical development being pursued by AbbVie Inc.
Avanir has reported that it plans to develop AVP-786 for the treatment of neurologic and psychiatric disorders. There are a number of marketed drugs and product candidates in clinical development for these indications.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we, or our collaborators, may develop. Our competitors also may obtain FDA or other marketing approval for their products before we, or our collaborators, are able to obtain approval for ours, which could result in our competitors establishing a strong market position before we, or our collaborators, are able to enter the market.
Many of our existing and potential future competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining marketing 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 or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
We also face competition in the development of deuterated compounds.
Several large pharmaceutical and biotechnology companies have begun to cover deuterated analogs of their product candidates in patent applications and may choose to develop these deuterated compounds. These large pharmaceutical and biotechnology companies may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining marketing approvals and marketing approved products than we do. In addition, we know of one biotechnology company, Auspex Pharmaceuticals, Inc., and possibly two others, DeutRx LLC and Berolina innovative Research and Development Services Pharma GmbH, that are developing product candidates based on deuterium substitution. These competitors may be more successful than us in developing deuterated compounds. In addition, these competitors may enter into collaborative arrangements or business combinations that result in their ability to research and develop deuterated compounds more effectively than us. Our potential competitors also include academic institutions, government agencies and other public and private research organizations.
If our competitors in the development of deuterated compounds are able to grow their intellectual property estates and create new and successful deuterated compounds more effectively than us, our ability to identify additional compounds for preclinical and clinical development and obtain product
27
Risk factors
revenues in future periods could be compromised, which could result in significant harm to our operations and financial position.
If the FDA or comparable foreign regulatory authorities approve generic versions of any of our products that receive marketing approval, or such authorities do not grant our products appropriate periods of data exclusivity before approving generic versions of our products, the sales of our products could be adversely affected.
Once an NDA is approved, the product covered thereby becomes a reference listed drug in the FDAs publication, Approved Drug Products with Therapeutic Equivalence Evaluations. Manufacturers may seek approval of generic versions of reference listed drugs through submission of abbreviated new drug applications, or ANDAs, in the United States. In support of an ANDA, a generic manufacturer need not conduct clinical studies. Rather, the applicant generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration and conditions of use or labeling as the reference listed drug and that the generic version is bioequivalent to the reference listed drug, meaning it is absorbed in the body at the same rate and to the same extent. Generic products may be significantly less costly to bring to market than the reference listed drug and companies that produce generic products are generally able to offer them at lower prices. Thus, following the introduction of a generic drug, a significant percentage of the sales of any branded product or reference listed drug may be typically lost to the generic product.
The FDA may not approve an ANDA for a generic product until any applicable period of non-patent exclusivity for the reference listed drug has expired. The Federal Food, Drug, and Cosmetic Act, or FDCA, provides a period of five years of non-patent exclusivity for a new drug containing a new chemical entity. Specifically, in cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification that a patent covering the reference listed drug is either invalid or will not be infringed by the generic product, in which case the applicant may submit its application four years following approval of the reference listed drug. While we believe that our product candidates contain active ingredients that would be treated as new chemical entities by the FDA and, therefore, if approved, should be afforded five years of data exclusivity, the FDA may disagree with that conclusion and may approve generic products after a period that is less than five years. Manufacturers may seek to launch these generic products following the expiration of the applicable marketing exclusivity period, even if we still have patent protection for our product.
Competition that our products may face from generic versions of our products could materially and adversely impact our future revenue, profitability and cash flows and substantially limit our ability to obtain a return on the investments we have made in those product candidates.
To the extent we, or our collaborators, market products that are deuterated analogs of generic drugs that are approved or will be approved while we market our products, our products will likely compete against these generic products and the sales of our products could be adversely affected.
We anticipate that some of the products that we, or our collaborators, may develop will be deuterated analogs of approved drugs that are or will then be available on a generic basis. In addition, if we develop a product that is a deuterated analog of a non-generic approved drug, the FDA or comparable foreign regulatory authorities may also approve generic versions of the corresponding non-deuterated drug. If approved, we expect that our deuterated products will compete against these generic non-deuterated compounds in the same indications. Efforts to educate the medical community and third party payors on the benefits of any product that we develop as compared to the corresponding non-deuterated
28
Risk factors
compound, or generic versions of it, may require significant resources and may not be successful. If physicians, rightly or wrongly, do not believe that a product that we, or our collaborators, develop offers substantial advantages over the corresponding non-deuterated compound, or generic versions of the corresponding non-deuterated compound, or that the advantages offered by our product as compared to the corresponding non-deuterated compound, or its generic versions, are not sufficient to merit the increased price over the corresponding non-deuterated compound, or its generic versions, that we, or our collaborators, would seek, physicians might not prescribe that product. In addition, third party payors may refuse to provide reimbursement for a product that we, or our collaborators, develop when the corresponding non-deuterated compound, or generic versions of the corresponding non-deuterated compound, offer a cheaper alternative therapy in the same indication, or may otherwise encourage use of the corresponding non-deuterated compound, or generic versions of the corresponding non-deuterated compound, over our product, even if our product possesses favorable pharmaceutical properties.
Competition that our product candidates may face from any generic non-deuterated product on which our product candidate is based or a later-approved generic version of a branded non-deuterated product on which our product is based, could materially and adversely impact our future revenue, profitability and cash flows and substantially limit our ability to obtain a return on the investments we have made in those product candidates.
Even if we, or our collaborators, are able to commercialize any product candidate that we, or they, develop, the product may become subject to unfavorable pricing regulations, third party payor reimbursement practices or healthcare reform initiatives that could harm our business.
The commercial success of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third party payors. If reimbursement is not available, or is available only to limited levels, we, or our collaborators, may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us, or our collaborators, to establish or maintain pricing sufficient to realize a sufficient return on our or their investments.
There is significant uncertainty related to third party payor coverage and reimbursement of newly approved drugs. 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, or our collaborators, might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay 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 or the ability of our collaborators to recoup our or their investment in one or more product candidates, even if our product candidates obtain marketing approval.
Our ability, and the ability of our collaborators, to commercialize CTP-354 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 which medications they will cover and establish reimbursement
29
Risk factors
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 or that of our collaborators to sell our product candidates profitably. These payors may not view our products, if any, as cost-effective, and coverage and reimbursement may not be available to our customers, or those of our collaborators, or may not be sufficient to allow our products, if any, to be marketed on a competitive basis. Cost-control initiatives could cause us, or our collaborators, to decrease the price we, or they, might establish for products, which could result in lower than anticipated product revenues. If the prices for our products, if any, decrease or if governmental and other third party payors do not provide adequate coverage or reimbursement, our prospects for revenue and profitability will suffer.
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, and our collaborators, cannot be sure that coverage will be available for any product candidate that we, or they, 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 adequate payment rates from both government-funded and private payors for any our product candidates for which we, or our collaborators, obtain marketing approval could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
We may not be successful in our efforts to identify or discover additional potential product candidates.
A significant portion of the research that we are conducting involves the development of new deuterated compounds using our DCE Platform. The drug discovery that we are conducting using our DCE Platform may not be successful in creating compounds that have commercial value or therapeutic utility beyond the corresponding non-deuterated compound, or at all. Our research programs may initially show promise in creating potential product candidates, yet fail to yield viable product candidates for clinical development for a number of reasons, including:
Ø |
deuterated analogs of existing non-deuterated compounds or newly designed deuterated compounds may not demonstrate satisfactory efficacy or other benefits, such as convenience of dosing, increased tolerability, enhanced formation of desirable active metabolites or reduced formation of toxic metabolites; |
Ø |
potential product candidates may, on further study, be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance; or |
Ø |
pharmaceutical companies have begun to claim deuterated analogs of their compounds in patent filings, resulting in otherwise promising deuterated product candidates already being covered by patents or patent applications. |
30
Risk factors
Our research programs to identify new product candidates will require substantial technical, financial and human resources. We may be unsuccessful in our efforts to identify new potential product candidates. In addition, we may focus our efforts and resources on one or more potential product candidates that ultimately prove to be unsuccessful.
If we are unable to identify suitable additional compounds for preclinical and clinical development, our ability to develop product candidates and obtain product revenues in future periods could be compromised, which could result in significant harm to our financial position and adversely impact our stock price.
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 or our collaborators commercially sell any product that we may or they may 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:
Ø |
decreased demand for our product candidates or products that we may develop; |
Ø |
injury to our reputation and significant negative media attention; |
Ø |
withdrawal of clinical trial participants; |
Ø |
significant costs to defend resulting litigation; |
Ø |
substantial monetary awards to trial participants or patients; |
Ø |
loss of revenue; |
Ø |
reduced resources of our management to pursue our business strategy; and |
Ø |
the inability to commercialize any products that we may develop. |
Although we maintain general liability insurance of $2 million in the aggregate and clinical trial liability insurance of $5 million in the aggregate, 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 any 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.
31
Risk factors
JZP-386 is a deuterated analog of a Schedule I controlled substance and will likely be classified as a Schedule I or Schedule III controlled substance, which could substantially limit our ability to obtain the quantities of JZP-386 needed to conduct clinical trials and the ability of our collaborator to market and sell JZP-386 if it receives marketing approval. We also expect CTP-354 to be classified as a Schedule IV controlled substance, which would result in restrictions on the sale and distribution of that product if it receives marketing approval.
The placement of drugs or other substances into schedules under the Controlled Substances Act of 1970, the CSA, is based upon the substances medical use, potential for abuse and safety or dependence liability. Under the CSA, every person who manufactures, distributes, dispenses, imports or exports any controlled substance must register with the U.S. Drug Enforcement Agency, or DEA, unless exempt. Our product candidate JZP-386, which we have licensed to Jazz Pharmaceuticals, is a deuterium-substituted analog of sodium oxybate. Sodium oxybate is regulated as a chemical by the DEA as a Schedule I controlled substance. Because of the Schedule I classification of sodium oxybate, JZP-386 is regulated by the DEA as a Schedule I controlled substance. As a result, we will be required to obtain a license to ship the chemical that we are using as the precursor to JZP-386, which may delay or prevent the manufacturing of JZP-386 for clinical trials.
Specifically, the DEA limits the quantity of certain Schedule I controlled substances that may be produced in the United States in any year through a quota system. If our contract manufacturers for JZP-386, or those for Jazz Pharmaceuticals, manufacture JZP-386 in the United States, they will be required to obtain separate DEA quotas to supply us or Jazz Pharmaceuticals with JZP-386 for the conduct of clinical trials. Different, but potentially no less burdensome regulations, may apply if we or Jazz Pharmaceuticals choose to contract for the manufacture of JZP-386 outside of the United States.
The process of obtaining the quotas needed to conduct the planned clinical trials of JZP-386 may involve lengthy legal and other efforts and we or Jazz Pharmaceuticals, or suppliers or manufacturers for us or Jazz Pharmaceuticals, may not be able to obtain sufficient quotas from the DEA. If we or Jazz Pharmaceuticals, or suppliers or manufacturers for us or Jazz Pharmaceuticals, cannot obtain the quotas that are needed on a timely basis, or at all, we and Jazz Pharmaceuticals may not be able to conduct, on a timely basis or at all, the clinical trials of JZP-386 that are planned, including the Phase 1 clinical trial that we will be responsible for conducting, and our business, financial condition, results of operations and growth prospects could be adversely affected.
If JZP-386 is approved for marketing in the United States, we believe that the commercial drug containing JZP-386 will remain subject to the CSA as a Schedule III controlled substance. Those restrictions could limit the marketing and distribution of the commercial drug containing JZP-386. We also expect our product candidate, CTP-354, to be classified as a Schedule IV controlled substance under the CSA. Although the CSAs restrictions governing substances in Schedule IV are not as stringent as those for substances in Schedule III, they too could limit our ability to market and sell CTP-354, if it is approved for marketing.
In addition, failure to maintain compliance with applicable requirements under the CSA, particularly as manifested in loss or diversion of regulated substances, can result in enforcement action that could include civil penalties, refusal to renew registrations or quotas, revocation of registrations or quotas or criminal proceedings, any of which could have a material adverse effect on our business, results of operations and financial condition. Individual states also regulate controlled substances, and we and Jazz Pharmaceuticals, and contract manufacturers for us and Jazz Pharmaceuticals, will be subject to state regulation on distribution of these products.
32
Risk factors
RISKS RELATED TO OUR DEPENDENCE ON THIRD PARTIES
We depend on collaborations with third parties for the development and commercialization of some of our product candidates and expect to continue to do so in the future. Our prospects with respect to those product candidates will depend in significant part on the success of those collaborations.
We have entered into collaborations with Celgene, Avanir and Jazz Pharmaceuticals for the development and commercialization of certain of our product candidates and expect to enter into additional collaborations in the future. We have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. 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 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.
Collaborations involving our product candidates pose a number of risks, including the following:
Ø |
collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations; |
Ø |
collaborators may not perform their obligations as expected; |
Ø |
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 such as occurred in a prior collaboration we had with Glaxo Group Limited, or GSK; |
Ø |
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; |
Ø |
product candidates developed in collaboration with us, including in particular product candidates based on deuteration of a collaborators marketed drugs or advanced clinical candidates, 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; |
Ø |
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; |
Ø |
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; |
Ø |
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; |
Ø |
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and |
Ø |
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. |
33
Risk factors
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 expect to seek to establish additional collaborations, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.
Our drug development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. We may seek one or more collaborators for the development and commercialization of one or more of our product candidates. For example, conducting pivotal Phase 3 clinical trials of CTP-499 in patients with type 2 diabetic kidney disease with macroalbuminuria will likely involve significant cost and we expect that we would conduct any large Phase 3 clinical trial of CTP-499 in type 2 diabetic kidney disease in collaboration with one or more partners. A key element of our business strategy is the development of deuterated product candidates based on approved drugs, advanced clinical candidates or previously studied compounds. Our likely collaborators for these product candidates in many cases will include the pharmaceutical companies that developed the corresponding non-deuterated compounds. In addition, likely collaborators may include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies.
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 the potential differentiation of our product candidate from its corresponding non-deuterated analog, design or results of clinical trials, the likelihood of approval by the FDA or comparable foreign regulatory authorities and the regulatory pathway for any such approval, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product to patients and the potential of competing products. 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.
Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. We are also restricted under the terms of certain of our existing collaboration agreements from entering into collaborations regarding or otherwise developing specified compounds that are similar to the compounds that are subject to those agreements and collaboration agreements that we enter into in the future may contain further restrictions on our ability to enter into potential collaborations or to otherwise develop specified compounds.
We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, 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 increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue. In cases
34
Risk factors
where we seek a collaborator for a product compound that is a deuterated analog of a compound that has been previously developed, failure to enter into a collaboration with the developer of the corresponding non-deuterated compound may result in a loss of the potential to obtain clearance from the FDA to follow expedited development programs that reference and rely on findings previously obtained from the developers prior preclinical or clinical studies of the corresponding non-deuterated compound.
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 any of our product candidates. We rely on third parties, such as contract research organizations, clinical data management organizations, medical institutions and clinical investigators, to conduct these clinical trials 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 under certain circumstances. If we need to enter into alternative arrangements, it could 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 marketing approval process. We cannot be certain 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.
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, skill 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 any 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
35
Risk factors
approval of our product candidates or commercialization of any resulting products, producing additional losses and depriving us of potential product revenue.
Because there are limited sources of deuterium, we, and our collaborators, are exposed to a number of risks and uncertainties associated with our deuterium supply.
We believe that all of the deuterium that we use in manufacturing our product candidates is currently derived, directly or indirectly, from deuterium oxide. For most of our deuterium supply we rely on bulk supplies of deuterium oxide, which we currently source from two suppliers, one located in the United States and one located abroad, which is affiliated with a foreign government. We may establish a deuterium oxide supply arrangement with an additional supplier, which is located outside of the United States and is affiliated with a foreign government. It is also possible that our current U.S. supplier of deuterium oxide relies on our current foreign supplier, as well as our potential future foreign supplier, for its supply of deuterium oxide, although we are not familiar with its procurement practices.
We estimate that our current source of deuterium oxide will be sufficient to meet our anticipated requirements through at least 2015. However, we do not have long-term agreements with our current suppliers. If we are not able to establish or maintain supply arrangements with the foreign government-affiliated suppliers from which we have purchased and believe we may be able to purchase additional deuterium oxide, or the relevant foreign governments decide to withhold any authorization for the export of deuterium oxide that we seek, we may be unable to secure alternative sources. If we are unable to obtain sufficient supplies of deuterium oxide from our current suppliers or our potential future foreign supplier, we would be forced to either seek alternative suppliers of deuterium oxide, likely in other countries, or alternative sources of deuterium. Such alternative supplies may not be available to us on acceptable terms or at all.
In order to internationally transport any deuterium oxide that we purchase from either of these two foreign suppliers, we, or our U.S. supplier, may be required to obtain an export license from the country of origin and we may be required to obtain an International Import Certificate from the country of destination. We are also required to obtain an export license from the Nuclear Regulatory Commission before shipping deuterium oxide from the United States to any contract manufacturer in another country. Each of these documents specifies the maximum amount of deuterium oxide that we, or our suppliers, are permitted to either import or export. In particular, in order to obtain additional supplies of deuterium oxide from the foreign-government affiliated supplier from which we have purchased deuterium oxide, we will be required to obtain an additional export license from the country of origin and a U.S. import certificate. While we have obtained similar licenses and certificates in the past, we may not be able to obtain them in the future in a timely manner or at all. We have not obtained an export license from the country in which our potential future foreign supplier is located and may not be able to do so in a timely fashion or at all. In addition, our current U.S. export license may be insufficient to meet our future requirements and we may not be able to obtain further licenses in a timely manner or at all.
Certain of our manufacturing processes for our product candidates incorporate deuterium by using deuterated chemical intermediates or reagents that are derived from deuterium oxide. For the deuterated chemical intermediates and reagents, we are not subject to the license requirements applicable to deuterium oxide; however the manufacturer of the deuterated chemical intermediate or reagent may themselves be required to obtain deuterium oxide under applicable licensing requirements. Most of the manufacturers of these deuterated chemical intermediates and reagents are not located in countries that produce bulk quantities of deuterium oxide. Therefore, our ability to source these deuterated chemical intermediates will depend on the ability of these manufacturers to obtain deuterium oxide from other countries. In the future we may arrange for supplies of deuterated chemical intermediates or reagents from manufacturers located in countries from which they can source deuterium oxide in bulk. However,
36
Risk factors
contract manufacturers in these countries may not represent a viable alternative to our current suppliers. We do not have long-term agreements with our suppliers of deuterated chemical intermediates or reagents and we obtain some of these deuterated chemical intermediates or reagents from single sources, putting us at risk of uncontrolled cost increases or supply interruptions if we cannot establish alternative sourcing arrangements. Deuterated chemical intermediates may be expensive or difficult to obtain or may be produced by specialized techniques that are not widely practiced and we may not be able to enter into arrangements for larger scale supply of deuterated chemical intermediates on acceptable terms, or at all.
If we are unable to obtain sufficient supplies of deuterium, our ability to produce our product candidates would be impeded and our business, financial condition and prospects could be harmed. In particular, certain of our manufacturing processes, including those for CTP-499 and certain other of our product candidates, are projected to require particularly large quantities of deuterium for late-stage clinical trials and for commercialization. Consequently, any adverse impact on our ability to obtain deuterium oxide from our current suppliers, import deuterium oxide into the United States or export deuterium oxide to our contract manufacturers could have a particularly severe impact on our ability to develop or commercialize those product candidates.
Similarly, to develop and commercialize any of our licensed product candidates, our collaborators will need to obtain supplies of deuterium and will be subject to risks and requirements in connection with sourcing deuterium that are similar to the ones that we face. In addition, if any of our product candidates is approved by the FDA, then the FDA will also have regulatory jurisdiction over the manufacture and use of deuterium oxide and deuterated chemical intermediates or reagents in such products. Any adverse impact on our, or our collaborators, ability to obtain deuterium could delay or prevent the development or commercialization of our product candidates, which could have a material adverse effect on our business.
We contract with third parties for the manufacture and distribution of our product candidates for clinical trials and expect to continue to do so in connection with our future development and commercialization efforts. 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 currently have only very limited internal capabilities to manufacture our product candidates. We currently rely, and expect to continue to rely, on third party contractors to manufacture preclinical and clinical supplies of our product candidates and to package, label and ship these supplies. We expect to rely on third party contractors to manufacture, package, label and distribute commercial quantities of any product candidate that we commercialize following approval for marketing by applicable regulatory authorities. Reliance on such third party contractors entails risks, including:
Ø |
manufacturing delays if our third party contractors 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 agreements between us and them; |
Ø |
the possible termination or nonrenewal of agreements by our third party contractors at a time that is costly or inconvenient for us; |
Ø |
the possible breach by the third party contractors of our agreements with them; |
Ø |
the failure of third party contractors to comply with applicable regulatory requirements; |
Ø |
the possible mislabeling of clinical supplies, potentially resulting in the wrong dose amounts being supplied or active drug or placebo not being properly identified; |
37
Risk factors
Ø |
the possibility of clinical supplies not being delivered to clinical sites on time, leading to clinical trial interruptions, or of drug supplies not being distributed to commercial vendors in a timely manner, resulting in lost sales; and |
Ø |
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 to supply the majority of our required finished product for our preclinical studies and clinical trials. We do not have long-term agreements with any of these third parties. 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 plan to enter into agreements with third party contract manufacturers for the commercial production and distribution of those products. It may be difficult for us to reach agreement with a contract manufacturer on satisfactory terms or in a timely manner, especially if the manufacturer believes it is uniquely suited to use our deuterium chemistry manufacturing processes or that our deuterium chemistry manufacturing processes bear greater production risks than manufacture of non-deuterated compounds. In addition, we may face competition for access to manufacturing facilities as there are a limited number of contract manufacturers operating under current good manufacturing practices, or 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 efforts.
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 inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements both prior to and following the receipt of marketing approval for any of our product candidates. Some of these inspections may be unannounced. 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 our product candidates may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
38
Risk factors
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
If we are unable to obtain and maintain sufficient patent protection for our product candidates, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our 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 product candidates. If we do not adequately protect our intellectual property, competitors may be able to 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 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. Neither deuterium itself, nor the general concept of selective substitution of deuterium for hydrogen in existing compounds are patentable; therefore we usually seek patents on a compound-by-compound basis or on a relatively narrow genus of compounds. We are not guaranteed that patents will issue protecting any particular deuterated compound for which we seek patent protection.
Our ability to obtain and maintain patent protection for our product candidates may be limited if disclosures of non-deuterated compounds are held to anticipate or make obvious claims of deuterated analogs of the same or similar compounds. In addition, several large pharmaceutical and biotechnology companies have begun to pursue patent protection for deuterated analogs of their products and product candidates, and may in the future obtain patent protection that covers deuterated analogs of those product candidates. If patents directed primarily to non-deuterated compounds are deemed to protect deuterated analogs of those compounds or patent claims on deuterated analogs of compounds become common in the biotechnology and pharmaceutical industries, these factors may limit, in part or in whole, our ability to seek and obtain patent protection for new product candidates based on deuterium modification of compounds. It may also limit in part or in whole, our ability to develop new product candidates based on deuterium modification of such compounds without obtaining a license from those patent holders.
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 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.
Assuming the other requirements for patentability are met, currently, the first to file a patent application is generally entitled to the patent. However, prior to March 16, 2013, in the United States, the first to invent was 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 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. 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,
39
Risk factors
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.
Our pending and future patent applications may not result in patents being issued which protect our product candidates, in whole or in part, or which effectively prevent others from commercializing competitive 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. In addition, 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, European patent law restricts the patentability of methods of treatment of the human body more than United States law does.
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 patents by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may also seek approval to market their own products similar to or otherwise competitive with our products. Alternatively, our competitors may seek to market generic versions of any approved products by submitting ANDAs to the FDA in which they claim that patents owned or licensed by us are invalid, unenforceable or not infringed. In these circumstances, we may need to defend or assert our patents, or both, 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 or unenforceable, or that our competitors are competing in a non-infringing manner. Thus, 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, including challenges through the U.S. Patent and Trademark Office post-grant review procedures. Such challenges may result in loss of exclusivity 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.
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.
While we have obtained composition of matter patents with respect to our most advanced product candidates, our DCE Platform is not patented. In seeking to develop and maintain a competitive position through our DCE Platform and as to other aspects of our business, we rely on trade secrets, including unpatented know-how, technology and other proprietary information. 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 also enter into confidentiality and invention or patent assignment agreements with employees and certain consultants. Any party with whom we 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
40
Risk factors
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 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. 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 to counterclaims asserting that our patents are invalid or unenforceable, or both. In any 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 patent claims 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 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.
Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. 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 DCE Platform 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 for compounds and methods of use for the treatment of spasticity, kidney disease, neurologic disorders, cancer and inflammation, the key indications for our priority programs. In addition, some of the non-deuterated compounds on which our product candidates are, or future product candidates may be, based are covered by issued patents or patent applications, the holders of which may attempt to assert claims against us. To date, we are not aware of any judicial decision holding that a patent that covers a non-deuterated compound should be construed to also cover deuterated analogs thereof, absent specific claims with respect to the deuterated analogs. Any such judicial decision, or legal proceedings asserting
41
Risk factors
such claims, could increase the likelihood of potential infringement claims being asserted against us. If any third party patents or patent applications are found to cover our product candidates or their methods of use, we may not be free to manufacture or market our product candidates as planned without obtaining a license, which may not be available on commercially reasonable terms, or at all.
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 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 or unenforceable, 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. We may also assert that a patent claim for a corresponding non-deuterated compound does not cover our product. However, we are not aware of any judicial proceedings addressing the question of whether our product would be outside the scope of such a patent claim. 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.
RISKS RELATED TO REGULATORY APPROVAL AND OTHER LEGAL COMPLIANCE MATTERS
Even if we complete the necessary preclinical and clinical studies, the marketing approval process is expensive, time consuming and uncertain and may prevent us or our collaborators from obtaining approvals for the commercialization of some or all of our product candidates. As a result, we cannot predict when or if, and in which territories, we, or our collaborators, will obtain marketing approval to commercialize a product candidate.
The research, testing, manufacturing, labeling, approval, selling, marketing, promotion and distribution of drug products are subject to extensive regulation by the FDA and comparable foreign regulatory authorities, which regulations differ from country to country. We, and our collaborators, are not permitted to market our product candidates in the United States or in other countries until we, or they,
42
Risk factors
receive approval of an NDA from the FDA or marketing approval from applicable regulatory authorities outside the United States. Our product candidates are in various stages of development and are subject to the risks of failure inherent in drug development. We, and our collaborators, have not submitted an application for or received marketing approval for any of our product candidates in the United States or in any other jurisdiction. We have limited experience in conducting and managing the clinical trials necessary to obtain marketing approvals, including FDA approval of an NDA.
The process of obtaining marketing approvals, both in the United States and abroad, is lengthy, expensive and uncertain. It may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. This is the case even though the deuterated compounds that we produce and seek to develop can have similar pharmacological properties as their corresponding non-deuterated compounds. Even if, as a result of any such similarities, we, or our collaborators, obtain clearance from the FDA and other regulatory authorities to follow expedited development programs for some deuterated compounds that reference and rely on previous findings for non-deuterated compounds, the review and approval of our product candidates may still take a substantial period of time.
In addition, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additional statutes, regulations or guidance or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketing approval we, or our collaborators, ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability or that of our collaborators to generate revenue from the particular product candidate, which likely would result in significant harm to our financial position and adversely impact our stock price.
Failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad.
In order to market and sell our products in the European Union and many other jurisdictions, we, and our collaborators, must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The marketing 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, and our collaborators, may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. 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.
Even if we, or our collaborators, obtain marketing approvals for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we, or they, manufacture and market our products, which could materially impair our ability to generate revenue.
Once marketing approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation. We, and our collaborators, must therefore comply
43
Risk factors
with requirements concerning advertising and promotion for any of our product candidates for which we or they obtain marketing approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the products approved labeling. Thus, we and our collaborators will not be able to promote any products we develop for indications or uses for which they are not approved.
In addition, manufacturers of approved products and those manufacturers facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, our contract manufacturers, our collaborators and their contract manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs.
Accordingly, assuming we, or our collaborators, receive marketing approval for one or more of our product candidates, we, and our collaborators, and our and their contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control.
If we, and our collaborators, are not able to comply with post-approval regulatory requirements, we, and our collaborators, could have the marketing approvals for our products withdrawn by regulatory authorities and our, or our collaborators, ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.
Any of our product candidates for which we, or our collaborators, obtain marketing approval in the future could be subject to post-marketing restrictions or withdrawal from the market and we, or our collaborators, may be subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our products following approval.
Any of our product candidates for which we, or our collaborators, obtain marketing approval in the future, as well as the manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such product, among other things, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. 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 or to the conditions of approval, including the requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product. The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers communications regarding off-label use and if we, or our collaborators, do not market any of our product candidates for which we, or they, receive marketing approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing. Violation of the FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws.
44
Risk factors
In addition, later discovery of previously unknown adverse events or other problems with our products or their manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
Ø |
restrictions on such products, manufacturers or manufacturing processes; |
Ø |
restrictions on the labeling or marketing of a product; |
Ø |
restrictions on product distribution or use; |
Ø |
requirements to conduct post-marketing studies or clinical trials; |
Ø |
warning letters or untitled letters; |
Ø |
withdrawal of the products from the market; |
Ø |
refusal to approve pending applications or supplements to approved applications that we submit; |
Ø |
recall of products; |
Ø |
fines, restitution or disgorgement of profits or revenues; |
Ø |
suspension or withdrawal of marketing approvals; |
Ø |
refusal to permit the import or export of products; |
Ø |
product seizure; or |
Ø |
injunctions or the imposition of civil or criminal penalties. |
Recently enacted and future legislation may increase the difficulty and cost for us and our collaborators to obtain marketing approval of and commercialize our product candidates and affect the prices we, or they, may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability, or the ability of our collaborators, to profitably sell any products for which we, or they, obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or our collaborators, may receive for any approved products.
In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products and could decrease the coverage and price that we, or our collaborators, may receive for any approved products. While the MMA only addresses drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
More recently, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the PPACA.
Among the provisions of the PPACA of potential importance to our product candidates are the following:
Ø |
an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents; |
Ø |
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; |
45
Risk factors
Ø |
expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers and enhanced penalties for noncompliance; |
Ø |
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices; |
Ø |
extension of manufacturers Medicaid rebate liability; |
Ø |
expansion of eligibility criteria for Medicaid programs; |
Ø |
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program new requirements to report financial arrangements with physicians and teaching hospitals; |
Ø |
a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and |
Ø |
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. |
In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding.
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 and our collaborators to more stringent product labeling and post-marketing testing and other requirements.
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 will play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our future arrangements with third party payors and customers, if any, will subject us to broadly applicable fraud and abuse and other healthcare laws and regulations. The laws and regulations 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 include the following:
Ø |
Anti-Kickback Statute . The federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation or arranging of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid; |
Ø |
False Claims Act . The federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of a false claim or |
46
Risk factors
avoiding, decreasing or concealing an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant per-claim penalties, currently set at $5,500 to $11,000 per false claim; |
Ø |
HIPAA . The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters, and, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms and technical safeguards, with respect to maintaining the privacy, security and transmission of individually identifiable health information; |
Ø |
Transparency Requirements . Federal laws require applicable manufacturers of covered drugs to report payments and other transfers of value to physicians and teaching hospitals; |
Ø |
Controlled Substances Act . The CSA regulates the handling of controlled substances such as JZP-386 and, potentially, CTP-354; and |
Ø |
Analogous State and Foreign Laws . Analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws can apply to sales or marketing arrangements and claims involving healthcare items or services and are generally broad and are enforced by many different federal and state agencies as well as through private actions. |
Some state laws require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of 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, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
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 waste products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of our hazardous
47
Risk factors
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.
Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.
In some countries, such as the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we, or our collaborators, may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed.
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. Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on the pharmaceutical research and development and business development expertise of Roger D. Tung, our President and Chief Executive Officer, as well as the other principal members of our management, scientific and development 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. In addition, although we maintain a key-man insurance policy with respect to Dr. Tung, we do not carry key-man insurance on any of our other executive officers or employees and may not carry any key-man insurance in the future.
If we lose one or more of our executive officers, our ability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers 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 marketing 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
48
Risk factors
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 product 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 manufacturing, 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. Our future financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.
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 estimated 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 and will own approximately % of our common stock outstanding after this offering, excluding any shares of our common stock that they may have acquired prior to 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
49
Risk factors
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 is likely to be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.
Our stock price is likely to 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 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:
Ø |
the success of existing or new competitive products or technologies; |
Ø |
the timing and results of clinical trials of CTP-354 and any other product candidate; |
Ø |
commencement or termination of collaborations for our development programs; |
Ø |
failure or discontinuation of any of our development programs; |
Ø |
results of clinical trials of product candidates of our competitors; |
Ø |
regulatory or legal developments in the United States and other countries; |
Ø |
developments or disputes concerning patent applications, issued patents or other proprietary rights; |
Ø |
the recruitment or departure of key personnel; |
Ø |
the level of expenses related to any of our product candidates or clinical development programs; |
Ø |
the results of our efforts to develop additional product candidates or products; |
Ø |
actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; |
Ø |
announcement or expectation of additional financing efforts; |
Ø |
sales of our common stock by us, our insiders or other stockholders; |
Ø |
variations in our financial results or those of companies that are perceived to be similar to us; |
Ø |
changes in estimates or recommendations by securities analysts, if any, that cover our stock; |
Ø |
changes in the structure of healthcare payment systems; |
Ø |
market conditions in the pharmaceutical and biotechnology sectors; |
Ø |
general economic, industry and market conditions; and |
Ø |
the other factors described in this Risk factors section. |
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
50
Risk factors
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.
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 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 plan 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, or SOX Section 404, 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. We expect that we will need to hire additional accounting, finance and other personnel in connection with our becoming, and our efforts to comply with the requirements of being, a public company and our management and other personnel will need to devote a substantial amount of time towards maintaining compliance with these requirements. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that the rules and regulations applicable to us as a public company 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
51
Risk factors
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 SOX 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, or the SEC, 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 achieve compliance with SOX 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 SOX 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 63,382,601 shares outstanding as of December 31, 2013 after giving effect to the conversion of all outstanding shares of our preferred stock into 56,047,067 shares of our common stock upon the closing of this offering. Of these shares, the shares sold by us in this offering may be resold in the public market immediately, unless purchased by our affiliates. The remaining 63,382,601 shares are currently restricted under securities laws or as a result of lock-up or other 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 56,047,067 shares of our common stock, will have rights, subject to conditions, to require us to file registration statements covering their shares or, along with the holder of a warrant to purchase 400,000 shares of common stock, to include their shares in registration statements that we may file for ourselves or other stockholders. We also plan 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 plan to retain all of our future earnings, if any, to finance the operation, development and growth of our business. Furthermore, the terms of our debt facility with Hercules preclude us from paying dividends, and any
52
Risk factors
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. 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:
Ø |
delay, defer or prevent a change in control; |
Ø |
entrench our management or the board of directors; or |
Ø |
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 bylaws 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:
Ø |
establish a classified board of directors such that all members of the board are not elected at one time; |
Ø |
allow the authorized number of our directors to be changed only by resolution of our board of directors; |
Ø |
limit the manner in which stockholders can remove directors from the board; |
Ø |
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; |
Ø |
require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent; |
Ø |
limit who may call a special meeting of stockholder meetings; |
Ø |
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 |
Ø |
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 bylaws. |
53
Risk factors
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.
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.
54
Special note regarding forward-looking statements and industry data
This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this prospectus, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words anticipate, believe, continue, could, estimate, expect, intend, may, plan, potential, predict, project, should, target, 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:
Ø |
our plans to identify, develop and commercialize novel small molecule drugs based on our knowledge of deuterium chemistry; |
Ø |
our expectations with respect to lifting of the partial clinical hold on CTP-354 that prevents us from administering doses in excess of 60 mg per day in single dose clinical trials and 6 mg per day in multiple dose clinical trials; |
Ø |
our plans to have up to five product candidates in clinical trials in 2014, including two in Phase 2 clinical trials; |
Ø |
ongoing and planned clinical trials for our product candidates, whether conducted by us or by our collaborators, including the timing of initiation of these trials and of the anticipated results; |
Ø |
our plans to enter into collaborations for the development and commercialization of product candidates; |
Ø |
the potential benefits of any future collaboration; |
Ø |
our ability to receive research and development funding and achieve anticipated milestones under our collaborations; |
Ø |
the timing of and our ability to obtain and maintain regulatory approvals for our product candidates; |
Ø |
the rate and degree of market acceptance and clinical utility of our products; |
Ø |
our commercialization, marketing and manufacturing capabilities and strategy; |
Ø |
our intellectual property position and strategy; |
Ø |
our ability to identify additional products or product candidates with significant commercial potential; |
Ø |
our expectations related to the use of proceeds from this offering; |
Ø |
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; |
Ø |
developments relating to our competitors and our industry; and |
Ø |
the impact of government laws and regulations. |
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
55
Special note regarding forward-looking statements and industry data
not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments that we may make or enter into.
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.
This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third party research, surveys and studies are reliable, we have not independently verified such data.
56
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 estimated 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. 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 (decrease) in the assumed initial public offering price of $ per share would increase (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.
As of September 30, 2013 we had cash and cash equivalents and investments of $42.6 million. We currently estimate that we will use the net proceeds from this offering, together with our existing cash and cash equivalents and investments, as follows:
Ø |
approximately $ to fund development of CTP-354; |
Ø |
approximately $ to fund research and development to advance our pipeline of additional product candidates; and |
Ø |
the remainder for working capital and other general corporate purposes. |
The expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, the status of and results from clinical trials, as well as any collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.
Based on our planned use of the net proceeds from this offering and our existing cash and cash equivalents and investments described above, we estimate that such funds will be sufficient to enable us to conduct our ongoing CTP-354 Phase 1 imaging study, our planned CTP-354 Phase 1 multiple ascending dose clinical trial, two planned Phase 2 clinical trials of CTP-354, further development of some of our other product candidates and to fund our operating expenses, debt service and capital expenditure requirements for at least the next months. This estimate assumes we either enter into a collaboration agreement pursuant to which a partner funds further development of CTP-499 or we do not otherwise expend significant funds for further development of this product candidate. We do not expect that the net proceeds from this offering and our existing cash and cash equivalents and investments will be sufficient to enable us to fund the completion of development of any of our product candidates.
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.
57
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. We do not intend to pay any cash dividends to the holders of our common stock in the foreseeable future. Our ability to pay dividends on our common stock is prohibited by the covenants of our debt facility with Hercules and may be further restricted by the terms of any of our future indebtedness.
58
The following table sets forth our cash and cash equivalents, investments and capitalization as of September 30, 2013 on:
Ø |
an actual basis; |
Ø |
a pro forma basis giving effect to the conversion of all outstanding shares of our redeemable convertible preferred stock into 56,047,067 shares of our common stock, and the conversion of our outstanding warrant to purchase 400,000 shares of Series C redeemable convertible preferred stock to a warrant to purchase 400,000 shares of common stock, upon the closing of this offering; and |
Ø |
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 estimated 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, 2013 | ||||||||||
Actual | Pro forma |
Pro forma
as adjusted |
||||||||
(in thousands, except share and per
share data) |
||||||||||
Cash and cash equivalents |
$ | 18,612 | $ | 18,612 | ||||||
Investments, available for sale |
23,961 | 23,961 | ||||||||
|
|
|
|
|||||||
Total cash and cash equivalents and investments |
$ | 42,573 | $ | 42,573 | ||||||
|
|
|
|
|||||||
Leasehold improvement loan, net of current portion |
332 | 332 | ||||||||
Loan payable, net of current portion |
9,316 | 9,316 | ||||||||
Warrant to purchase redeemable securities |
489 | | ||||||||
Redeemable convertible preferred stock, $0.001 par value per share: |
||||||||||
Series A: 10,000,000 shares authorized, issued, and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted |
9,993 | | ||||||||
Series B: 24,250,000 shares authorized, issued, and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted |
48,487 | | ||||||||
Series C: 22,000,000 shares authorized, 15,130,400 shares issued and outstanding, actual; no shares issued or outstanding, pro forma and pro forma as adjusted |
37,806 | | ||||||||
Series D: 6,666,667 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted |
15,858 | | ||||||||
|
|
|
|
|||||||
Total redeemable convertible preferred stock |
112,144 | | ||||||||
|
|
|
|
|||||||
Stockholders (deficit) equity: |
||||||||||
Common stock, $0.001 par value per share; 83,716,667 shares authorized, 7,317,956 shares issued and outstanding, actual; 83,716,667 shares authorized, 63,365,023 shares issued and outstanding, pro forma; 100,000,000 shares authorized, shares issued and shares outstanding, pro forma as adjusted |
7 | 63 | ||||||||
Additional paid-in capital |
1,400 | 113,977 | ||||||||
Accumulated other comprehensive income |
7 | 7 | ||||||||
Accumulated deficit |
(107,722 | ) | (107,722 | ) | ||||||
|
|
|
|
|||||||
Total stockholders (deficit) equity |
(106,308 | ) | 6,325 | |||||||
|
|
|
|
|||||||
Total capitalization |
$ | 15,973 | $ | 15,973 | ||||||
|
|
|
|
59
Capitalization
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of total cash and cash equivalents and investments 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.
The table above does not include:
Ø |
400,000 shares of our common stock issuable upon the exercise of a warrant outstanding as of September 30, 2013, at an exercise price of $2.50 per share; |
Ø |
11,351,037 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2013, at a weighted average exercise price of $0.56 per share; |
Ø |
651,007 shares of our common stock available for future issuance under our equity compensation plans as of September 30, 2013; and |
Ø |
an additional shares of our common stock that become available for future issuance under the 2014 Plan in connection with this offering. |
60
If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma tangible book value per share of our common stock after this offering.
Our historical net tangible book value as of September 30, 2013 was $5.8 million, or $0.80 per share of our common stock. Historical net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by 7,317,956 shares of our common stock outstanding as of September 30, 2013.
Our pro forma net tangible book value as of September 30, 2013 was $6.3 million, or $0.10 per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the pro forma number of shares of our common stock outstanding on September 30, 2013, 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 and the reclassification of a warrant to purchase preferred stock into a warrant to purchase common stock.
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 set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, the pro forma net tangible book value as of September 30, 2013 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 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:
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the pro forma net tangible book value by $ million, the pro forma net tangible book value per share after this offering by $ per share and the dilution 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 net tangible book value 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 our outstanding warrant, you will experience further dilution.
61
Dilution
The following table summarizes, on a pro forma basis as of September 30, 2013, 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 set forth on the cover page 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 |
63,365,023 | % | $ | 113,086,899 | (1) | % | $ | 1.78 | ||||||||||||
New investors |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
100 | % | $ | 100 | % | $ | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Includes $3.9 million of the purchase price for shares of Series D redeemable convertible preferred stock that was allocated for financial reporting purposes to deferred revenue under our collaboration agreement with GSK. |
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors by $ million and increase (decrease) the percentage of total consideration paid by new investors by approximately %, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.
The number of shares purchased from us by existing stockholders is based on 7,317,956 shares of our common stock outstanding as of September 30, 2013, after giving effect to the automatic conversion of all of our outstanding shares of preferred stock into 56,047,067 shares of common stock upon the closing of this offering, and excludes:
Ø |
400,000 shares of our common stock issuable upon the exercise of a warrant outstanding as of September 30, 2013, at an exercise price of $2.50 per share; |
Ø |
11,351,037 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2013, at a weighted average exercise price of $0.56 per share; |
Ø |
651,007 shares of our common stock available for future issuance under our equity compensation plans as of September 30, 2013; and |
Ø |
an additional shares of our common stock that become available for future issuance under the 2014 Plan in connection with 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 percentage of shares held by existing stockholders will decrease to % of the total shares outstanding.
62
Selected consolidated financial data
You should read the following selected consolidated financial data together with our consolidated financial statements and accompanying notes appearing at the end of this prospectus and the Managements discussion and analysis of financial condition and results of operations section of this prospectus. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.
The selected consolidated statement of operations data for the years ended December 31, 2011 and 2012 and the selected consolidated balance sheet data as of December 31, 2011 and 2012 are derived from our audited consolidated financial statements appearing elsewhere in this prospectus. The selected consolidated statement of operations data for the nine months ended September 30, 2012 and 2013, and the selected consolidated balance sheet data as of September 30, 2013 are derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on a basis consistent with our audited consolidated 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.
Year ended December 31, | Nine months ended September 30, | |||||||||||||||
Consolidated statements of operations
data: |
2011 | 2012 | 2012 | 2013 | ||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Revenue: |
||||||||||||||||
License and research and development revenue |
$ | 13,967 | $ | 11,349 | $ | 11,126 | $ | 21,995 | ||||||||
Milestone revenue |
5,500 | 1,500 | 1,500 | 2,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
19,467 | 12,849 | 12,626 | 23,995 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses: |
||||||||||||||||
Research and development |
23,436 | 24,193 | 18,384 | 16,460 | ||||||||||||
General and administrative |
7,377 | 7,266 | 5,620 | 6,366 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
30,813 | 31,459 | 24,004 | 22,826 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
(Loss) income from operations |
(11,346 | ) | (18,610 | ) | (11,378 | ) | 1,169 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Investment income |
44 | 22 | 17 | 17 | ||||||||||||
Interest and other expense |
(18 | ) | (1,856 | ) | (1,324 | ) | (1,327 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (11,320 | ) | $ | (20,444 | ) | $ | (12,685 | ) | $ | (141 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Accretion on redeemable convertible preferred stock |
(1,069 | ) | (388 | ) | (290 | ) | (296 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss applicable to common stockholdersbasic and diluted |
$ | (12,389 | ) | $ | (20,832 | ) | $ | (12,975 | ) | $ | (437 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share applicable to common stockholdersbasic and diluted (1) |
$ | (1.71 | ) | $ | (2.86 | ) | $ | (1.78 | ) | $ | (0.06 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average number of common shares used in net loss per share applicable to common stockholdersbasic (1) |
7,251 | 7,290 | 7,290 | 7,295 | ||||||||||||
Weighted-average number of common shares used in net loss income per share applicable to common stockholdersdiluted (1) |
7,251 | 7,290 | 7,290 | 7,295 | ||||||||||||
Pro forma net loss per share applicable to common stockholders (1)(2) : |
||||||||||||||||
Basic: |
$ | (0.32 | ) | $ | (0.00 | ) | ||||||||||
|
|
|
|
|||||||||||||
Diluted: |
$ | (0.32 | ) | $ | (0.00 | ) | ||||||||||
|
|
|
|
|||||||||||||
Pro forma weighted average number of common shares outstanding (1)(2) : |
||||||||||||||||
Basic: |
63,337 | 63,342 | ||||||||||||||
Diluted: |
63,337 | 63,342 |
63
Selected consolidated financial data
As of December 31, | As of September 30, | |||||||||||
Consolidated balance sheet data: | 2011 | 2012 | 2013 | |||||||||
(in thousands) | ||||||||||||
Cash and cash equivalents |
$ | 22,949 | $ | 7,490 | $ | 18,612 | ||||||
Investments, available for sale |
19,705 | 20,067 | 23,961 | |||||||||
Total assets |
49,403 | 33,129 | 48,969 | |||||||||
Deferred revenue |
11,022 | 2,750 | 20,548 | |||||||||
Loan payable, net of discount |
7,135 | 19,731 | 16,771 | |||||||||
Redeemable convertible preferred stock |
111,460 | 111,848 | 112,144 | |||||||||
Total stockholders deficit |
$ | (86,718 | ) | $ | (106,687 | ) | $ | (106,308 | ) |
(1) | See Notes 2 and 15 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 share applicable to common stockholders and pro forma basic and diluted net loss per share applicable to common stockholders. |
(2) | Pro forma to reflect the automatic conversion of all outstanding shares of our preferred stock into 56,047,067 shares of common stock, and the conversion of our outstanding warrant to purchase 400,000 shares of preferred stock into a warrant to purchase 400,000 shares of common stock, upon the closing of this offering. |
64
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 elsewhere 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 important 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 applying our extensive knowledge of deuterium chemistry to discover and develop novel small molecule drugs. Our approach starts with approved drugs, advanced clinical candidates or previously studied compounds that we believe can be improved with deuterium substitution, a process we refer to as deuteration, to provide better pharmacokinetic or metabolic properties and thereby enhance clinical safety, tolerability or efficacy. We believe this approach may enable drug discovery and clinical development that is more efficient and less expensive than conventional small molecule drug research and development.
We are utilizing our DCE Platform to discover and develop product candidates for a variety of indications. CTP-354 and AVP-786 are advancing in clinical trials and we have multiple preclinical candidates, two of which we expect to move into clinical trials in 2014. Our priority programs include:
Ø |
CTP-354 for spasticity associated with multiple sclerosis and spinal cord injury, which is in Phase 1 clinical trials; |
Ø |
CTP-499 for type 2 diabetic kidney disease, which is in a Phase 2 clinical trial; |
Ø |
AVP-786 for neurologic and psychiatric disorders, which has completed a Phase 1 clinical trial under our collaboration with Avanir; |
Ø |
CTP-730 for inflammatory diseases, which is in preclinical development under our collaboration with Celgene; and |
Ø |
JZP-386 for narcolepsy, which is in preclinical development under our collaboration with Jazz Pharmaceuticals. |
Through September 30, 2013, we had received an aggregate of $105.4 million in upfront and milestone payments, equity investments and research and development funding from current and former collaborations.
Since our inception in 2006, we have devoted substantially all of our resources to our research and development efforts relating to our product candidates, including activities to: develop our DCE Platform and our core capabilities in deuterium chemistry, identify potential product candidates, undertake preclinical studies and clinical trials, manufacture product in compliance with cGMPs, provide general and administrative support for these operations and establish our intellectual property. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through private placements of our preferred stock, debt financing and funding from collaborations. Since inception, we have raised an aggregate of $221.7 million to fund our operations, of which $88.7 million was through upfront license fees, milestone payments, reimbursement of research and development costs and other payments under our current and former collaborations,
65
Managements discussion and analysis of financial condition and results of operations
$113.0 million in gross proceeds from the sale of convertible preferred stock, which includes an equity premium of $3.9 million, and $20.0 million was from the gross proceeds of a secured debt financing and the related issuance of a warrant to purchase preferred stock.
We have incurred net losses in each year from our inception in 2006 through 2012. Our net losses were $11.3 million for the year ended December 31, 2011, $20.4 million for the year ended December 31, 2012, $12.7 million for the nine months ended September 30, 2012 and $0.1 million for the nine months ended September 30, 2013. We do not expect to be profitable for the year ending December 31, 2013. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.
We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect our expenses will increase substantially in connection with our ongoing activities, as we:
Ø |
continue to develop and conduct clinical trials and additional preclinical studies with respect to CTP-354; |
Ø |
initiate and continue research, preclinical and clinical development efforts for our other product candidates and potential product candidates; |
Ø |
seek to identify additional product candidates; |
Ø |
seek marketing approvals for our product candidates that successfully complete clinical trials; |
Ø |
establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various products for which we may obtain marketing approval; |
Ø |
require the manufacture of larger quantities of product candidates for clinical development and potentially commercialization; |
Ø |
maintain, expand and protect our intellectual property portfolio; |
Ø |
hire additional personnel, such as clinical, quality control and scientific personnel; |
Ø |
add equipment and physical infrastructure to support our research and development; and |
Ø |
add operational, financial and management information systems and personnel, including personnel to support our product development and personnel and infrastructure necessary to help us comply with our obligations as a public company. |
We do not expect to generate revenue from product sales unless and until we, or our collaborators, successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. We have developed the internal capability to manufacture up to low kilogram quantities of deuterated active pharmaceutical ingredients for use in Phase 1 clinical trials. However, to date, almost all of our manufacturing activities have been performed by third parties. Additionally, we currently utilize third-party contract research organizations to carry out our clinical development activities and we do not yet have a sales organization. If we obtain or believe that we are likely to obtain, marketing approval for any of our product candidates for which we retain commercialization rights, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We expect to seek to fund our operations through a combination of equity offerings, debt financings and additional collaborations and licensing arrangements for at least the next several years. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed
66
Managements discussion and analysis of financial condition and results of operations
would force us to delay, limit, reduce or terminate our research and development programs and could have a material adverse effect on our financial condition and our ability to develop our products. We will need to generate significant revenues to achieve sustained profitability and we may never do so.
COLLABORATIONS
We have entered into a number of collaborations for the research, development and commercialization of deuterated compounds. To date, our collaborations have provided us with significant funding for both our specific development programs and our DCE Platform. They also have provided us with access to the considerable scientific, development, regulatory and commercial capabilities of our collaborators. In addition, in some instances, where we develop and seek to collaborate with respect to deuterated analogs of marketed drugs or of drug candidates that are more advanced in clinical trials, our collaborators may be eligible to seek an expedited development or regulatory pathway by relying on previous clinical data regarding their corresponding non-deuterated compound. For example, our collaborator Avanir reported agreeing with the FDA to an expedited development pathway for AVP-786. We believe that our collaborations have contributed to our ability to progress our product candidates and build our DCE Platform. We have established the following key collaborations:
Ø |
Celgene . In April 2013, we entered into a master development and license agreement with Celgene, which is primarily focused on the research, development and commercialization of specified deuterated compounds targeting cancer or inflammation. The collaboration is initially focused on one program, but has the potential to encompass up to four programs. For the initial program, we granted Celgene an exclusive worldwide license to develop, manufacture and commercialize deuterated analogs of a selected non-deuterated compound and several close chemical derivatives thereof. We further granted Celgene licenses with respect to two additional programs and an option with respect to a third additional program. We and Celgene have agreed on the non-deuterated compound for each of the two additional license programs. For the option program, Celgene may select the non-deuterated compound at a later time, which, unless otherwise agreed by us, will be limited to a compound for which Celgene possesses exclusive rights. With respect to the two additional license programs, we granted Celgene an upfront exclusive worldwide license to develop, manufacture and commercialize deuterated products that contain deuterated analogs of the agreed upon non-deuterated compounds. Celgene is restricted from utilizing their research, development and commercialization rights under each of the upfront licenses, unless, within seven years after the effective date of the agreement, Celgene pays us a license exercise fee. If Celgene does not elect to pay the license exercise fee during the seven year period, the license will expire. With respect to the option program, once a compound is selected, Celgene may exercise its option by paying us an option exercise fee within seven years of the effective date of the agreement, and upon Celgenes exercise of the option we will grant to Celgene an exclusive worldwide license to develop, manufacture and commercialize deuterated products that contain deuterated analogs of the selected non-deuterated compound. |
Under the Celgene agreement, we received a non-refundable upfront payment of $35.0 million in April 2013. During the nine months ended September 30, 2013, we recognized $17.0 million of revenue upon the delivery of a license for the initial program and $0.4 million of revenue related to research and development services performed on the initial program. In addition, we are eligible to earn up to $23.0 million in development milestone payments, including $8.0 million related to the completion of a Phase 1 clinical trial, up to $247.5 million in regulatory milestone payments and up to $50.0 million in sales-based milestone payments related to products within the initial program. If Celgene exercises its rights with respect to either of the two additional license programs, we will receive a license exercise fee for the applicable program of $30.0 million and will also be eligible to earn up to $23.0 million in development milestone payments and up to $247.5 million in regulatory milestone payments for that program. Additionally, with respect to one of the additional license programs we are eligible to receive
67
Managements discussion and analysis of financial condition and results of operations
up to $100.0 million in sales-based milestone payments based on net sales of products, and with respect to the other additional license program we are eligible to receive up to $50.0 million in sales-based milestone payments based on net sales of products. If Celgene exercises its option with respect to the option program in respect of a compound to be identified at a later time, we will receive an option exercise fee of $10.0 million and will be eligible to earn up to $23.0 million in development milestone payments and up to $247.5 million in regulatory milestone payments. In addition, with respect to each program, Celgene is required to pay us royalties on net sales of each licensed product at defined percentages ranging from the mid-single digits to low double digits below 20%, on worldwide net product sales of licensed products. The royalty rate is reduced on a country-by-country basis during any period within the royalty term when there is no patent claim or regulatory exclusivity covering the licensed product in the particular country.
Under the Celgene agreement, we are responsible for conducting and funding research and development activities for the initial program at our own expense pursuant to agreed upon development plans. These activities consist of the completion of single and multiple ascending dose Phase 1 clinical trials and any mutually agreed upon additional Phase 1 clinical trials. If Celgene exercises its rights with respect to any additional program and pays us the applicable exercise fee, we are responsible for conducting research and development activities at our own expense pursuant to agreed upon development plans until the completion of the first Phase 1 clinical trial, which will be defined in each development plan on a program-by-program basis. In addition, if Celgene exercises its rights with respect to the option program and pays us the applicable exercise fee, we are responsible for seeking to generate a deuterated compound for clinical development in the selected option program at our own expense.
Ø |
Avanir . In February 2012, we entered into a development and license agreement with Avanir under which we granted Avanir an exclusive worldwide license to develop, manufacture and commercialize deuterated dextromethorphan containing products. Avanir is initially focused on developing AVP-786, which is a combination of a deuterated dextromethorphan analog and an ultra-low dose of quinidine, for the treatment of neurologic and psychiatric disorders. |
Under the Avanir agreement, we received a non-refundable upfront payment of $2.0 million in February 2012 and a milestone payment of $2.0 million in April 2013. We are also eligible to receive, with respect to licensed products comprising a combination of deuterated dextromethorphan and quinidine, up to $4.0 million in development milestone payments, including $2.0 million related to initiation of dosing in a Phase 2 or Phase 3 clinical trial for AVP-786, up to $37.0 million in regulatory and commercial launch milestone payments and up to $125.0 million in sales-based milestone payments based on net product sales of licensed products. In addition, we are eligible for higher development milestones, up to an additional $43.0 million, for licensed products that do not require quinidine. Avanir is currently developing deuterated dextromethorphan only in combination with quinidine. Avanir also is required to pay us royalties at defined percentages ranging from the mid-single digits to low double digits below 20% on worldwide net product sales of licensed products. The royalty rate is reduced, on a country-by-country basis, during any period within the royalty term when there is no patent claim covering the licensed product in the particular country.
Avanir is responsible for funding 100% of our research and development costs incurred under the development plan or for activities conducted at Avanirs request, subject to limitations specified in the agreement. However, Avanir is currently conducting all research and development activities without our services.
Ø |
Jazz Pharmaceuticals . In February 2013, we entered into a development and license agreement with Jazz Pharmaceuticals to research, develop and commercialize products containing deuterated sodium oxybate, or D-SXB. We are initially focusing on one analog, designated as JZP-386. Under the terms |
68
Managements discussion and analysis of financial condition and results of operations
of the agreement, we granted Jazz Pharmaceuticals an exclusive, worldwide, royalty-bearing license under intellectual property controlled by us to develop, manufacture and commercialize D-SXB products including JZP-386. |
Under the Jazz Pharmaceuticals agreement, we received a non-refundable upfront payment of $4.0 million in February 2013. We are also eligible to receive up to $8.0 million in development milestone payments, up to $35.0 million in regulatory milestone payments and up to $70.0 million in sales milestone payments based on net product sales of licensed products. In addition, Jazz Pharmaceuticals is required to pay us royalties at defined percentages ranging from the mid-single digits to low double digits below 20%, on a country-by-country and licensed product-by-licensed product basis, on worldwide net product sales of licensed products. The royalty rate is lowered, on a country-by-country basis, under certain circumstances as specified in the agreement.
We are currently conducting certain development activities for a Phase 1 clinical trial with respect to JZP-386 pursuant to an agreed upon development plan, and we will be responsible for supplying a deuterated intermediate for making clinical trial material for a Phase 1 clinical trial and a subsequent Phase 2 clinical trial. Pursuant to the agreement, our costs for activities under the development plan, including pass-through costs and the costs of our employees time at a rate per full-time equivalent year of our employees time, which we mutually agreed to, are reimbursed by Jazz Pharmaceuticals. This reimbursement is subject to limitations in the agreement, including adherence within a particular percentage to the development budget.
Following termination of the agreement with respect to a country or countries, but not in its entirety, by Jazz Pharmaceuticals for Jazz Pharmaceuticals convenience, Jazz Pharmaceuticals may provide us written notice that it desires to continue or recommence development and commercialization of licensed products in such country or countries, in which event Jazz Pharmaceuticals license with respect to D-SXB products in such country or countries and corresponding payment obligations under the agreement will be reinstated except in specified circumstances in which we have previously notified Jazz Pharmaceuticals of our intent to develop or commercialize licensed products in such country or countries either directly or through a third party licensee.
In addition to these collaborations, in February 2012, we entered into a sponsored research agreement with Fast Forward LLC, or Fast Forward, a subsidiary of the National Multiple Sclerosis Society, to fund the preclinical advancement of CTP-354. Under the Fast Forward agreement, we received a non-refundable upfront payment of $0.2 million, as well as further non-refundable payments of $0.6 million for the achievement of the preclinical development milestones set forth in the agreement. We are obligated to make milestone payments to Fast Forward not in excess of a low-single digit multiple of the funding amount if we commercialize CTP-354 or license the development and commercialization of CTP-354 to a third party.
In May 2009, we entered into a research and development collaboration and license agreement with GSK to research, develop and commercialize multiple products containing deuterated compounds, including CTP-499 and, ultimately, CTP-298, which was developed pursuant to the agreement for the treatment of HIV. Our agreement with GSK, as subsequently amended, expired in May 2012 after GSK opted out of further development under the agreement. The rights to the product candidates developed under the agreement have reverted to us and we are free to pursue them without further obligation to GSK other than to repay GSK an amount of up to $2.75 million, if we commercialize CTP-499 or if, prior to a specified date in 2018, we re-license or transfer rights to CTP-499.
69
Managements discussion and analysis of financial condition and results of operations
FINANCIAL OPERATIONS OVERVIEW
Revenue
We have not generated any revenue from the sales of products. All of our revenue to date has been generated through collaboration, license and research arrangements with collaborators and nonprofit organizations for the development and commercialization of product candidates.
The terms of these agreements include one or more of the following types of payments: non-refundable license fees, payments for research and development activities, payments based upon the achievement of specified milestones, payment of license exercise or option fees relating to product candidates and royalties on any net product sales. To date, we have received non-refundable upfront payments, several milestone payments and certain research and development service revenues. However, we have not yet earned any license exercise or option fees, sales-based milestone payments or royalty revenue as a result of product sales.
In the future, we will seek to generate revenue from a combination of product sales, milestone payments and royalties on future product sales in connection with our current collaborations with Celgene, Avanir and Jazz Pharmaceuticals, or other collaborations we may enter into.
Research and development expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:
Ø |
employee-related expenses, including salary, benefits, travel and stock-based compensation expense; |
Ø |
expenses incurred under agreements with contract research organizations and investigative sites that conduct our clinical trials; |
Ø |
the cost of acquiring, developing and manufacturing clinical trial materials; |
Ø |
facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies; |
Ø |
platform-related lab expenses, which consist of costs related to synthesis, analysis and in vitro and in vivo characterization of deuterated compounds to support the selection and progression of potential product candidates; |
Ø |
expenses related to consultants and advisors; and |
Ø |
costs associated with preclinical activities and regulatory operations. |
Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.
The following summarizes our development programs.
Ø |
CTP-354 , a novel, potentially first-in-class, non-sedating treatment for spasticity that we are initially developing for use in patients with multiple sclerosis and patients with spinal cord injury to address a significant unmet medical need in these markets. We recently completed a 71-subject Phase 1 single ascending dose clinical trial of CTP-354 and are currently conducting a Phase 1 imaging study. We currently plan to initiate a multiple ascending dose Phase 1 clinical trial evaluating daily doses of 2 mg and 6 mg of CTP-354 in healthy volunteers during the first quarter of 2014. Assuming successful completion of the multiple ascending dose Phase 1 clinical trial, we plan to initiate a Phase 2 clinical program for CTP-354 in the second half of 2014. We expect that the Phase 2 clinical program will include one clinical trial for the treatment of spasticity associated with multiple sclerosis and one clinical trial for the treatment of spasticity associated with spinal cord injury. Due to the fact that we did not determine a maximum tolerated dose in our preclinical testing, the FDA has informed us that we may not administer multiple doses of CTP-354 in excess of 6 mg per day in clinical trials without |
70
Managements discussion and analysis of financial condition and results of operations
first conducting an additional higher dose preclinical toxicology study. We believe that multiple doses of 6 mg per day would be sufficient for the treatment of spasticity; however we intend to conduct the additional preclinical toxicology study to enable us to evaluate higher doses of CTP-354, if needed in our spasticity trials, as well as to support clinical development in other disease indications. |
Ø |
CTP-499 , a novel, potentially first-in-class, treatment for type 2 diabetic kidney disease that we are developing as an additive treatment to the current standard of care. We are currently conducting a three-part Phase 2 clinical trial of CTP-499 in which we have enrolled patients with type 2 diabetic kidney disease and macroalbuminuria. In 2013, we completed the first part of this trial, a 24-week, double-blind, parallel, two-arm, placebo-controlled study in 182 patients. We have also completed dosing in the second part of the trial, a blinded 24-week extension study, which, combined with the data from the first part of the trial, has provided 48 weeks of placebo-controlled data in 123 patients. We did not achieve statistical significance in the primary efficacy endpoint of this trial, which was measured at 24 weeks. However, we believe that the data we have analyzed to date from the first 48 weeks of treatment support the potential of CTP-499 to help protect kidney function in patients with rapidly progressing type 2 diabetic kidney disease. We have conducted preliminary analyses of these 48 weeks of data, but have not yet completed a full analysis. We expect to report the final top line results for the first 48 weeks of the trial in the first half of 2014. |
Ø |
AVP-786 , a combination of a deuterium-substituted dextromethorphan analog and an ultra-low dose of quinidine. We have granted Avanir an exclusive license to develop and commercialize deuterated dextromethorphan analogs, including the analog in AVP-786. Avanir is developing AVP-786 for the treatment of neurologic and psychiatric disorders. In February 2013, Avanir reported positive results from a Phase 1 clinical trial of AVP-786. In October 2013, Avanir reported plans to advance AVP-786 into a Phase 2 clinical trial in the second half of 2014 for treatment-resistant major depressive disorder in patients with insufficient response to conventional anti-depressants. |
Ø |
A collaboration with Celgene to research, develop and commercialize certain deuterated compounds for the treatment of cancer or inflammation, with an initial focus on a single program. In the initial program, we have selected CTP-730, a product candidate for the treatment of inflammatory diseases, and expect to begin clinical trials in 2014. |
Ø |
A collaboration with Jazz Pharmaceuticals to research, develop and commercialize JZP-386, a product candidate containing a deuterated analog of sodium oxybate for potential use in patients with narcolepsy. Sodium oxybate is the active ingredient in the marketed drug Xyrem. In December 2013, an IMPD, the basis for initiating clinical trials in the European Union, was filed for JZP-386. Jazz Pharmaceuticals has reported that, subject to approval of the IMPD, it expects a first-in-human clinical trial of JZP-386 to commence in 2014. |
Ø |
C-10068 , a novel oral deuterium-substituted analog of dextroethorphan, a compound with preclinical pharmacological activities qualitatively similar to those of dextromethorphan, that we are investigating for the potential treatment of pain and seizures. We are conducting further preclinical evaluation of C-10068. |
We are also conducting a number of other preclinical programs, including deuterated ivacaftor for the potential treatment of cystic fibrosis and chronic obstructive pulmonary disease.
We plan to continue to seek to identify compounds that can be improved through selective deuterium substitution and believe we are capable of identifying one to two novel deuterated compounds per year that we can advance into preclinical development while concurrently progressing our existing pipeline.
A significant portion of our research and development costs have been external costs, which we track on a program-by-program basis. These external costs include fees paid to investigators, consultants, central laboratories and contract research organizations in connection with our clinical trials, and costs related to acquiring and manufacturing clinical trial materials. Our internal research and development costs are primarily personnel-related costs, depreciation and other indirect costs. We do not track our internal
71
Managements discussion and analysis of financial condition and results of operations
research and development expenses on a program-by-program basis as they are deployed across multiple projects under development.
The successful development of any of our product candidates is highly uncertain. As such, at this time, we cannot reasonably predict with certainty the duration and completion costs of the current or future clinical trials of any of our product candidates or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain marketing approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:
Ø |
the scope and rate of progress of our ongoing as well as any additional clinical trials and other research and development activities; |
Ø |
results from ongoing as well as any additional clinical trials and research and development activities; |
Ø |
significant and changing government regulation; |
Ø |
the terms and timing and receipt of any regulatory approvals; |
Ø |
the performance of our collaborators; |
Ø |
our ability to manufacture, market, commercialize and achieve market acceptance for any of our product candidates that we are developing or may develop in the future; and |
Ø |
the expense and success of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights. |
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other research and development activities beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, including as a result of the partial clinical hold on CTP-354 that prevents us from administering doses in excess of 6 mg per day in multiple dose clinical trials, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.
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. We expect research and development costs to increase significantly for the foreseeable future as our product candidate development programs progress. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation and travel expenses for our employees in executive, operational, finance, legal, business development and human resource functions. Other general and administrative expenses include facility-related costs, depreciation and other expenses not allocated to research and development expense and professional fees for directors, accounting and legal services and expenses associated with obtaining and maintaining patents.
72
Managements discussion and analysis of financial condition and results of operations
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development of our product candidates. We also anticipate increased expenses associated with being a public company, including costs for audit, legal, regulatory and tax-related services, director and officer insurance premiums, and investor relations costs. Additionally, if and when we believe a regulatory approval of the first product candidate that we intend to commercialize on our own appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.
Investment income
Investment income consists of interest income earned on cash equivalents and short-term and long-term investments.
Interest and other expense
Interest and other expense consists primarily of interest expense on amounts outstanding under our debt facility with Hercules, amortization of debt discount and the re-measurement gain or loss associated with the change in the fair value of the preferred stock warrant liability.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES
Our managements discussion and analysis of our financial condition and results of operations are based on our consolidated 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 judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates.
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 used in the preparation of our financial statements require the most significant judgments and estimates.
Revenue recognition
We have primarily generated revenue through arrangements with collaborators for the development and commercialization of product candidates.
Collaboration revenue
The terms of our collaboration and license agreements have typically contained multiple elements, or deliverables, which have included licenses, or options to obtain licenses, to product candidates, referred to as exclusive licenses, as well as research and development activities to be performed by us on behalf of the collaborator related to the licensed product candidates. Payments that we may receive under these agreements include non-refundable upfront license fees, payment for research and development activities, payments based upon achievement of specified milestones, payment upon exercise of license rights or options to license product candidates and royalties on any resulting product sales.
Multiple-Element Arrangements . Our collaborations primarily represent multiple-element arrangements. We analyze multiple-element arrangements based on the guidance in Financial Accounting Standards
73
Managements discussion and analysis of financial condition and results of operations
Board, or FASB, Accounting Standards Codification, or ASC, Topic 605-25, Revenue Recognition-Multiple-Element Arrangements , or ASC 605-25. Pursuant to the guidance in ASC 605-25, we evaluate multiple-element arrangements to determine the deliverables included in the arrangement and whether the individual deliverables represent separate units of accounting or whether they must be accounted for as a combined unit of accounting. This evaluation involves subjective determinations and requires us to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (1) the delivered item(s) has value to the customer on a standalone basis and (2) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. In assessing whether a delivered item(s) has standalone value, we consider whether the collaboration partner can use the delivered item(s) for its intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s) and whether there are other vendors that can provide the undelivered element(s). In making these assessments, we consider factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. The terms of our collaboration and licensing arrangements do not contain general rights of return that would preclude recognition of revenue.
Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method. We determine the selling price of a unit of accounting following the hierarchy of evidence prescribed by ASC 605-25. Accordingly, we determine the estimated selling price for units of accounting within each arrangement using vendor-specific objective evidence of selling price, if available, third-party evidence of selling price if vendor-specific objective evidence is not available, or best estimate of selling price if neither vendor-specific objective evidence nor third-party evidence is available. We typically use best estimate of selling price to estimate the selling price for exclusive licenses and research and development services, since we generally do not have vendor-specific objective evidence or third-party evidence of selling price for these items. Determining the best estimate of selling price for a unit of accounting requires significant judgment. In developing the best estimate of selling price for a unit of accounting, we consider applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. We validate the best estimate of selling price for units of accounting by evaluating whether changes in the key assumptions used to determine the best estimate of selling price will have a significant effect on the allocation of arrangement consideration between multiple units of accounting.
Our multiple-element revenue arrangements may include the following:
Ø |
Option Arrangements . An option to obtain an exclusive license is considered substantive if, at the inception of the arrangement, we are at risk as to whether the collaboration partner will choose to exercise the option. Factors that we consider in evaluating whether an option is substantive include the overall objective of the arrangement, the benefit the collaborator might obtain from the arrangement without exercising the option, the cost to exercise the option and the likelihood that the option will be exercised. For arrangements under which an option is considered substantive, we do not consider the item underlying the option to be a deliverable at the inception of the arrangement and the associated option fees are not included in allocable arrangement consideration, assuming the option is not priced at a significant and incremental discount. Conversely, for arrangements under which an option is not considered substantive, we would consider the item underlying the option to be a deliverable at the inception of the arrangement and a corresponding amount would be included in the allocable arrangement consideration. A significant and incremental discount included in an otherwise substantive option is considered to be a separate deliverable at the inception of the arrangement. |
Ø |
Exclusive Licenses . We recognize arrangement consideration allocated to each unit of accounting when all of the revenue recognition criteria included in ASC Topic 605 Revenue Recognition are satisfied for |
74
Managements discussion and analysis of financial condition and results of operations
that particular unit of accounting. We will recognize as revenue arrangement consideration attributed to exclusive licenses that have standalone value from the other deliverables to be provided in an arrangement upon delivery. We will recognize as revenue arrangement consideration attributed to exclusive licenses that do not have standalone value from the other deliverables to be provided in an arrangement over our estimated performance period as the arrangement would be accounted for as a single, combined unit of accounting. |
Ø |
Research and Development Services . We recognize revenue associated with research and development services ratably over the associated period of performance. If there is no discernible pattern of performance and/or objectively measurable performance measures do not exist, then we recognize revenue on a straight-line basis over the period we are expected to complete our performance obligations. Conversely, if the pattern of performance in which the service is provided to the customer can be determined and objectively measurable performance measures exist, then we recognize revenue under the arrangement using the proportional performance method. Revenue recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned as of the period ending date. |
Milestone Revenue . At the inception of an arrangement that includes milestone payments, we evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether:
Ø |
the consideration is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from our performance to achieve the milestone; |
Ø |
the consideration relates solely to past performance; and |
Ø |
the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. |
We evaluate factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the respective milestone and the level of effort and investment required to achieve the respective milestone in making this assessment. There is considerable judgment involved in determining whether a milestone satisfies all of the criteria required to conclude that a milestone is substantive. We have concluded that all of the development and regulatory milestones included in our current collaboration arrangements are substantive. Accordingly, in accordance with FASB ASC Topic 605-28, Revenue Recognition-Milestone Method , revenue from development and regulatory milestone payments will be recognized in their entirety upon successful accomplishment of the milestone, assuming all other revenue recognition criteria are met. Milestones that are not considered substantive would be recognized as revenue over the remaining period of performance, assuming all other revenue recognition criteria are met. Revenue from sales-based milestone payments will be accounted for as royalties and recognized as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met.
Royalty Revenue . We will recognize royalty revenue in the period of sale of the related product(s), based on the underlying contract terms, provided that the reported sales are reliably measurable and we have no remaining performance obligations, assuming all other revenue recognition criteria are met.
Accrued research and development expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf 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
75
Managements discussion and analysis of financial condition and results of operations
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:
Ø |
contract research organizations in connection with clinical trials; |
Ø |
investigative sites in connection with clinical trials; |
Ø |
vendors in connection with preclinical development activities; and |
Ø |
vendors related to product manufacturing, development and distribution of clinical supplies. |
We generally accrue expenses related to research and development activities based on the services received and efforts expended pursuant to contracts with multiple contract research organizations that conduct and manage clinical trials on our behalf as well as other vendors that provide research and development services. 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 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. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
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 differ 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 has been no material differences from our estimates to the amount actually incurred.
Stock-based awards
We issue stock-based awards to employees and non-employees, generally in the form of stock options. We account for our stock-based awards in accordance with FASB ASC Topic 718, CompensationStock Compensation , or ASC 718. ASC 718 requires all stock-based payments to employees, including grants of employee stock options and modifications to existing stock options, to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values. We account for stock-based awards to non-employees in accordance with FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees , which requires the fair value of the award to be remeasured at each reporting period as the award vests. We recognize the compensation cost of stock-based awards to employees on a straight-line basis over the vesting period of the award and use an accelerated attribution model for awards to non-employees. Described below is the methodology we have utilized in measuring stock-based compensation expense. Following the consummation of this offering, stock option values will be determined based on the quoted market price of our common stock. Our assumptions may differ from those used in prior periods, and changes in the assumptions may have a significant impact on the fair value of future equity awards, which could have a material impact on our consolidated financial statements.
We estimate the fair value of our stock options granted to employees and non-employees using the Black-Scholes option pricing model, which requires the input of highly subjective assumptions, including:
Ø |
the expected volatility of our stock; |
Ø |
the expected term of the award; |
76
Managements discussion and analysis of financial condition and results of operations
Ø |
the risk-free interest rate; |
Ø |
expected dividends; and |
Ø |
the fair value of our common stock on the date of grant. |
Due to the lack of a public market for the trading of our common stock and a lack of company specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. For these analyses, we have selected companies with comparable characteristics to ours including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of our stock-based awards. We compute the historical volatility data using the daily closing prices for the selected companies shares during the equivalent period of the calculated expected term of our stock-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available. We have estimated the expected life of our employee stock options using the simplified method, whereby, the expected life equals the average of the vesting term and the original contractual term of the option. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during the period the options were granted. We assumed an expected dividend yield of 0% based on consideration of our historical dividend experience and future dividend expectations. We have not historically declared or paid dividends to stockholders.
We are also required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. We use historical data to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from our estimates, the difference is recognized as a cumulative adjustment in the period the estimates are revised.
We have computed the fair value of employee stock options at the date of grant using the following weighted-average assumptions:
Year ended
December 31, |
Nine months
ended September 30, |
|||||||||||||||
2011 | 2012 | 2012 | 2013 | |||||||||||||
Expected volatility |
78.1 | % | 72.8 | % | 72.8 | % | 70.3 | % | ||||||||
Expected term (in years) |
6.0 | 6.0 | 6.0 | 6.0 | ||||||||||||
Risk-free interest rate |
1.09 | % | 0.95 | % | 0.95 | % | 1.69 | % | ||||||||
Expected dividend yield |
| % | | % | | % | | % |
The following table presents the grant dates, numbers of underlying shares of common stock and the per share exercise prices of stock options granted between January 1, 2012 and the date of this prospectus, along with the fair value per share utilized to calculate stock-based compensation expense:
Date of grant |
Number
of
stock underlying options granted |
Option exercise price |
Estimated
common stock fair value per share on grant date |
|||||||||
1/26/2012 |
5,000 | $ | 0.62 | $ | 0.62 | |||||||
3/22/2012 |
28,000 | 0.62 | 0.62 | |||||||||
11/12/2012 |
184,500 | 0.51 | 1.55 | (1) | ||||||||
5/3/2013 |
88,000 | 0.66 | 2.30 | (1) | ||||||||
5/28/2013 |
370,000 | 0.66 | 2.99 | (1) |
(1) | The common stock fair value per share on grant date was adjusted in connection with a retrospective fair value assessment for financial reporting purposes, as described below. |
77
Managements discussion and analysis of financial condition and results of operations
We have not granted any other equity incentive awards between January 1, 2012 and the date of this prospectus and do not expect to make any significant equity incentive award grants prior to the closing of our initial public offering.
Determination of fair value of common stock on grant dates
We have historically granted stock options at exercise prices not less than the estimated fair value of our common stock. As there has been no public market for our common stock to date, we have periodically determined for financial reporting purposes the estimated fair value per share of our common stock using valuations performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation , or the Practice Aid. We performed valuations of our common stock as of June 30, 2011, December 31, 2012, April 30, 2013 and June 30, 2013 based on a number of objective and subjective factors, including:
Ø |
the prices of our preferred stock sold to outside investors in arms length transactions, and the rights, preferences and privileges of our preferred stock as compared to those of our common stock, including the liquidation preferences of our preferred stock; |
Ø |
our results of operations, financial position and the status of research and development efforts; |
Ø |
the composition of, and changes to, our management team and board of directors; |
Ø |
the lack of liquidity of our common stock as a private company; |
Ø |
our stage of development and business strategy and the material risks related to our business and industry; |
Ø |
the achievement of enterprise milestones, including entering into collaboration and license agreements; |
Ø |
the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies; |
Ø |
any external market conditions affecting the life sciences and biotechnology industry sectors; |
Ø |
the likelihood of achieving a liquidity event for the holders of our common stock and stock options, such as an initial public offering or a sale of our company, given prevailing market conditions; and |
Ø |
the state of the initial public offering market for similarly situated privately held biotechnology companies. |
The dates of our valuations have not always coincided with the dates of our stock-based compensation grants. In determining the exercise prices of the options set forth in the table above, our board of directors considered, among other things, the most recent contemporaneous valuations of our common stock and our assessment of additional objective and subjective factors we believed were relevant as of the grant date. The additional factors considered when determining any changes in fair value between the most recent contemporaneous valuation and the grant dates included, when available, the prices paid in recent transactions involving our equity securities, as well as our stage of development, our operating and financial performance and current business conditions.
There are significant judgments and estimates inherent in the determination of fair value of our common stock. These judgments and estimates include assumptions regarding our future operating performance, the time to completing an initial public offering or other liquidity event and the determinations of the appropriate valuation methods. If we had made different assumptions, our stock-based compensation expense, net (loss) income and net (loss) income per common share could have been significantly different.
78
Managements discussion and analysis of financial condition and results of operations
Common stock valuation methodologies . Our valuations were prepared in accordance with the guidelines in the Practice Aid, which prescribes several valuation approaches for setting the value of an enterprise, such as the cost, market and income approaches, and various methodologies for allocating the value of an enterprise to its common stock. We generally used the market approach, in particular the guideline company and precedent transaction methodologies, based on inputs from comparable public companies equity valuations and comparable acquisition transactions, to estimate the enterprise value of our company.
Methods used to allocate our enterprise value to classes of securities . In accordance with the Practice Aid, we considered the various methods for allocating the enterprise value across our classes and series of capital stock to determine the fair value of our common stock at each valuation date. The methods we considered consisted of the following:
Ø |
Option Pricing Method. Under the option pricing method, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the preferred and common stock are inferred by analyzing these options. |
Ø |
Probability-Weighted Expected Return Method, or PWERM. The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. |
Ø |
Hybrid Method. The hybrid method is a PWERM where the value in one of the scenarios in the PWERM is calculated using an option pricing method. |
For each of the valuations described below, we used the PWERM or the hybrid method to determine the estimated fair value of our common stock. We modeled future outcomes for an initial public offering, sale and sale below the preferred stock liquidation preference.
June 30, 2011 valuation
For the June 30, 2011 valuation, we utilized the PWERM to determine the estimated fair value of our common stock using the following probability-weighted scenarios:
Liquidity scenario weighting | ||||
Initial Public Offering- High Case |
10 | % | ||
Initial Public Offering- Base Case |
15 | % | ||
Sale- High Case |
10 | % | ||
Sale- Base Case |
25 | % | ||
Sale Below the Liquidation Preference |
40 | % |
For each future exit scenario, we considered the rights and preferences of each class of our capital stock in order to determine the appropriate allocation of our future exit value to the shares of our common stock. We considered the possibility of a potential high case initial public offering in 2015 assuming GSK elected to exercise its option to license our CTP-298 program targeting the treatment of HIV and we received positive data from two then-anticipated Phase 2 clinical trials for CTP-499. We also considered the possibility of a potential base case initial public offering in 2014 assuming that we received positive data for CTP-499 from the first of these Phase 2 clinical trials and GSK elected to exercise its option to license CTP-298. We contemplated different projected pre-money enterprise values in each of the initial public offering scenarios based on the estimated timing of the initial public offering and estimated status of the our pipeline at such a time. We estimated the initial public offering exit values based on comparable transactions of guideline companies, specifically recent biotechology initial public offerings for companies at a similar stage of development. In the sale scenarios, we contemplated similar timing to the initial public offering scenarios and we estimated our sale values based on comparable sales of
79
Managements discussion and analysis of financial condition and results of operations
guideline companies at a similar stage of development. In the liquidation scenario, we contemplated circumstances in which we did not achieve significant clinical trial success. Therefore, the liquidation scenario had a liquidity event below the full liquidation preference leaving no value to the common stock.
We then discounted the common stock value under each of the future scenarios back to the present value using an assumed cost of capital for the sales and liquidation preference scenarios of 20% for the preferred stock and 35% for the common stock, and for the initial public offering scenarios of 25% for the preferred and common stock. The cost of capital utilized for the PWERM scenario is a risk-adjusted cost of capital, indicating that at the time of an exit event, the risk associated with a company is anticipated to decrease commensurate with its progress toward commercialization. For the June 30, 2011 valuation, we used a cost of capital for companies in the bridge/initial public offering stage of development, as contemplated by the Practice Aid, which we considered to be the most appropriate given our stage of development. For the sales and liquidation preference scenarios, we applied different discount rates to the preferred and common stock to reflect the incremental volatility in common stock returns relative to those of the preferred stock. Specifically, the preferred stock has economic and control rights superior to those of the common stock, which include preferred dividends and liquidation preferences, redemption rights, conversion rights, voting rights and board composition rights, among others. As such, the discount rate applied to the proceeds allocable to the preferred stock was less than the discount rate applied to the proceeds allocable to the common stock because of the incremental volatility associated with common stock returns, as well as certain economic and control rights.
Since we were valuing a minority interest in our company as a closely held, non-public company with no liquid market for its shares, we determined that a discount for lack of marketability is applicable. Our estimate of the appropriate discount for lack of marketability took into consideration put option methodologies consistent with the Practice Aid. Put option models indicated discounts of 44% to 51%. We selected a smaller discount taking into account empirical studies of restricted stock issued by publicly traded companies. We applied a discount for lack of marketability of 15% in all scenarios.
Based on these assumptions, we concluded that our common stock had a fair value of $0.62 per share as of June 30, 2011.
Stock option grants from January 2012 to March 2012
Our board of directors granted options to purchase common stock on January 26, 2012 and March 22, 2012, with each option having an exercise price of $0.62 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 30, 2011, as well as the objective and subjective factors outlined above. At each such date, our board of directors considered the events and circumstances most likely to affect the value of our common stock that occurred between June 30, 2011 and the grant date. Our board of directors determined that, other than the continued progression of our CTP-298 and CTP-499 programs that was contemplated in the assumptions used for the June 30, 2011 valuation, there were no events that occurred between June 30, 2011 and March 2012 that were indicative of a significant change in the fair value of our common stock since June 30, 2011. Moreover, between the June 30, 2011 valuation and the dates of the January 2012 and March 2012 awards, we did not believe that an initial public offering had become more likely. In addition, during the period from June 30, 2011 to the date of the March 2012 awards, overall market conditions, and particularly the market for biopharmaceutical initial public offerings, were not promising. Based on these factors, our board of directors determined that the fair value of our common stock at January 26, 2012 and March 22, 2012 was $0.62 per share.
80
Managements discussion and analysis of financial condition and results of operations
Retrospective valuations
In late June 2013, based on our board of directors review of overall market conditions, the improving market for biopharmaceutical initial public offerings and the progress of our clinical trials, including the expectation that data with respect to these clinical trials would become available in the second half of 2013, our board of directors determined that a significant shift was occurring with respect to the valuation we could achieve in an initial public offering and authorized us to begin preparing a Form S-1 registration statement for confidential submission to the SEC prior to our receipt of clinical trial data.
We selected underwriters and held an organizational meeting in mid-July 2013. We believe these events increased the probability of an early initial public offering scenario and, therefore, we performed retrospective valuations for our common stock as of December 31, 2012, April 30, 2013 and June 30, 2013.
Based on the factors described below, we concluded that our common stock had a fair value of $1.55 per share as of December 31, 2012, $2.30 per share as of April 30, 2013 and $2.99 per share as of June 30, 2013. For financial reporting purposes, we have applied these values retrospectively to our option grants made on November 12, 2012, May 3, 2013 and May 28, 2013.
December 31, 2012 retrospective valuation . For the retrospective valuation as of December 31, 2012, we used the hybrid of PWERM and the option pricing method. For our December 31, 2012 valuation, we considered two possible outcomes: an initial public offering scenario and a later unspecified liquidity event or option pricing method scenario. For the December 31, 2012 valuation, we estimated the value of our common stock by assigning a 60% weighting to the estimated value using the option pricing method and a 40% weighting to the estimated fair value under the initial public offering scenario. We deemed the 40% weighting of our initial public offering scenario appropriate because we believed that positive clinical trial data would be necessary to complete an initial public offering transaction.
As an indicator of value for the initial public offering scenario, we considered guideline public company information under the market approach. The guideline public companies included recent biopharmaceutical initial public offerings for companies at a similar stage of development. We estimated the time to an initial public offering date as 1.1 years based on the expected timing of our clinical trial data, our board of directors assessment of our prospects and market conditions. We allocated the future equity value at the expected initial public offering date to each class of preferred stock and the common stock assuming conversion of all preferred classes to common. We then discounted the values of each class of equity in the initial public offering scenarios at an appropriate risk-adjusted rate. We assumed risk-adjusted rates of 25% for the common shares and preferred shares. We selected these risk-adjusted rates based on studies of the rates of return expected by venture capital investors, as presented in the Practice Aid.
In the option pricing method scenario, we assumed an equity value equal to the present value of our equity in a future unspecified liquidity event. Significant assumptions for the option pricing method included volatility, the risk-free rate and the time to liquidity. We calculated annual rates of volatility based on weekly historical trading data for a group of guideline public companies at a similar stage of development. For the option pricing method scenario, the estimated time to liquidity was 3.2 years. The anticipated timing of a liquidity event was managements estimate in the event our planned initial public offering did not occur. We interpolated a risk-free rate commensurate with the time to liquidity based on the observed yields for three-year U.S. Treasuries. We applied a discount for lack of marketability to the value indicated for our common stock. We estimated the discount for lack of marketability to be 30% in the option pricing method scenario and 10% in the initial public offering scenario. We decreased the discount for lack of marketability in the initial public offering scenario as compared to that used for the initial public offering scenario for the June 30, 2011 valuation because we believed that we were moving closer to a potential initial public offering.
81
Managements discussion and analysis of financial condition and results of operations
The following table summarizes the significant assumptions we used in the hybrid method to determine the fair value of our common stock as of December 31, 2012:
December 31, 2012 retrospective valuation |
Initial public
offering |
Option pricing
method |
||||||
Probability weighting |
40 | % | 60 | % | ||||
Estimated time to liquidity |
1.1 | 3.2 | ||||||
Weighted-average cost of capital |
25 | % | 25 | % | ||||
Annual volatility |
| 77.0 | % | |||||
Risk-free interest rate |
| 0.35 | % | |||||
Discount for lack of marketability |
10 | % | 30 | % | ||||
Estimated per share present value of marketable common stock (before discount for lack of marketability and probability weighting) |
$ | 3.01 | $ | 1.10 |
Based on the factors above, we determined that our common stock had a fair value of $1.55 per share as of December 31, 2012. The estimated per share fair value of our common stock calculated in our valuation as of December 31, 2012 increased from the June 30, 2011 valuation of $0.62 per share due primarily to the following factors, which were incorporated into the December 31, 2012 valuation:
Ø |
increased probability of an initial public offering; |
Ø |
pending collaborations with Jazz Pharmaceuticals and Celgene, which were in advanced stages of negotiation; |
Ø |
continued progression of the CTP-499 Phase 2 clinical trial and achievement of full enrollment; and |
Ø |
our determination to progress an additional program, CTP-354, into a Phase 1 clinical trial on our own. |
We used the retrospective valuation as of December 31, 2012 to value the stock option grants in November 2012 for accounting purposes.
April 30, 2013 retrospective valuation . For the retrospective valuation as of April 30, 2013, we used the hybrid method. For our April 30, 2013 valuation, we considered two possible outcomes: an initial public offering scenario and a later unspecified liquidity event or option pricing method scenario. Based on the occurrence of several biopharmaceutical initial public offerings in early 2013 and an overall improvement in market conditions for biopharmaceutical initial public offerings, we assumed that our probability of an initial public offering had increased from 40% as of December 31, 2012 to 60% as of April 30, 2013.
As an indicator of value for the initial public offering scenario, we considered guideline public company information under the market approach. The guideline companies included recent biopharmaceutical initial public offerings for companies at a similar stage of development. In addition, based on an assessment of our prospects and market conditions, our board of directors had advised us at this time to begin internal preparations so that an initial public offering could occur shortly following our receipt of our clinical trial data. As a result, we shortened the estimated time to an initial public offering to 0.6 years as compared to 1.1 years as of December 31, 2012. We allocated the future equity value at the expected initial public offering date to each class of preferred stock and the common stock assuming conversion of all preferred classes to common. We then discounted the values of each class of equity in the initial public offering scenario at an appropriate risk-adjusted rate. We assumed risk-adjusted rates of 25% for the common shares and preferred shares. We selected these risk-adjusted rates based on studies of the rates of return expected by venture capital investors, as presented in the Practice Aid.
In the option pricing method scenario, we assumed an equity value equal to the present value of our equity in a future unspecified liquidity event. Significant assumptions for the option pricing method
82
Managements discussion and analysis of financial condition and results of operations
included volatility, the risk-free rate and the time to liquidity. We calculated annual rates of volatility based on weekly historical trading data for a group of guideline public companies in a similar stage of development. For the option pricing method scenario, the estimated time to liquidity was 2.8 years. The anticipated timing of a liquidity event was managements estimate in the event our planned initial public offering did not occur. We interpolated a risk-free rate commensurate with the time to liquidity based on the observed yields for two-year and three-year U.S. Treasuries. We applied a discount for lack of marketability to the value indicated for our common stock. We estimated the discount for lack of marketability to be 30% in the option pricing method scenario and 7.5% in the initial public offering scenario. We decreased the discount for lack of marketability in the initial public offering scenario as compared to that used for the initial public offering scenario for the December 31, 2012 retrospective valuation because we believed that we were moving closer to a potential initial public offering.
The following table summarizes the significant assumptions we used in the hybrid method to determine the fair value of our common stock as of April 30, 2013:
April 30, 2013 retrospective valuation |
Initial public
offering |
Option pricing
method |
||||||
Probability weighting |
60 | % | 40 | % | ||||
Estimated time to liquidity |
0.6 | 2.8 | ||||||
Weighted-average cost of capital |
25 | % | 25 | % | ||||
Annual volatility |
| 83.8 | % | |||||
Risk-free interest rate |
| 0.31 | % | |||||
Discount for lack of marketability |
7.5 | % | 30 | % | ||||
Estimated per share present value of marketable common stock (before discount for lack of marketability and probability weighting) |
$ | 3.48 | $ | 1.31 |
Based on the factors above, we determined that our common stock had a fair value of $2.30 per share as of April 30, 2013. The estimated per share fair value of our common stock calculated in our retrospective valuation as of April 30, 2013 increased from the December 31, 2012 retrospective valuation of $1.55 per share due primarily to the following factors, which were incorporated into the April 30, 2013 retrospective valuation:
Ø |
increased probability and accelerated timing of our possible initial public offering; |
Ø |
announcement by Avanir of positive data from its AVP-786 Phase 1 clinical trial, as a result of which we earned a $2.0 million milestone; |
Ø |
our entry into collaborations with Jazz Pharmaceuticals and Celgene; and |
Ø |
improved capital market conditions for companies in our industry, as evidenced by a recent increase in the number of public offerings by such companies and the recent stock market performance of publicly traded companies in our industry. |
We used the retrospective valuation as of April 30, 2013 to value the stock option grants on May 3, 2013 for accounting purposes.
June 30, 2013 retrospective valuation. For the retrospective valuation as of June 30, 2013, we used the hybrid method with an initial public offering scenario and a later unspecified liquidity event or option pricing method scenario. We increased the probability of an initial public offering from 60% determined as of April 30, 2013 to 70% because in June 2013, our board of directors authorized us to begin preparing a Form S-1 registration statement for confidential submission to the SEC prior to our receipt of our clinical trial data.
As an indicator of value for the initial public offering scenario, we considered guideline public company information under the market approach. The guideline companies included recent biopharmaceutical initial
83
Managements discussion and analysis of financial condition and results of operations
public offerings for companies at a similar stage of development. We also considered an increase in value, or step-up, from the last preferred stock financing round to the initial public offering price based on discussion with the underwriters for our possible initial public offering. We allocated the future equity value at the expected initial public offering date to each class of preferred stock and the common stock assuming conversion of all preferred classes to common. We then discounted the values of each class of equity in the initial public offering scenarios at an appropriate risk-adjusted rate. We assumed risk-adjusted rates of 25% for the common shares and preferred shares. We selected these risk-adjusted rates based on studies of the rates of return expected by venture capital investors, as presented in the Practice Aid.
In the option pricing method scenario, we assumed an equity value equal to the present value of our equity in a future unspecified liquidity event. Significant assumptions for the option pricing method included volatility, the risk-free rate and the time to liquidity. We calculated annual rates of volatility based on weekly historical trading data for a group of guideline public companies in a similar stage of development. For the option pricing method scenario, the estimated time to liquidity was 2.7 years. The anticipated timing of a liquidity event was managements estimate in the event our planned initial public offering did not occur. We interpolated a risk-free rate commensurate with the time to liquidity based on the observed yields for two-year and three-year U.S. Treasuries. We applied a discount for lack of marketability to the value indicated for our common stock. We estimated the discount for lack of marketability to be 30% in the option pricing method scenario and 5% in the initial public offering scenario. We decreased the discount for lack of marketability in the initial public offering scenario as compared to that used for the initial public offering scenario for the April 30, 2013 retrospective valuation because we believed that we were moving closer to a potential initial public offering.
The following table summarizes the significant assumptions we used in the hybrid method to determine the fair value of our common stock as of June 30, 2013:
June 30, 2013 retrospective valuation |
Initial public
offering |
Option pricing
method |
||||||
Probability weighting |
70 | % | 30 | % | ||||
Estimated time to liquidity |
0.4 | 2.7 | ||||||
Weighted-average cost of capital |
25 | % | 25 | % | ||||
Annual volatility |
| 84.5 | % | |||||
Risk-free interest rate |
| 0.56 | % | |||||
Discount for lack of marketability |
5 | % | 30 | % | ||||
Estimated per share present value of marketable common stock (before discount for lack of marketability and probability weighting) |
$ | 4.05 | $ | 1.41 |
Based on the factors above, we determined that our common stock had a fair value of $2.99 per share as of June 30, 2013. The estimated per share fair value of our common stock calculated in our retrospective valuation as of June 30, 2013 increased from the April 30, 2013 retrospective valuation of $2.30 per share due primarily to the following factors, which were incorporated into the June 30, 2013 retrospective valuation:
Ø |
increased probability of our initial public offering; |
Ø |
improved capital market conditions for companies in our industry, as evidenced by a recent increase in the number of public offerings by such companies and the recent stock market performance of publicly traded companies in our industry; |
Ø |
our initiation of a Phase 1 single ascending dose clinical trial for CTP-354; and |
Ø |
Avanir reporting that the FDA had agreed to an expedited development pathway for AVP-786. |
We used the retrospective valuation as of June 30, 2013 to value the stock option grants on May 28, 2013 for accounting purposes.
84
Managements discussion and analysis of financial condition and results of operations
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 enrollment and 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.
EMERGING GROWTH COMPANY STATUS
In April 2012, the JOBS Act was enacted. Section 107 of 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. Thus, an emerging growth company can 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 extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material effect on our financial position or results of operations upon adoption.
RESULTS OF OPERATIONS
Comparison of the nine months ended September 30, 2012 and 2013
The following table summarizes our results of operations for the nine months ended September 30, 2012 and 2013, together with the changes in those items in dollars.
Revenue
Nine months ended September 30, |
Increase (Decrease) |
|||||||||||
(in thousands) | 2012 | 2013 | ||||||||||
Revenue: |
||||||||||||
License and research and development revenue |
$ | 11,126 | $ | 21,995 | $ | 10,869 | ||||||
Milestone revenue |
1,500 | 2,000 | 500 | |||||||||
|
|
|
|
|
|
|||||||
Total revenue |
12,626 | 23,995 | 11,369 | |||||||||
Operating expenses: |
||||||||||||
Research and development |
18,384 | 16,460 | (1,924 | ) | ||||||||
General and administrative |
5,620 | 6,366 | 746 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
24,004 | 22,826 | (1,178 | ) | ||||||||
|
|
|
|
|
|
|||||||
(Loss) income from operations |
(11,378 | ) | 1,169 | 12,547 | ||||||||
Investment income |
17 | 17 | | |||||||||
Interest and other expense |
(1,324 | ) | (1,327 | ) | 3 | |||||||
|
|
|
|
|
|
|||||||
Net loss |
$ | (12,685 | ) | $ | (141 | ) | $ | (12,544 | ) | |||
|
|
|
|
|
|
Revenue was $24.0 million for the nine months ended September 30, 2013, compared to $12.6 million for the nine months ended September 30, 2012, an increase of $11.4 million. The increase in revenue was
85
Managements discussion and analysis of financial condition and results of operations
primarily due to license revenue recognized for the nine months ended September 30, 2013 of $17.0 million under our collaboration with Celgene and $3.7 million under our collaboration with Jazz Pharmaceuticals, in connection with our grant of licenses under these collaborations, as well as $2.0 million of milestone revenue recognized for the nine months ended September 30, 2013 based on positive data from Avanirs Phase 1 clinical trial of AVP-786. In comparison, we recognized revenue for the nine months ended September 30, 2012 comprised primarily of $8.3 million of research and development revenue and $1.5 million of milestone revenue under our collaboration with GSK, which ended in 2012. We recognized license revenue of $2.0 million in the nine months ended September 30, 2012 relating to the license grant to Avanir for deuterated dextromethorphan. In addition, an increase of $0.3 million in revenue recognized for services performed under our collaborations contributed to the overall increase in revenue for the nine months ended September 30, 2013 as compared to the prior year period.
As of September 30, 2013, we had deferred revenue of:
Ø |
$17.6 million related to our collaboration with Celgene, $3.9 million of which is classified as current and $13.7 million of which is classified as long-term, on our consolidated balance sheet; |
Ø |
$0.2 million related to our collaboration with Jazz Pharmaceuticals and associated with research and development services to be performed and recognized as revenue over the estimated remaining performance period of 39 months; and |
Ø |
$2.8 million related to a payment received from GSK that we will not recognize as revenue until all repayment obligations lapse. |
Research and development expenses
The following table summarizes our external research and development expenses, by program, for the nine months ended September 30, 2012 and 2013, with our internal research expenses separately classified by category. Because Avanir is conducting the clinical development of AVP-786 at its expense, we made minimal investment in the program during these periods.
Nine months ended
September 30, |
||||||||
(in thousands) | 2012 | 2013 | ||||||
Direct research and development expenses: |
||||||||
CTP-499 |
$ | 4,165 | $ | 3,334 | ||||
CTP-354 |
890 | 1,316 | ||||||
CTP-298 (1) |
1,462 | 3 | ||||||
|
|
|
|
|||||
Total direct research and development expenses |
6,517 | 4,653 | ||||||
|
|
|
|
|||||
Employee and contractor-related expenses |
6,853 | 8,063 | ||||||
Platform-related lab expenses |
2,481 | 1,297 | ||||||
Facility expenses |
2,165 | 2,074 | ||||||
Other expenses |
368 | 374 | ||||||
|
|
|
|
|||||
Personnel and other expenses |
11,867 | 11,807 | ||||||
|
|
|
|
|||||
Total research and development expenses |
$ | 18,384 | $ | 16,460 | ||||
|
|
|
|
(1) | We were developing CTP-298 for the treatment of HIV prior to the termination of our collaboration with GSK. |
Research and development expenses were $16.5 million for the nine months ended September 30, 2013, compared to $18.4 million for the nine months ended September 30, 2012, a decrease of $1.9 million. The decrease was primarily due to a $1.5 million decrease in CTP-298 expenses due to the completion of a Phase 1 clinical trial in May 2012, a $0.8 million decrease in CTP-499 expenses due to the completion
86
Managements discussion and analysis of financial condition and results of operations
of a preclinical toxicology study in August 2012 and subjects completing the Phase 2 clinical trial during the nine months ended September 30, 2013 and a $1.2 million decrease in platform-related laboratory expenses. These decreases were partially offset by a $1.2 million increase in employee and contractor-related expenses that were a result of employee bonuses earned during the nine months ended September 30, 2013 and a $0.4 million increase in CTP-354 expenses upon the initiation of Phase 1 clinical trials during the nine months ended September 30, 2013.
From our inception through September 30, 2013, we incurred external research and development expenses of $20.8 million for CTP-499, $3.2 million for CTP-354 and $3.6 million for CTP-298.
We expect to incur increased research and development costs in future periods relating to:
Ø |
continued development of CTP-354 through two Phase 2 clinical trials; |
Ø |
our Celgene collaboration, as we expect to initiate Phase 1 clinical trials in 2014; and |
Ø |
hiring of additional research and development personnel and initiation and continuation of other programs. |
We expect that our research and development expenses relating to CTP-499 will decrease significantly in the first quarter of 2014, when we conclude the first of the two extension studies in our Phase 2 clinical trial. We may seek one or more collaborators for future development of CTP-499.
General and administrative expenses
General and administrative expenses were $6.4 million for the nine months ended September 30, 2013, compared to $5.6 million for the nine months ended September 30, 2012, an increase of $0.8 million. The increase was primarily due to an increase in market research expenditures of $0.3 million and an increase in compensation expense of $0.6 million relating to employee bonuses earned during the nine months ended September 30, 2013, partially offset by a $0.1 million decrease in legal and patent fees.
We expect that our general and administrative expenses will increase in future periods as we expand our operations and incur additional costs in connection with being a public company. These increases will likely include legal, auditing and filing fees, additional insurance premiums and general compliance and consulting expenses.
Interest and other expense
Interest and other expense was an expense of $1.3 million for both the nine months ended September 30, 2013 and the nine months ended September 30, 2012. Expense recognized in connection with re-measurement of the fair value of the redeemable convertible preferred stock warrant that we issued to Hercules in connection with draws under our debt facility decreased by $0.2 million for the nine months ended September 30, 2013 as compared to the prior year period. This decrease was offset by an increase of $0.2 million in interest expense associated with $12.5 million of principal that we drew under our debt facility with Hercules in March 2012.
87
Managements discussion and analysis of financial condition and results of operations
Comparison of the years ended December 31, 2011 and 2012
The following table summarizes our results of operations for the years ended December 31, 2011 and 2012, together with the changes in those items in dollars.
Year ended December 31, |
Increase
(Decrease) |
|||||||||||
(in thousands) | 2011 | 2012 | ||||||||||
Revenue: |
||||||||||||
License and research and development revenue |
$ | 13,967 | $ | 11,349 | $ | (2,618 | ) | |||||
Milestone revenue |
5,500 | 1,500 | (4,000 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total revenue |
19,467 | 12,849 | (6,618 | ) | ||||||||
Operating expenses: |
||||||||||||
Research and development |
23,436 | 24,193 | 757 | |||||||||
General and administrative |
7,377 | 7,266 | (111 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
30,813 | 31,459 | 646 | |||||||||
|
|
|
|
|
|
|||||||
Loss from operations |
(11,346 | ) | (18,610 | ) | 7,264 | |||||||
Investment income |
44 | 22 | (22 | ) | ||||||||
Interest and other expense |
(18 | ) | (1,856 | ) | 1,838 | |||||||
|
|
|
|
|
|
|||||||
Net loss |
$ | (11,320 | ) | $ | (20,444 | ) | $ | 9,124 | ||||
|
|
|
|
|
|
Revenue
Revenue was $12.8 million for the year ended December 31, 2012 compared to $19.5 million for the year ended December 31, 2011, a decrease of $6.6 million. The decrease in revenue was primarily due to decreases of $5.7 million in research and development revenue and $4.0 million in milestone revenue under our collaboration with GSK, which were partially offset by $2.0 million of license revenue relating to the license grant to Avanir for deuterated dextromethorphan analogs and $0.4 million of research and development revenue under our Avanir collaboration as well as $0.7 million of research and development revenue relating to our sponsored research agreement with Fast Forward. Revenue under our collaboration with GSK constituted substantially all of our revenue for the year ended December 31, 2011 and related to CTP-298.
Research and development expenses
The following table summarizes our external research and development expenses, by program, for the years ended December 31, 2011 and 2012, with our internal research expenses separately classified by category. Because Avanir is conducting the clinical development of AVP-786 at its expense, we made minimal investment in the program during these periods.
Year ended December 31, | ||||||||
(in thousands) | 2011 | 2012 | ||||||
Direct research and development expenses: |
||||||||
CTP-499 |
$ | 5,942 | $ | 5,967 | ||||
CTP-354 |
359 | 1,091 | ||||||
CTP-298 (1) |
2,778 | 1,478 | ||||||
|
|
|
|
|||||
Total direct research and development expenses |
9,079 | 8,536 | ||||||
|
|
|
|
|||||
Employee and contractor-related expenses |
9,411 | 9,031 | ||||||
Platform-related lab expenses |
1,564 | 3,270 | ||||||
Facility expenses |
2,911 | 2,833 | ||||||
Other expenses |
471 | 523 | ||||||
|
|
|
|
|||||
Personnel and other expenses |
14,357 | 15,657 | ||||||
|
|
|
|
|||||
Total research and development expenses |
$ | 23,436 | $ | 24,193 | ||||
|
|
|
|
(1) | We were developing CTP-298 for the treatment of HIV prior to the termination of our collaboration with GSK. |
88
Managements discussion and analysis of financial condition and results of operations
Research and development expenses were $24.2 million for the year ended December 31, 2012, compared to $23.4 million for the year ended December 31, 2011, an increase of $0.8 million. The increase was primarily due to $1.7 million of increased expenses relating to preclinical programs that are now covered by our collaboration with Celgene and $0.7 million of increased expenses relating to our CTP-354 program associated with IND-enabling toxicology studies. These increases were partially offset by $1.3 million of decreased expenses with respect to CTP-298 and a $0.3 million decrease in employee compensation expense.
General and administrative expenses
General and administrative expenses were $7.3 million for the year ended December 31, 2012, which was comparable to general and administrative expenses of $7.4 million for the year ended December 31, 2011.
Interest and other expense
Interest and other expense was an expense of $1.9 million for the year ended December 31, 2012, compared to an expense of $18 thousand for the year ended December 31, 2011, an increase in expense of $1.9 million. The increase was primarily due to interest expense on $7.5 million of principal that we drew under our debt facility with Hercules in December 2011 and $12.5 million of principal that we drew under our debt facility with Hercules in March 2012.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred cumulative losses and negative cash flows from operations since our inception in April 2006, and as of September 30, 2013, we had an accumulated deficit of $107.7 million. We 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 raise through a combination of equity offerings, debt financings and additional collaborations and licensing arrangements.
We have financed our operations to date primarily through private placements of our preferred stock, debt financing and funding from collaborations. As of September 30, 2013, we had cash and cash equivalents and investments of $42.6 million.
Cash flows
The following table sets forth the primary sources and uses of cash for each of the periods set forth below:
Year ended December 31, | Nine months ended September 30, | |||||||||||||||
(in thousands) | 2011 | 2012 | 2012 | 2013 | ||||||||||||
Net cash provided by (used in): |
||||||||||||||||
Operating activities |
$ | (18,085 | ) | $ | (26,427 | ) | $ | (19,088 | ) | $ | 18,640 | |||||
Investing activities |
22,901 | (1,200 | ) | (8,851 | ) | (4,256 | ) | |||||||||
Financing activities |
6,985 | 12,168 | 12,251 | (3,262 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in cash and cash equivalents |
$ | 11,801 | $ | (15,459 | ) | $ | (15,688 | ) | $ | 11,122 | ||||||
|
|
|
|
|
|
|
|
Operating activities. Net cash provided by operating activities was $18.6 million during the nine months ended September 30, 2013 compared to net cash used in operating activities of $19.1 million during the nine months ended September 30, 2012. The increase in cash provided by operating activities was primarily due to receipt in the nine months ended September 30, 2013 of a non-refundable upfront
89
Managements discussion and analysis of financial condition and results of operations
payment of $35.0 million related to our collaboration with Celgene and a non-refundable upfront payment of $4.0 million related to our collaboration with Jazz Pharmaceuticals. Net cash used in operating activities was $26.4 million for the year ended December 31, 2012 compared to $18.1 million for the year ended December 31, 2011. The increase in cash used in operating activities in 2012 was driven by a $4.0 million decrease in milestone revenue from collaborations, an increase of $1.3 million in interest payments relating to indebtedness incurred in December 2011 and March 2012 under our debt facility with Hercules and a $1.2 million decrease in accounts payable.
Investing activities. Net cash provided by (used in) investing activities consisted of purchases of fixed assets, purchases of short-term and long-term investments, and proceeds from the maturity of short-term and long-term investments. Net cash used in investing activities for the nine months ended September 30, 2013 was $4.3 million compared to net cash used in investing activities of $8.9 million for the nine months ended September 30, 2012. The decrease in net cash used in investing activities was primarily due to a decrease in purchases of investments of $5.5 million, partially offset by a decrease in maturities of investments of $1.0 million. Net cash used in investing activities for the year ended December 31, 2012 was $1.2 million compared to net cash provided by investing activities of $22.9 million for the year ended December 31, 2011. The decrease in net cash provided by investing activities was primarily due to decreased maturities of investments of $26.4 million, partially offset by a decrease in purchase of investments of $2.5 million.
Financing activities. Net cash used in financing activities for the nine months ended September 30, 2013 was $3.3 million compared to net cash provided by financing activities of $12.3 million for the nine months ended September 30, 2012. The decrease in net cash provided by financing activities was primarily due to our receipt during the nine months ended September 30, 2012 of proceeds of $12.5 million under our debt facility with Hercules, combined with an increase in principal payments under our debt facility with Hercules of $3.0 million for the nine months ended September 30, 2013 as compared to the prior year period. Net cash provided by financing activities for the year ended December 31, 2012 was $12.2 million compared to $7.0 million for the year ended December 31, 2011. The increase in net cash provided by financing activities was primarily due to an increase of $5.2 million in proceeds under our debt facility with Hercules.
Operating capital requirements
To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we, or our collaborators, obtain marketing approval of and commercialize one of our current or future product candidates. Because our product candidates are in various stages of development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete development and commercialization of our product candidates or whether or when we will achieve profitability. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek marketing approvals for, our product candidates, and begin to commercialize any approved products for which we retain commercialization rights. We are subject to all of the risks incident in the development of new drug products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business, as well as additional risks stemming from the unproven nature of deuterated drugs. Upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. We anticipate that we will need to obtain substantial additional funding in connection with our continuing operations.
We believe that the net proceeds from this offering, together with our existing cash and cash equivalents and investments as of September 30, 2013, will enable us to fund our operating expenses, debt service and capital expenditure requirements for at least the next months, without giving effect to potential milestone payments that we may receive under existing collaboration agreements. This estimate assumes we
90
Managements discussion and analysis of financial condition and results of operations
either enter into a collaboration agreement pursuant to which a partner funds further development of CTP-499 or we do not otherwise expend significant funds for further development of this product candidate. However, we may require additional capital for the further development of our existing product candidates and may also need to raise additional funds sooner to pursue other development activities related to additional product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings and additional collaborations, strategic alliances and licensing arrangements. Except for any obligations of our collaborators to reimburse us for research and development expenses or to make milestone payments under our agreements with them, upon completion of this offering, we will not have any committed external sources of funds. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders, increased fixed payment obligations and these securities may have rights senior to those of our common stock. We are subject to covenants under our existing loan and security agreement with Hercules, and may become subject to covenants under any future indebtedness, that could limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, which could adversely impact our ability to conduct our business. In addition, the pledge of substantially all of our assets with the exception of our intellectual property as collateral, and the negative pledge with respect to our intellectual property, under our debt facility with Hercules limit our ability to obtain additional debt financing.
Our expectation with respect to the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including those discussed in the Risk factors section of this prospectus. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected.
Contractual obligations
The following table summarizes our contractual obligations at December 31, 2012:
(in thousands) | Total |
Less than
1 year |
1 to 3
years |
3 to 5
years |
More than
5 years |
|||||||||||||||
Long-term debt obligations (1) |
$ | 22,880 | $ | 6,510 | $ | 16,370 | $ | | $ | | ||||||||||
Operating lease obligations (2) |
4,978 | 1,762 | 3,216 | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total contractual obligations |
$ | 27,858 | $ | 8,272 | $ | 19,586 | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Consists of payment obligations for principal and interest under our debt facility with Hercules. As of December 31, 2012, we had $20.0 million in outstanding borrowings under the debt facility, bearing interest at a variable rate of the greater of 8.5% and an amount equal to 8.5% plus the prime rate of interest minus 5.25%, subject to a cap of 11%. Under the terms of the loan and security agreement governing the debt facility, we were required to pay interest only through April 30, 2013, which from January 1, 2013 to April 30, 2013 consisted of monthly payments of $0.1 million. Following April 30, 2013, we are required to repay this indebtedness in equal monthly payments of $0.7 million through October 15, 2015. The loans under the debt facility are collateralized by a lien on substantially all of our corporate assets, excluding intellectual property, which is subject to a negative pledge under the loan and security agreement. The loan and security agreement contains default provisions that include the occurrence of a material adverse effect, as defined therein, that would entitle the lender to declare all principal, interest and other amounts owed by us under the loan and security agreement immediately due and payable. |
(2) | Consists of future lease payments and repayment obligations with respect to leasehold improvements under the operating lease for our office and laboratory space at 99 Hayden Avenue, Lexington, Massachusetts. The operating lease expires on September 30, 2015. |
91
Managements discussion and analysis of financial condition and results of operations
We also have obligations to make future payments to third parties that become due and payable on the achievement of certain development, regulatory and commercial milestones, such as the start of a clinical trial, filing of an NDA, approval by the FDA or product launch. We have not included these commitments on our balance sheet or in the table above because the achievement and timing of these milestones is not fixed and determinable. These commitments include:
Ø |
An obligation to make a payment to GSK of up to $2.8 million if we commercialize CTP-499 or if, prior to a specified date in 2018, we re-license or transfer rights to our CTP-499 program prior to a specified date in 2018. |
Ø |
Obligations to make milestone payments to Fast Forward not in excess of a low-single digit multiple of the $0.8 million Fast Forward funding amount if we commercialize CTP-354 or license the development and commercialization of CTP-354 to a third party. |
We enter into contracts in the normal course of business with contract research organizations for preclinical research studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.
OFF-BALANCE SHEET ARRANGEMENTS
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term available-for-sale securities and interest on our debt facility accrues at a variable rate that references the prime rate.
We had cash and cash equivalents and investments of $42.6 million as of September 30, 2013 and $27.6 million as of December 31, 2012, in each case primarily money market mutual funds consisting of U.S. government-backed securities. Our available-for-sale securities are subject to interest rate risk and will fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio.
We had outstanding borrowings under our debt facility with Hercules of $17.0 million as of September 30, 2013 and $20.0 million as of December 31, 2012. Interest is payable at a variable rate of the greater of 8.5% and an amount equal to 8.5% plus the prime rate of interest minus 5.25%, provided however, that the per annum interest rate shall not exceed 11%. As a result of the 11% maximum annual interest rate and interest rate protection until prime exceeds 5.25%, we have limited exposure to changes in interest rates on borrowings under this facility. An immediate 10% change in the prime rate as of September 30, 2013 would have no effect on the amount of our required interest payments under the debt facility over the next twelve-month period.
We contract with suppliers of raw materials and contract manufacturers internationally. Transactions with these providers are predominantly settled in U.S. dollars and, therefore, we believe that we have only minimal exposure to foreign currency exchange risks. We do not hedge against foreign currency risks.
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the year ended December 31, 2011 and 2012 and the nine months ended September 30, 2012 and 2013.
92
OVERVIEW
We are a clinical stage biopharmaceutical company applying our extensive knowledge of deuterium chemistry to discover and develop novel small molecule drugs. Our approach starts with approved drugs, advanced clinical candidates or previously studied compounds that we believe can be improved with deuterium substitution to provide better pharmacokinetic or metabolic properties and thereby enhance clinical safety, tolerability or efficacy. We believe our approach may enable drug discovery and clinical development that is more efficient and less expensive than conventional small molecule drug research and development.
We have a robust pipeline, including three clinical-stage candidates and a number of preclinical compounds that we are actively developing. Our clinical programs are CTP-354 for spasticity associated with multiple sclerosis and spinal cord injury, CTP-499 for diabetic kidney disease and AVP-786 for neurologic and psychiatric disorders under our collaboration with Avanir. We also have ongoing collaborations with Celgene, for deuterated compounds including CTP-730, which is in preclinical development for inflammatory diseases, and Jazz Pharmaceuticals, for JZP-386, a deuterated analog of sodium oxybate, the active ingredient in its marketed drug Xyrem ® , which is in preclinical development for narcolepsy. Between our wholly owned and collaboration programs, we expect to have up to five product candidates in clinical development by the end of 2014, including at least two product candidates in Phase 2 clinical trials.
We believe we are the leader in applying deuterium chemistry in drug discovery and development. Deuterium is similar to hydrogen in size and shape. However, deuterium differs from hydrogen in one pharmaceutically important respectdeuterium forms a more stable chemical bond with carbon. This increased stability has the potential, through the selective substitution of deuterium for hydrogen, to improve pharmacokinetic and metabolic properties without changing a compounds intrinsic biological activity. We believe that our application of deuterium chemistry, which we refer to as deuteration, is an efficient way to build on existing knowledge to create important new medicines.
We have built a deuterated chemical entity platform, which we refer to as our DCE Platform. Our platform comprises the proprietary know-how, techniques and information that we have accumulated since our inception in 2006. Our DCE Platform allows us to efficiently identify compounds for deuteration and to design, evaluate, develop and manufacture deuterated compounds.
In our drug discovery and development processes, we build on the significant existing information regarding the corresponding non-deuterated compound. This allows us to efficiently identify lead compounds and, in some cases, shorten the amount of time necessary to initiate clinical trials as compared to conventional small molecule drug research and development. In clinical development, we believe that the FDA and comparable foreign regulatory authorities may allow some of our compounds that are deuterated analogs of approved products, or of compounds for which approval is pending, to follow an expedited development pathway by relying on previous clinical and preclinical data related to the non-deuterated compound. For example, in June 2013, Avanir reported that the FDA agreed to an expedited development pathway for AVP-786, permitting Avanir to reference data from its development of dextromethorphan and quinidine in its IND, and any future NDA, for AVP-786.
We are utilizing our DCE Platform to discover and develop product candidates for a variety of indications. CTP-354, CTP-499 and AVP-786 are advancing in clinical trials and we have multiple preclinical candidates, two of which we expect to move into clinical trials in 2014. Our priority programs include:
Ø |
CTP-354, a novel, potentially first-in-class, non-sedating treatment for spasticity that we are initially developing for use in patients with multiple sclerosis and patients with spinal cord injury to address a significant unmet medical need in these markets. CTP-354 is a subtype selective GABA A receptor modulator. GABA A receptors are found in the nervous system and, when activated, reduce the |
93
Business
transmission of certain nerve signals. Several classes of widely used drugs target GABA A receptors, including benzodiazepines and some sleep agents, none of which have the receptor subtype selectivity that we believe CTP-354 possesses. We designed CTP-354 to provide therapeutic benefits without the severe side effects and dosing burden that can limit or prevent the use of existing agents in treating spasticity. For example, the strong sedative effects of benzodiazepines severely limit their therapeutic use in spasticity and certain other indications. We recently completed a 71-subject Phase 1 single ascending dose clinical trial of CTP-354 and are currently conducting a Phase 1 imaging study. The results from our Phase 1 single ascending dose trial indicate that CTP-354 has a favorable pharmacokinetic profile that supports once-daily dosing. The results also indicate that CTP-354 did not cause sedation at levels of GABA A receptor occupancy well above the levels achieved by benzodiazepines at doses that are typically prescribed. GABA A receptor occupancy is a measure of the extent to which CTP-354 binds to GABA A receptors that we believe may correlate to therapeutic activity. We currently plan to initiate a multiple ascending dose Phase 1 clinical trial evaluating daily doses of 2 mg and 6 mg of CTP-354 in healthy volunteers during the first quarter of 2014. Assuming successful completion of the multiple ascending dose Phase 1 clinical trial, we plan to initiate a Phase 2 clinical program for CTP-354 in the second half of 2014. We expect that the Phase 2 clinical program will include one clinical trial for the treatment of spasticity associated with multiple sclerosis and one clinical trial for the treatment of spasticity associated with spinal cord injury. Due to the fact that we did not determine a maximum tolerated dose in our preclinical testing, the FDA has informed us that we may not administer multiple doses of CTP-354 in excess of 6 mg per day in clinical trials without first conducting an additional higher dose preclinical toxicology study. We believe that multiple doses of 6 mg per day would be sufficient for the treatment of spasticity; however we intend to conduct the additional preclinical toxicology study to enable us to evaluate higher doses of CTP-354, if needed in our spasticity trials, as well as to support clinical development in other disease indications. |
Ø |
CTP-499, a novel oral multi-subtype selective inhibitor of PDEs, which are enzymes that we believe play an important role in type 2 diabetic kidney disease. According to a 2009 article in the American Diabetes Association journal Diabetes Care, type 2 diabetes is the leading cause of chronic kidney disease. Type 2 diabetic kidney disease can result in the need for dialysis and renal transplantation. Many patients with this disease continue to experience a decline in renal function despite treatment with standard of care therapies. We are developing CTP-499 as an additive treatment to the current standard of care to further slow progression towards kidney failure. We are currently conducting a three-part Phase 2 clinical trial of CTP-499 in which we have enrolled patients with type 2 diabetic kidney disease and macroalbuminuria. In 2013, we completed the first part of this trial, a 24-week, double-blind, parallel, two-arm, placebo-controlled study in 182 patients. We have also completed dosing in the second part of the trial, a blinded 24-week extension study, which, combined with the data from the first part of the trial, has provided 48 weeks of placebo-controlled data in 123 patients. We did not achieve statistical significance in the primary efficacy endpoint of this trial, which was measured at 24 weeks. However, we believe that the data we have analyzed to date from the first 48 weeks of treatment support the potential of CTP-499 to help protect kidney function in patients with rapidly progressing type 2 diabetic kidney disease. We have conducted preliminary analyses of these 48 weeks of data, but have not yet completed a full analysis. We expect to report the final top line results for the first 48 weeks of the trial in the first half of 2014. |
Ø |
AVP-786, a combination of a deuterium-substituted dextromethorphan analog and an ultra-low dose of quinidine. We have granted Avanir an exclusive license to develop and commercialize deuterated dextromethorphan analogs, including the analog in AVP-786. Avanir is developing AVP-786 for the treatment of neurologic and psychiatric disorders. In February 2013, Avanir reported positive results from a Phase 1 clinical trial of AVP-786. In October 2013, Avanir reported plans to advance AVP-786 into a Phase 2 clinical trial in the second half of 2014 for treatment-resistant major depressive disorder in patients with insufficient response to conventional anti-depressants. |
94
Business
Ø |
A collaboration with Celgene to research, develop and commercialize certain deuterated compounds for the treatment of cancer or inflammation, with an initial focus on a single program. In the initial program, we have selected CTP-730, a product candidate for the treatment of inflammatory diseases, and expect to begin Phase 1 clinical trials in 2014. |
Ø |
A collaboration with Jazz Pharmaceuticals to research, develop and commercialize JZP-386, a product candidate containing a deuterated analog of sodium oxybate for potential use in patients with narcolepsy. Sodium oxybate is the active ingredient in the marketed drug Xyrem. In December 2013, an IMPD, the basis for initiating clinical trials in the European Union, was filed for JZP-386. Jazz Pharmaceuticals has reported that, subject to approval of the IMPD, it expects a first-in-human clinical trial of JZP-386 to commence in 2014. |
Through September 30, 2013, we had received an aggregate of $105.4 million in upfront and milestone payments, equity investments and research and development funding from current and former collaborations. Under our current collaborations, we have the potential to receive up to $1.6 billion in future milestone payments, including over $1.2 billion in research, development and regulatory milestones, as well as royalties on any future net product sales.
Our senior management team has extensive experience in drug discovery and development. Collectively, our team has been involved in the research, development or approval of 12 drugs. Dr. Roger D. Tung, our Chief Executive Officer and one of our founders, is an accomplished leader in drug research and development. Prior to founding our company, Dr. Tung was the Vice President of Drug Discovery at Vertex Pharmaceuticals, Inc. At Vertex, he was a co-inventor of two drugs that were approved for the treatment of HIV, amprenavir and fosamprenavir, and oversaw the discovery of two other approved drugs, ivacaftor (Kalydeco) for cystic fibrosis and telaprevir (Incivek) for hepatitis C. Dr. Tung conceptualized our DCE Platform approach as a means to accelerate pharmaceutical research and development and create important new medicines. He has invented or co-invented many of the compounds in our pipeline.
OUR STRATEGY
Our strategy is to apply our extensive knowledge of deuterium chemistry to discover, develop and commercialize novel small molecule drugs. Key components of our strategy include:
Ø |
Rapidly advancing our deuterated product candidates . We seek to reduce the time and cost associated with conventional small molecule drug research and development by capitalizing on the known activity, safety, efficacy or development history of the non-deuterated analogs of our product candidates. Leveraging this knowledge, we have been able in a number of our programs, including CTP-499, to advance compounds from initial synthesis to clinical evaluation in less than two years. We also seek to develop product candidates that may be eligible for an expedited development or regulatory pathway, such as reported by Avanir for AVP-786. |
Ø |
Establishing collaborations to develop and commercialize deuterated product candidates. Our current collaborations are focused on deuterated analogs of one or more of our collaborators proprietary compounds. In these situations, we benefit from our collaborators knowledge and experience with, and rights of reference to regulatory filings for, their corresponding non-deuterated compounds. We may establish similar collaborations in the future and also plan to enter into other collaborations to access the resources of larger biopharmaceutical companies. |
Ø |
Capitalizing on our DCE Platform to build a robust pipeline of additional deuterated product candidates. Our DCE Platform consists of the proprietary know-how, techniques and information that we have developed over the past seven years. We broadly apply our DCE Platform to approved drugs, advanced clinical candidates or previously studied compounds. We particularly look to initiate development programs in areas of significant medical need and commercial opportunity. We believe we are capable of identifying one to two novel deuterated compounds per year that we can advance into preclinical development while concurrently progressing our existing pipeline. |
95
Business
Ø |
Retaining commercialization rights on a selective basis and building a specialized commercialization capability in the United States. We plan to use a combination of third party collaboration, licensing and distribution arrangements and a focused in-house commercialization capability to sell any of our products that receive marketing approval. For the United States, we plan to seek to retain full commercialization rights for products that we can commercialize with a specialized sales force and to retain co-promotion or similar rights, when feasible, in indications requiring a larger commercial infrastructure. We plan to collaborate with other parties for commercialization outside the United States. |
Ø |
Expanding our broad patent estate covering deuterated compounds and related technology. Since our inception in 2006, we have systematically sought, and continue to seek, to identify compounds that can be improved through selective deuterium substitution and to obtain patent protection for deuterated analogs of these compounds with the goal of establishing a broad proprietary position in this field. We hold issued U.S. patents covering the composition of matter of each of our most advanced product candidates. In addition, we own issued patents or patent applications that claim the deuterated analogs of more than 90 non-deuterated compounds. |
DEUTERIUM: IMPLICATIONS FOR DRUG RESEARCH AND DEVELOPMENT
The average adult human body contains approximately two grams of deuterium. While essentially identical to hydrogen in size and shape, deuterium differs from hydrogen in that it contains an additional neutron. As a result, deuterium forms a more stable chemical bond with carbon than does hydrogen. The deuterium-carbon bond is typically six to nine times more stable than the hydrogen-carbon bond. This has important implications for drug development because drug metabolism often involves the breaking of hydrogen-carbon bonds.
Because deuterium forms more stable bonds with carbon, deuterium substitution can in some cases alter drug metabolism, including through improved metabolic stability, reduced formation of toxic metabolites, increased formation of desired active metabolites, or a combination of these effects. At the same time, because deuterium closely resembles hydrogen, the substitution of deuterium for hydrogen has generally been found not to materially alter the intrinsic biological activity of a compound. Deuterated compounds can generally be expected to retain biochemical potency and selectivity similar to their hydrogen analogs. The effects, if any, of deuterium substitution on metabolic properties are highly dependent on the specific molecular positions at which deuterium is substituted for hydrogen. In addition, the metabolic effects of deuterium substitution, if any, are unpredictable, even in compounds that have similar chemical structures.
96
Business
OUR DCE PLATFORM
Our DCE Platform consists of the proprietary know-how, techniques and information that we have developed over the past seven years. Deuterated compounds can have an increased half-life in the body and increased systemic exposure as compared to their corresponding non-deuterated analogs, which we believe can lead to benefits such as improved safety, efficacy, tolerability and convenience. Due to our significant experience in deuterium chemistry and pharmaceutical research and development, we believe we are well-positioned to efficiently identify compounds that can benefit from deuterium substitution and create optimally deuterated product candidates.
We believe that our DCE Platform can enable drug discovery and clinical development that is more efficient and less expensive than conventional small molecule drug research and development. Conventional drug discovery and development are lengthy processes with high failure rates. Relatively few molecules identified in drug discovery possess the beneficial pharmacological activity and acceptable tolerability and toxicity required to become clinically useful medicines that address commercially important needs. We believe that our product candidates may have a higher likelihood of becoming useful medicines because we selectively deuterate molecules that are already known to be pharmacologically active in vivo and have either been studied in humans or are closely chemically related to such molecules. We believe that our likelihood of success may be even greater in cases in which we have selectively deuterated analogs of approved drugs.
Our DCE Platform includes the following capabilities, which we believe provide us with key competitive advantages:
Selection of attractive compounds for deuteration. We identify candidate compounds for selective deuteration through the efforts of a team that integrates chemistry, biology, medical, regulatory, intellectual property and commercial expertise. We believe our ability to choose appropriate candidate molecules for selective deuteration is an important competitive advantage. We apply our experience and know-how to identify approved drugs, advanced clinical candidates or previously studied compounds that we believe can be improved with deuterium substitution to provide better pharmacokinetic or metabolic properties and thereby enhance clinical safety, tolerability or efficacy. We prioritize candidate compounds based on medical need, commercial opportunity, competitive and patent landscapes and internal strategic fit. We believe that we are capable of identifying one to two novel deuterated compounds per year that we can advance into preclinical development while concurrently progressing our existing pipeline.
Medicinal chemistry and chemical and biological testing of deuterated compounds. We have developed significant proprietary know-how in the design, synthesis, chemical analysis, bioanalytical assessment, preclinical evaluation and clinical development of deuterated compounds. Our know-how includes the ability to:
Ø |
synthesize a wide range of chemical compounds that incorporate deuterium selectively at specific positions and accurately analyze deuterium content at those positions; |
Ø |
identify, through an efficient, iterative process, the deuterated compounds that possess improved in vitro or in vivo metabolic or pharmacokinetic properties relative to the corresponding non-deuterated compound; |
Ø |
develop and apply bioanalytical methods to identify and measure metabolites formed by the in vitro and in vivo metabolism of deuterated compounds; and |
Ø |
understand how the effects of selective deuterium substitution may translate from in vitro to in vivo systems and from non-human models to humans. |
97
Business
Manufacturing of deuterated compounds. By applying our manufacturing and analytical know-how and capabilities, we are able to reproducibly manufacture deuterated compounds. Our manufacturing capabilities include the ability to:
Ø |
manufacture, analyze and formulate deuterated compounds that can be used in early stage clinical trials; |
Ø |
manufacture low kilogram quantities of deuterated active pharmaceutical ingredients and product candidates suitable for clinical trials; |
Ø |
transfer our methods to manufacturing vendors that can produce multi-kilogram quantities of clinical trial materials; and |
Ø |
utilize a supply chain that we have built with multiple vendors that can provide deuterium reagents and intermediates in commercial scale quantities. |
Development opportunities using our DCE Platform
We apply our DCE Platform to create deuterated analogs of:
Ø |
marketed drugs for their approved indications or compounds in clinical development for their targeted indications; |
Ø |
marketed drugs for non-approved indications or compounds in clinical development for indications that were not previously targeted; and |
Ø |
previously studied compounds, or close analogs thereof, that were not, or are no longer being, developed. |
Potential advantages of product candidates based on our DCE Platform
We apply our DCE Platform to systematically identify approved drugs, advanced clinical candidates or previously studied compounds for which we believe we can improve or create clinical benefit through deuterium substitution. Potential advantages of our selective deuteration include:
Ø |
Improved metabolic profile. We have selectively deuterated compounds and compounds produced by metabolism of other compounds, which are called metabolites, to improve their metabolic profiles by reducing the formation of toxic or reactive metabolites or by increasing the formation of desired, active metabolites relative to the corresponding non-deuterated compound. The improved metabolic profile may potentially reduce or eliminate unwanted side effects or undesirable drug interactions. For example, Avanir has reported that, compared to dextromethorphan, the deuterated dextromethorphan in AVP-786 required less quinidine, a metabolic inhibitor, to achieve desired clinical blood levels in a Phase 1 clinical trial. |
Ø |
Improved oral bioavailability. We have selectively deuterated compounds to reduce the extent of undesired metabolism in the wall of the intestines and in the liver, referred to as first-pass metabolism. This resulted in a larger percentage of unmetabolized drug reaching the target site of action. Deuterated compounds with improved bioavailability may be active at lower doses. For example, CTP-354 achieved substantially higher blood levels in in vivo preclinical tests than did the corresponding non-deuterated compound at an equivalent dose. |
Ø |
Increased half-life. We have selectively deuterated compounds to prolong their pharamacokinetic profile, which is an increase in the half-life of the compound in the body. This may decrease the number of doses that a patient is required to take per day or provide more consistent exposure of the compound in comparison to the corresponding non-deuterated compound. For example, in preclinical in vivo testing, JZP-386 demonstrated a prolonged pharmacokinetic profile and reduced variability relative to sodium oxybate. |
98
Business
Potential for expedited discovery and development of deuterated product candidates
We believe our approach of applying selective deuteration using our DCE Platform has the potential to provide a more efficient and less expensive approach to developing new chemical entity drugs as compared to conventional small molecule drug research and development. Key reasons include:
Ø |
By building on the known activity, safety or efficacy of approved drugs, advanced clinical candidates or previously studied compounds, we believe we can progress our product candidates through discovery and into clinical development more quickly than in conventional small molecule drug research and development. In a number of cases, including CTP-499, we have advanced compounds from initial synthesis to clinical evaluation in less than two years. |
Ø |
We believe the FDA and comparable foreign regulatory authorities may allow some of our compounds that are deuterated analogs of approved products, or of compounds for which approval is pending, to follow an expedited development pathway by relying on previous clinical data regarding the corresponding non-deuterated compound. For example, our collaborator Avanir reported agreeing with the FDA to an expedited development pathway for AVP-786 that would permit Avanir to reference data from its development of dextromethorphan and quinidine in its IND, and any future NDA, for AVP-786. |
OUR PRODUCT CANDIDATES
The following table summarizes key information about our priority programs. All of these product candidates are small molecules designed for oral administration.
CTP-354
Overview
CTP-354 is a novel, potentially first-in-class, non-sedating treatment for spasticity that we are initially developing for use in patients with multiple sclerosis and patients with spinal cord injury. CTP-354 is a subtype selective GABA A receptor modulator. GABA A receptors are found in the nervous system and, when activated, reduce the transmission of certain nerve signals.
99
Business
GABA A receptors can possess one of a number of a subunits, including a 1, a 2, a 3 and a 5. The pharmacological effects of activating a GABA A receptor in the nervous system are believed to depend mainly on which type of a subunit the receptor contains. Several classes of widely used drugs target GABA A receptors, including benzodiazepines such as diazepam (Valium). Benzodiazepines are used for the treatment of anxiety, spasticity, muscle tension, insomnia, acute alcohol withdrawal and seizures. Activation of a 1 GABA A receptors is believed to be mainly responsible for sedation and ataxia, which is a lack of muscle control during voluntary movements, associated with benzodiazepine use, and may also contribute to their amnesiac and habituating effects. Activation of a 2, a 3 and a 5 GABA A receptors is believed to cause other therapeutic effects of benzodiazepines, including anti-spasticity, muscle relaxation, anti-anxiety, anti-seizure and potentially anti-pain activities. Some sleep agents, such as zolpidem (Ambien ® ) and zaleplon (Sonata ® ), also target GABA A receptors, but activate a 1 GABA A receptors significantly more potently than the other a subtypes, which is believed to cause their pronounced sedative properties. Based on this clinical precedent as well as a variety of preclinical models, we believe that a compound that activates a 2, a 3 and a 5 GABA A receptors but does not significantly activate a 1 GABA A receptors will have clinical effects similar in a number of important respects to benzodiazepines, including anti-spasticity, muscle relaxant, anti-seizure and potentially anti-pain effects, but without the strong sedative effects of benzodiazepines.
We submitted an IND to the FDA in January 2013 for the development of CTP-354 for spasticity in patients with multiple sclerosis or spinal cord injury. We have completed a single ascending dose Phase 1 clinical trial to evaluate the safety, tolerability and pharmacokinetics of CTP-354 in healthy volunteers. We have also conducted a Phase 1 positron emission tomography, or PET, imaging study to assess the brain GABA A receptor occupancy of CTP-354 following a single dose of the compound in healthy volunteers and plan to continue the study with multiple doses of CTP-354 in the first half of 2014.
We currently plan to initiate a multiple ascending dose Phase 1 clinical trial evaluating daily doses of 2 mg and 6 mg of CTP-354 in healthy volunteers during the first quarter of 2014. Assuming successful completion of the multiple ascending dose Phase 1 clinical trial, we plan to initiate a Phase 2 clinical program for CTP-354 in the second half of 2014. We expect that the Phase 2 clinical program will include one clinical trial for the treatment of spasticity associated with multiple sclerosis and one clinical trial for the treatment of spasticity associated with spinal cord injury. In our previous preclinical testing, minimal, if any, toxicity was observed for CTP-354, and a maximum feasible dose or a maximum tolerated dose was not determined. As a result, the FDA has informed us that we may not administer multiple doses of CTP-354 in excess of 6 mg per day in clinical trials without first conducting an additional higher dose preclinical toxicology study. We believe that multiple doses of 6 mg per day would be sufficient for the treatment of spasticity; however, we intend to conduct the additional preclinical toxicology study to enable us to evaluate higher doses of CTP-354, if needed in our spasticity trials, as well as to support clinical development in other disease indications. Based on the well-known efficacy of benzodiazepines and other GABA A modulators, we believe CTP-354 has potential in a number of other indications, including anxiety, chronic pain, muscle tension and epilepsy.
Background
CTP-354 is a deuterated analog of a compound discovered by Merck & Co. referred to as L-838417. L-838417 was found in preclinical animal studies to possess certain therapeutic benefits of the benzodiazepine class of drugs, but without their predominantly sedative effect. Merck reported that, in in vitro testing, L-838417 activated the a 2, a 3 and a 5 GABA A receptors, which are associated with anti-spasticity, muscle relaxation, anti-anxiety, anti-seizure and, potentially, anti-pain activities, with approximately 40% of the in vitro activity of a benzodiazepine, with no significant activity at the a 1 GABA A receptors. Moreover, in a number of in vivo animal studies, L-838417 provided potent muscle relaxant, anti-anxiety, anti-convulsant and anti-pain activity, without causing apparent sedation or
100
Business
ataxia . In preclinical animal testing, Merck identified pharmacokinetic limitations of L-838417 relating to bioavailability and variability and did not progress the compound into clinical development. We designed CTP-354 to overcome the pharmacokinetic limitations of L-838417 while retaining its attractive pharmacological profile.
Spasticity
Spasticity is a chronic condition characterized by involuntary tightness, stiffness or contraction of muscles that occurs in patients who have damage to the brain or spinal cord. Spasticity can result from a wide range of disorders, including multiple sclerosis, spinal cord injury, cerebral palsy, amyotrophic lateral sclerosis, stroke and hereditary spastic paraplegia. Symptoms can range from mild muscle tightness to more severe symptoms, including crippling and painful inability to move limbs that can result in disability and diminished quality of life. The American Association of Neurological Surgeons estimated in 2006 that there were 12 million patients suffering from spasticity worldwide.
Market
Spasticity in Multiple Sclerosis. Multiple sclerosis is the most common disabling neurological condition affecting young adults, typically developing between the ages of 20 to 40 years. According to a 2008 World Health Organization report, multiple sclerosis affects more than 1.3 million people worldwide, including an estimated 400,000 people in the United States. Spasticity is one of the more common symptoms of multiple sclerosis and can be among the most painful, damaging and debilitating symptoms of multiple sclerosis. According to American Association of Neurological Surgeons, about 80% of people with multiple sclerosis suffer from some degree of spasticity. Of the estimated 400,000 patients diagnosed with multiple sclerosis in the United States, we estimate that at least 34%, or 140,000 patients, suffer from moderate to severe spasticity that impacts daily function in a meaningful way. Spasticity in multiple sclerosis may be as mild as the feeling of tightness of muscles or may be so severe as to produce painful, uncontrollable spasms of extremities, usually of the legs. Spasticity may also produce pain or tightness in and around joints, and can cause low back pain. Although spasticity in multiple sclerosis can occur in the arms and legs, it is much more common in the legs.
Spasticity in spinal cord injury . Spasticity is a significant health issue for many people with spinal cord injury. According to the National Spinal Cord Injury Statistics Center, in 2012, there were approximately 270,000 people in the United States suffering from spinal cord injury with approximately 12,000 new incidences per year. According to a 2011 report of the University of Washington Model Systems Knowledge Translation Center, 65% to 78% of spinal cord injury patients experience some degree of spasticity. Based on articles published in Archives of Physical Medicine and Rehabilitation in 1990 and 1999, we estimate that 28% to 46% of spinal cord injury patients suffer from problematic spasticity that could result in treatment. The most common muscles to be affected by spasticity in connection with spinal cord injury are the flexors, muscles that contract joints such as hips, knees or elbows, or the extensors, muscles that extend such joints. Spasms can occur as an automatic response to painful sensations.
Limitations of Current Treatments
Spasticity is typically treated with a combination of pharmacotherapy, physical therapy, occupational therapy and, in some severe cases, surgical intervention to sever affected nerves or muscles. The available pharmaceutical treatments for spasticity are frequently limited by either inadequate relief of symptoms or dose-limiting side effects, such as sedation, and based on a 2009 report of WE MOVE, a not-for-profit organization dedicated to improving awareness of movement disorders, we estimate that over 40% of
101
Business
people with spasticity are not satisfied with the management of their disorder or the state of their overall health. First-line treatments for adult use in the United States typically include:
Ø |
Oral baclofen, the most commonly prescribed agent for spasticity, which is approved by the FDA for treatment of spasticity resulting from multiple sclerosis and spinal cord injury or spinal cord disease. It is also used extensively, although not approved, for treatment of spasticity in post-stroke and cerebral palsy patients. Baclofen has dose-limiting side effects, including drowsiness, dizziness and ataxia. Sedation resulting from baclofen is particularly problematic and many patients are maintained on sub-therapeutic doses due to lack of more attractive options. In addition, baclofen has a short half-life in the body and, as a result, it is typically dosed three times a day, which is an inconvenience for patients. Moreover, baclofen can result in severe withdrawal symptoms if abruptly discontinued, including hallucinations, seizures and rebound spasticity. |
Ø |
Tizanidine, which is approved by the FDA for the general management of spasticity. Oral tizanidine is marketed as Zanaflex ® . Tizanidine can be highly sedating, has a short half-life in the body and is not as widely used as baclofen for the treatment of spasticity. It is typically reserved for daily activities and times when relief of spasticity is most important. Use of tizanidine can also result in liver injury and the recommended monitoring of liver function imposes a burden on both the patient and the physician. |
Ø |
Injected botulinum toxin, which is approved by the FDA for treatment of upper limb spasticity in adults, among other indications. Botulinum toxin, which is marketed as Botox ® , is also used, although not approved for, treatment of children with cerebral palsy. It is currently in Phase 3 trials for that indication. Botulinum toxin can be very effective for treatment of spasticity in small muscle groups and localized injections of botulinum toxin are commonly used to treat spasticity as a monotherapy or in combination with other therapies. However, more extensive injections of botulinum toxin can result in systemic toxicity that is characterized by swallowing and breathing difficulties that can lead to death. |
Other less commonly used treatments include:
Ø |
Diazepam, which is approved by the FDA as an oral agent for the treatment of spasticity related to upper motor neuron disorders, including cerebral palsy and paraplegia. Diazepam is marketed as Valium. Diazepam is a benzodiazepine and, like other benzodiazepines, its therapeutic efficacy is limited by side effects and concerns about abuse potential. The most commonly reported side effects of diazepam are drowsiness, fatigue, muscle weakness and ataxia. As a result of these side effects, use of diazepam for the treatment of spasticity is typically reserved for use in small doses at night for patients who have difficulty sleeping. |
Ø |
Dantrolene, which is approved by the FDA as an oral agent for the treatment of spasticity resulting from upper motor neuron disorders such as spinal cord injury, stroke, cerebral palsy or multiple sclerosis, but which is rarely used as it causes severe muscle weakness and can cause liver damage. |
Ø |
Abdominal implantation of a pump that injects baclofen around the spinal cord, referred to as intrathecal administration. Intrathecal administration of baclofen can provide effective relief of spasticity, particularly in lower limbs, but its use is limited by its invasiveness and potentially dangerous complications resulting from spinal fluid leaks, hemorrhage, infection, catheter dislodgement or blockage and pump failure. Abrupt discontinuation, whether as a result of catheter dislodgement, pump failure or another cause, can result in high fever, altered mental status, exaggerated rebound spasticity and, in rare cases, multiple organ-system failure and death. |
Ø |
Surgical intervention, to sever sensory nerves or, more rarely, muscles. The use of surgical intervention is limited due its invasiveness and irreversibility. |
102
Business
Potential Advantages of CTP-354 for Spasticity
We believe that CTP-354 has the potential to provide therapeutic benefits without the limitations of existing spasticity therapies, which can include severe sedative effects, toxicity, frequent dosing or invasiveness. In our Phase 1 clinical trials, CTP-354 demonstrated highly favorable pharmacokinetics with low variability, dose-proportional exposure, a long half-life in the body and high levels of GABA A receptor occupancy. We believe these results support once-daily dosing, which would provide a substantial improvement on the three-times-daily dosing required by current standard-of-care oral spasticity medicines. In our Phase 1 clinical trials, CTP-354 provided much higher levels of GABA A receptor occupancy without causing sedation than benzodiazepines at doses that are typically prescribed, which we believe supports the potential of CTP-354 to be a non-sedating treatment for spasticity.
CTP-354 Clinical Development
Phase 1 Single Ascending Dose Clinical Trial. In August 2013, we completed a randomized, double-blind, placebo-controlled, single ascending dose Phase 1 clinical trial in 71 healthy adult volunteers at a single center in the United States to assess the safety, tolerability and pharmacokinetics of CTP-354. Volunteers were randomized to receive CTP-354 or placebo in a three to one ratio with eight cohorts of eight volunteers each and one cohort of seven volunteers. Six volunteers in each cohort received a single dose of CTP-354 and the remaining subjects received placebo. Doses were administered in oral liquid suspensions ranging from 0.15 mg up to 60 mg.
In the clinical trial, CTP-354 was well-tolerated up to 60 mg, the highest dose tested. We did not test higher doses after our concurrently conducted Phase 1 imaging study indicated that high levels of GABA A receptor occupancy could be achieved at doses lower than 60 mg. In future studies, we anticipate testing doses of CTP-354 that are below 40 mg.
Pharmacokinetic data from our single ascending dose trial indicated that CTP-354 was well-absorbed with low inter-subject variability and a long plasma half-life, potentially supporting once-daily dosing of the compound. The following graph shows the mean plasma concentration over time following administration of single ascending doses of CTP-354 in the six subjects in each cohort of the trial who received CTP-354. As illustrated in the graph, doses of CTP-354 of 20 mg and higher resulted in plasma concentrations in excess of 100 ng/mL, maintained for 24 hours following dosing. Our Phase 1 imaging study indicated that these plasma concentrations corresponded to brain GABA A receptor occupancy of greater than 50%. We believe that the high GABA A receptor occupancy of CTP-354 at well-tolerated doses supports its potential as a non-sedating oral treatment for spasticity.
103
Business
CTP-354 Mean Plasma Concentration vs. Time
CTP-354 was generally well tolerated in our Phase 1 single ascending dose trial. No serious adverse events were reported in the trial. The most common adverse events observed in the trial were:
Ø |
dizziness, which was experienced by nine of the 54 subjects treated with CTP-354; |
Ø |
drowsiness, which was experienced by seven of the 54 subjects treated with CTP-354; |
Ø |
prolonged QTc, an indicator of potential cardiac arrhythmias, which was experienced by four of the 54 subjects treated with CTP-354; and |
Ø |
pain or muscle tightness, which was experienced by three of the 54 subjects treated with CTP-354 and two of the 17 subjects receiving placebo. |
Neurologic adverse effects were more common at higher doses of CTP-354, particularly 40 mg and 60 mg, whereas prolonged QTc and muscular adverse effects did not appear to be dose-dependent. In the clinical judgments of the principal study investigator and an independent medical monitor, no incident of QTc prolongation was considered to have posed a health risk to the subjects in the trial. All adverse events were considered mild with the exception of two incidents of dizziness and drowsiness in the 40 mg group, and one incident of nausea in the 60 mg group, each of which was considered moderate. Each incident of muscular pain or tightness with CTP-354 occurred at least one day after dosing.
Phase 1 Imaging Study. We are currently conducting a Phase 1 imaging clinical trial using PET scanning to measure the extent to which CTP-354 binds to GABA A receptors in the brain in healthy adult volunteers. For the first part of this imaging study, we evaluated single doses of CTP-354 of 4 mg, 20 mg, 40 mg and 60 mg in a total of nine healthy volunteers. We selected these doses because they did not produce dose-limiting side effects in our single ascending dose clinical trial and with the goal of providing a wide range of GABA A receptor occupancy. Our objectives in this study were to assess whether CTP-354 could provide similar or higher brain GABA A receptor occupancy levels than those typically provided by benzodiazepines at doses that do not cause dose-limiting sedation; and to compare the relationship between CTP-354 plasma levels and GABA A brain receptor occupancy.
In the first part of the imaging study, we observed average GABA A receptor occupancies of between 34% and 82% in subjects five hours after they received a single dose of either 4 mg, 20 mg, 40 mg or 60 mg of
104
Business
CTP-354. For each subject, we conducted a baseline scan in which a small amount of flumazenil, a radiolabeled, positron emitting benzodiazepine, was injected intravenously and the brain was subsequently imaged to show flumazenil binding to the GABA A receptors. The subject was given a single oral dose of CTP-354 within two weeks of the baseline scan. Five hours after CTP-354 dosing, the subject received another injection of radiolabeled flumazenil and the imaging was repeated to provide a second scan. Twenty-four hours after CTP-354 dosing, the subject received another injection of radiolabeled flumazenil and the imaging was repeated to provide a third scan.
The images below were obtained from the two subjects who received a single 20 mg dose of CTP-354. In the images:
Ø |
the baseline, or first, scans appear bright due to the presence of radiolabeled flumazenil bound to the GABA A receptors; |
Ø |
the second and third scans are not as bright as the first scan due to the binding of CTP-354 to the subjects GABA A brain receptors, which prevents the radiolabeled flumazenil from binding; and |
Ø |
the third scan is somewhat brighter than the second scan, showing that less CTP-354 is bound to the GABA A receptors after 24 hours than after five hours. |
Phase 1 Imaging Study: 20 mg of CTP-354
The scans we obtained from the seven other patients in the first part of the imaging study were consistent with these scans from the subjects receiving the 20 mg dose, with GABA A receptor occupancy levels increasing with dosing levels between 4 mg and 40 mg, but appearing not to increase significantly between 40 mg and 60 mg.
In the first part of the imaging study, we obtained quantitative measures of GABA A receptor occupancy for the single doses of CTP-354 that were administered. A single 20 mg dose of CTP-354, a dose at which no sedative or other adverse events were reported in the study, provided GABA A receptor occupancy levels, at both five hours and 24 hours following dosing, substantially in excess of the 10% to 25% occupancy levels at which benzodiazepines and GABA A receptor-binding sleep drugs become highly sedative.
105
Business
The table below shows the average GABA A receptor occupancy at five hours and 24 hours after dosing in the first part of the imaging study.
CTP-354 Dose |
Number of Subjects |
Average GABA A Receptor Occupancy at 5 Hours After Dosing |
Average GABA A Receptor Occupancy at 24 Hours After Dosing |
|||||
4 mg | 2 | 34% | 13% | |||||
|
||||||||
20 mg |
2 | 63% | 60% | |||||
|
||||||||
40 mg |
3 | 79% | (1) | 71% | ||||
|
||||||||
60 mg |
2 | 82% | 76% | |||||
|
(1) |
Reflects data from two of the three subjects. We could not calculate GABA A receptor occupancy at five hours for the first subject due to a computer error. |
The graph below shows the relationship between plasma concentration and brain GABA A receptor occupancy for CTP-354 in the first part of the imaging study. The 17 data points on the graph below each represent a single reading in a single subject. These include two readings for each subject, one at five hours and one at 24 hours following dosing, with the exception of one subject for whom we could not calculate GABA A receptor occupancy at five hours due to a computer error. The graph below shows how GABA A receptor occupancy increases with increasing plasma concentration. As illustrated in the graph, we observed that plasma concentrations in excess of 100 ng/mL correlated with GABA A receptor occupancies greater than 50%.
CTP-354 GABA A Receptor Occupancy vs. Plasma Concentration in Healthy Volunteers
In the Phase 1 imaging study, no adverse events were reported in volunteers receiving 4 mg or 20 mg of CTP-354. At 40 mg, two of three subjects reported mild to moderate dizziness, mild drowsiness and nausea and one subject each reported mild euphoria, loss of balance and lightheadedness. At 60 mg, adverse events included sedation and ataxia, both mild in one subject and both moderate in the other. One subject receiving 60 mg of CTP-354 reported mild lightheadedness, restlessness and irritability and the other reported mild dizziness. All adverse effects had resolved by the following day.
Based on clinical studies of diazepam and other benzodiazepines, we believe that the high and sustained brain GABA A receptor occupancy levels achieved by CTP-354, at doses that were well-tolerated in our Phase 1 clinical trials, provide evidence of its therapeutic potential. For instance, in our Phase 1 imaging study, a single 20 mg dose of CTP-354 did not cause sedation or ataxia while producing GABA A receptor
106
Business
occupancy of greater than 50% sustained for 24 hours, which is much higher than the receptor occupancies at which benzodiazepines typically cause sedation. Therefore, we believe that CTP-354 may provide clinical benefit against spasticity similar to that of benzodiazepines without the dose-limiting effects of benzodiazepines. However, while the data we have obtained to date in our Phase 1 imaging study have generally been consistent, due to the relatively small scale of the study we cannot be certain that these data are representative of the data that would be obtained from a larger-scale clinical trial.
We plan to continue this Phase 1 imaging study to evaluate GABA A receptor occupancy after repeated dosing of CTP-354. We expect that repeated dosing will enable us to determine GABA A receptor occupancy levels after CTP-354 plasma levels are at steady state. We expect that this imaging study will support selection of therapeutically relevant doses for Phase 2 clinical trials.
Partial Clinical Hold
In November 2013, we received notice from the FDA of a partial clinical hold on CTP-354 that prevents us from administering single doses in excess of 60 mg per day and multiple doses in excess of 6 mg per day. We currently plan to initiate a multiple ascending dose Phase 1 clinical trial evaluating daily doses of 2 mg and 6 mg of CTP-354 in healthy volunteers. We do not intend to conduct single dose clinical trials of CTP-354 with doses in excess of 60 mg.
In our previous preclinical testing, CTP-354 was associated with minimal, if any, toxicity. However, the FDA notice stated that, since a maximum tolerated dose was not achieved in those studies, preclinical testing at doses higher than those tested in our preclinical studies to date would be needed before we can clinically evaluate multiple doses that exceed 6 mg per day. In December 2013, we had a phone conference with the FDA to discuss the partial clinical hold notice. During the phone conference, the FDA confirmed that we could dose CTP-354 up to 6 mg per day in multiple doses for 28 days. They also stated that to administer CTP-354 in a Phase 2 clinical trial at multiple doses greater than 6 mg per day, the required additional testing could be conducted in only one animal species to determine a maximum tolerated dose or a maximum feasible dose. We estimate that administration of 6 mg per day of CTP-354 in multiple doses may provide brain GABA A receptor occupancy of about 60%, which is significantly higher than that achieved by typical clinical doses of benzodiazepines. Based on this estimated receptor occupancy level, we believe that multiple doses of 6 mg per day would be sufficient for the treatment of spasticity, the first indication for which we plan to conduct clinical trials. However, we intend to conduct the additional preclinical toxicology study in the first half of 2014 to enable us to evaluate higher doses of CTP-354, if needed in our spasticity trials, as well as to support clinical development in other disease indications. Based on our dialog with the FDA, we do not believe that the partial clinical hold will affect the timelines of our previously planned Phase 2 clinical trial of CTP-354.
Planned Additional Phase 1 Clinical Trial
We plan to commence a Phase 1 multiple ascending dose clinical trial in the first quarter of 2014 to evaluate safety, tolerability and pharmacokinetics of CTP-354 in up to 62 healthy volunteers. We expect to report initial data from this planned Phase 1 clinical trial in the second half of 2014. We are designing this clinical trial to assess multiple doses and formulations of CTP-354 as well as the effects of taking CTP-354 with food as compared to following fasting. As a result of the long half-life of CTP-354, we believe that plasma concentrations of CTP-354 will increase over the course of a number of days when it is administered once daily. Accordingly, in this clinical trial we are planning to evaluate doses of CTP-354 lower than those that resulted in saturation of GABA A receptor occupancy following a single dose. We currently plan to evaluate daily doses of 2 mg and 6 mg of CTP-354 over 10-day periods, with dosing in a liquid suspension formulation. We may also incorporate into this clinical trial a cross-over to a solid dose formulation for subjects receiving 6 mg. If we are able to lift the partial clinical hold on
107
Business
CTP-354, we plan to evaluate daily doses of CTP-354 that are higher than 6 mg over 10-day periods, with dosing that may be in a liquid suspension or a solid dose formulation.
Planned Phase 2 Clinical Development
Subject to successful completion of our planned Phase 1 multiple ascending dose clinical trial and our ongoing Phase 1 imaging study, we plan to advance CTP-354 into two Phase 2 clinical trials. We expect to commence the Phase 2 clinical development in the second half of 2014. We plan to determine dosing levels following completion of the Phase 1 multiple ascending dose clinical trial. We expect that the Phase 2 clinical trials will evaluate the safety and efficacy of CTP-354 for the potential treatment of spasticity associated with both multiple sclerosis and spinal cord injury and will feature two-way cross-over between dosing with CTP-354 and placebo.
CTP-354 Preclinical Development
Our preclinical program included testing of CTP-354 in a neuropathic pain rat model, in which CTP-354 was effective with no apparent sedation or ataxia at the therapeutic doses. Specifically, the effectiveness of CTP-354 in the neuropathic pain rat model at oral doses of between 10 and 100 mg/kg was similar to that of gabapentin, a standard positive control in this model, dosed at 100 mg/kg. In this preclinical test, 30 and 100 mg/kg doses of CTP-354 also demonstrated a longer duration of action than gabapentin. Our preclinical program also included studies in rat models in which CTP-354 demonstrated an improved pharmacokinetic profile compared to L-838417. We also conducted a GABA A receptor occupancy study in rats evaluating doses ranging from 1 mg to 30 mg. The minimally effective dose of CTP-354 in the rat neuropathic pain model was 1 mg/kg, a dose that provided rat brain GABA A receptor occupancy of about 25%. Higher doses resulted in greater occupancy, with 30 mg/kg resulting in brain GABA A receptor occupancy of about 80% to 85%.
Our preclinical program also included pharmacokinetic studies in rats comparing CTP-354 to L-838417. CTP-354 and L-838417 were orally dosed at 1 mg/kg in eight male Sprague-Dawley rats. The plasma levels of CTP-354 were significantly greater than those of L-838417. The maximum observed peak plasma concentration for CTP-354 was 4.8 times higher than that of L-838417 and the total exposure to CTP-354 was three times higher as compared to L-838417. Based on this study, we were encouraged to further develop CTP-354. The Phase 1 study that we later conducted showed that CTP-354 has a longer half-life in humans than it does in rats. The graph below shows the comparison of CTP-354 and L-838417 in this rat pharmacokinetic study.
CTP-354 vs. L-838417 Oral Pharmacokinetics in Rats
108
Business
Fast Forward Sponsored Research Agreement
In February 2012, we entered into a sponsored research agreement with Fast Forward LLC, a subsidiary of the National Multiple Sclerosis Society, to fund the preclinical advancement of CTP-354. Under the Fast Forward agreement, we received a non-refundable upfront payment of $0.2 million, as well as further non-refundable payments of $0.6 million for the achievement of the preclinical development milestones set forth in the agreement. We are obligated to make milestone payments to Fast Forward not in excess of a low-single digit multiple of the funding amount if we commercialize CTP-354 or license the development and commercialization of CTP-354 to a third party.
Potential Additional Indications
Based on the well-known efficacy of benzodiazepines and other GABA A modulators, we believe CTP-354 has potential in a number of other indications, including anxiety, chronic pain, muscle tension and epilepsy.
CTP-499
Overview
CTP-499 is a novel oral multi-subtype selective inhibitor of PDEs that we are developing to slow the progression of type 2 diabetic kidney disease in patients with macroalbuminuria. We use the term type 2 diabetic kidney disease to refer to chronic kidney disease in patients with type 2 diabetes. We are developing CTP-499 as an additive treatment to the current standard of care for type 2 diabetic kidney disease, angiotensin modulation, which is treatment with an ACEi or an ARB. We are currently conducting a three-part Phase 2 clinical trial of CTP-499 in which we have enrolled patients with type 2 diabetic kidney disease and macroalbuminuria who were receiving standard-of-care treatment. We believe that CTP-499, if approved in this indication, will address a substantial commercial market, as despite the protective effect of angiotensin modulators in type 2 diabetic kidney disease, we estimate that each year over 40,000 patients with type 2 diabetes progress to end-stage kidney failure in the United States. We expect that we would conduct any large Phase 3 clinical trial of CTP-499 in type 2 diabetic kidney disease in collaboration with one or more partners.
CTP-499 is a deuterated analog of 1-(S)-5-hydroxyhexyl-3,7-dimethylxanthine, or HDX, an active metabolite of pentoxifylline. Pentoxifylline was approved over three decades ago for the treatment of intermittent claudication, or lower limb pain resulting from obstructed arteries, and has a well-established safety profile. Investigator-sponsored, single site clinical studies have evaluated pentoxifylline in chronic kidney disease patients, including in patients with diabetes, who were also simultaneously treated with an angiotensin modulator. In most of these studies, the investigator reported that patients experienced a reduction in albuminuria. In some of these studies, which were conducted for at least 12 months, the investigator also reported a slowing in decline of kidney function in patients receiving pentoxifylline compared to the decline in patients receiving placebo. We chose to develop CTP-499 because our preclinical research, combined with literature data, indicated that HDX, rather than pentoxifylline, may be responsible for the majority of these observed beneficial effects of pentoxifylline in humans.
Type 2 Diabetic Kidney Disease
Type 2 diabetic kidney disease is a condition in which the kidneys ability to filter blood is impaired and is typically chronic and progressive. The filtering ability of the kidney is measured as glomerular filtration rate, or GFR. Direct measurement of GFR is cumbersome. As a result, it is typically estimated by measuring blood levels of certain waste products, creatinine or cystatin C or both, and then applying
109
Business
a mathematical formula that accounts for additional variables, including age, race and gender, to derive the eGFR. GFR and eGFR are measured in units of milliliters per minute per 1.73 meters squared, which is a typical adult body surface area. An eGFR of 60 to 89 is mild or early stage type 2 diabetic kidney disease, 30 to 59 is moderate or mid-stage, 15 to 29 is advanced or severe type 2 diabetic kidney disease and below 15 indicates kidney failure urgently requiring dialysis or kidney transplantation to avoid death.
Urinary excretion of albumin, a common protein in the blood, is believed to indicate kidney damage if sustained for longer than three months. Albumin excretion is typically measured in terms of UACR, a ratio that helps to correct for variability in urine concentrations. UACR is expressed as milligrams of albumin per gram of creatinine. A UACR greater than 300 mg/g is referred to as macroalbuminuria and, when sustained for three months or longer, generally indicates substantial kidney damage. Macroalbuminuria and reduced eGFR are independent indicators of kidney disease. Patients who have both macroalbuminuria and reduced eGFR are at high risk for rapidly advancing disease, death or progression to kidney failure.
Type 2 diabetic kidney disease is a highly complex, multifactorial disease involving inflammatory, oxidative and fibrotic processes. PDEs are a family of enzymes that regulate diverse pathways involved in these processes. Different PDEs, including several which CTP-499 inhibits, have been shown to contribute to kidney damage in preclinical animal models.
Market
According to the Centers for Disease Control, in 2011, approximately 26 million people in the United States had diabetes, with 90% to 95% suffering from type 2 diabetes, commonly referred to as adult-onset diabetes. According to a 2009 article in the American Diabetes Association journal Diabetes Care , type 2 diabetes is the leading cause of chronic kidney disease. The United States Renal Data Survey, a national data system that collects, analyzes and distributes information about end-stage renal disease, the most severe stage of chronic kidney disease, in the United States, indicates that diabetes is the leading cause of end-stage renal disease in the United States. Patients with type 2 diabetes and chronic kidney disease have a markedly increased mortality rate compared to type 2 diabetics without chronic kidney disease.
Patients with end stage renal disease resulting from chronic kidney disease and other causes impose a significant economic burden on the United States, constituting approximately 1.3% of Medicare beneficiaries but accounting for approximately 8.0% of Medicare expenditures, or $33 billion, according to the 2012 annual report of the United States Renal Data Survey. According to the United States Renal Data Survey, in 2010 in the United States, it cost approximately $60,000 more per year to treat a patient undergoing hemodialysis, treatment in which a machine filters wastes, salts and fluid from the blood, than a patient with chronic kidney disease who did not require hemodialysis. Consequently, we believe that a drug that would delay or prevent the progression of renal disease and the onset of end stage renal disease would have significant pharmacoeconomic benefits.
Limitations of Current Therapies
Current standard of care for type 2 diabetic kidney disease is treatment with angiotensin modulators. These are antihypertensive agents that also have the effect of reducing albuminuria and slowing the decline of renal function. However, despite treatment with these drugs, many type 2 diabetic kidney disease patients continue to experience loss in renal function at a rate that is significantly faster than normal age-related decline. We believe that an agent with a novel mechanism, such as CTP-499, that can complement the effects of angiotensin modulation and further slow the progression toward kidney failure would offer an important medical benefit and present a substantial commercial opportunity.
110
Business
CTP-499 Phase 2 Clinical Trial
We are conducting a Phase 2 placebo-controlled clinical trial of CTP-499 in patients with type 2 diabetic kidney disease and macroalbuminuria. All patients enrolled in the clinical trial are being concurrently treated with angiotensin modulators. The clinical trial consists of three parts:
Ø |
Part 1 a double-blind, parallel, two-arm, placebo-controlled study evaluating the safety and efficacy of 600 mg of CTP-499 twice daily for 24 weeks. We enrolled 182 patients in this first part of the trial, which we completed in 2013. |
Ø |
Part 2 a blinded 24-week extension study in which all patients who completed Part 1 were eligible to continue receiving 600 mg of CTP-499 or placebo twice daily. We enrolled 143 patients in this part of the clinical trial and have completed dosing. 124 of the 143 patients that we enrolled in Part 2 of the clinical trial completed Part 2. We have conducted preliminary analyses of the combined 48 weeks of data from Parts 1 and 2 of the clinical trial with respect to 123 of the 124 patients that completed Part 2 of the trial, but have not yet completed a full analysis of the data from Part 2. We expect to report the final top line results for the first 48 weeks of the trial in the first half of 2014. |
Ø |
Part 3 all patients who complete Part 2 are eligible to receive 600 mg of CTP-499 twice daily in a 48 week open-label extension study. As of December 31, 2013, we had enrolled 102 patients in this part of the trial and commenced dosing. |
The primary objective of the trial was to evaluate the safety and efficacy of treatment with CTP-499 administered in twice daily oral doses of 600 mg in a controlled release formulation for a minimum of 24 weeks. The primary endpoint was measurement of changes in UACR. Key secondary endpoints were:
Ø |
changes in serum creatinine and eGFR and |
Ø |
safety, including incidence of adverse events. |
The key criteria for inclusion of patients in the trial included the following characteristics:
Ø |
eGFR from 23 to 89 mL/min/1.73 m 2 , which indicates mild to moderately severe type 2 diabetic kidney disease; |
Ø |
having been on a stable angiotensin modulation regimen for a minimum of four weeks prior to initiating screening and nine weeks prior to initiating dosing; |
Ø |
blood pressure less than or equal to 145/90 mm Hg; |
Ø |
glycosylated hemoglobin A1c (HbA1c) less than or equal to 10.5%, for the purposes of excluding patients with poorly controlled blood glucose; and |
Ø |
UACR greater than or equal to 200 mg/g in male patients and 300 mg/g in female patients, ratios of albumin to creatinine that are indicative of substantial kidney damage in men and women, but not more than 5,000 mg/g, a ratio indicative of severe kidney disease. |
Phase 2 Clinical Trial Results
We believe that the preliminary data we have analyzed to date from the first 48 weeks of treatment support the potential of CTP-499 to help protect kidney function in patients with rapidly progressing type 2 diabetic kidney disease. As described below, we did not achieve statistical significance in the primary endpoint of the trial at 24 weeks. However, while our Phase 2 clinical trial was not intended to be powered for statistical significance with respect to serum creatinine or eGFR, and 48 weeks is a limited duration for measuring kidney function, our preliminary analyses of these key secondary endpoints at 48 weeks showed potential benefits including a nearly statistically significant impact on serum creatinine levels and a positive trend in eGFR.
111
Business
Our preliminary 48 week analyses suggest that the serum creatinine levels of patients who received CTP-499 rose less than those of patients who received placebo. Serum creatinine is waste product that is cleared by the kidneys. Our preliminary analyses indicate that the mean serum creatinine level in the 65 patients receiving CTP-499 increased by 0.13 mg/dL over the 48 weeks of treatment, as compared to an increase of 0.21 mg/dL in the 58 patients receiving placebo. The lower value in the case of CTP-499 represents a 38% improvement as compared to placebo (p = 0.07 using a two-tailed statistical analysis) at 48 weeks and may indicate a slower decline of kidney function in patients treated with CTP-499 than those who received placebo. A two-tailed analysis is a rigorous statistical test that assesses whether a study drug performs better or worse than placebo, as opposed to a one-tailed analysis that only tests if it is better. The statistical analysis plan for our Phase 2 trial was based on a two-tailed analysis. However, many Phase 2 trials use a one-tailed analysis. If analyzed by a one-tailed analysis, the serum creatinine results would be statistically significant (p < 0.05).
Our preliminary analyses of mean eGFR levels in the 65 patients receiving CTP-499 compared to the 58 patients receiving placebo at 48 weeks did not indicate a meaningful difference. However, our preliminary analyses indicated a favorable trend, which was not statistically significant, at 48 weeks in reduced incidence of large eGFR declines in patients receiving CTP-499 as compared to placebo. Declining eGFR is believed to indicate worsening of kidney function. In this pre-specified analysis, we compared the number of patients who experienced eGFR declines of at least 30% and 40% after 48 weeks in the CTP-499 group and the placebo group. Our preliminary analyses indicated the following:
Ø |
Eight out of the 58 patients receiving placebo, or 14%, experienced a 30% or greater decline in eGFR, compared with four out of the 65 patients receiving CTP-499, or 6% (p = 0.11). |
Ø |
Three out of the 58 patients receiving placebo, or 5.2%, experienced a 40% or greater decline in eGFR, compared with one out of the 65 patients receiving CTP-499, or 1.5% (p = 0.23). |
We believe that the incidence of large declines in eGFR in drug-treated versus placebo-treated patients may be an acceptable primary endpoint for Phase 3 clinical development of a drug candidate for the treatment of type 2 diabetic kidney disease. Our belief is based on the findings of a December 2012 scientific workshop sponsored by the NKF and the FDA, and subsequent presentations by the NKF and the FDA. We intend to request in mid-2014 an end of Phase 2 meeting with the FDA to discuss endpoints for Phase 3 clinical development of CTP-499.
We have also conducted a preliminary post-hoc analysis of our data at 48 weeks in which we determined that all but one of the incidents of 30% or greater declines in eGFR occurred in patients with initial baseline UACR levels above the trial enrollment median, which was about 850 mg/g. This suggests that we may be able to conduct a subsequent clinical trial designed to measure an eGFR decline of at least 30% with a substantially enriched patient population by enrolling only patients with baseline UACR levels that are substantially higher than the minimum that was required for our Phase 2 clinical trial of CTP-499. A trial with such an enriched patient population would have the potential to provide the same statistical power to detect a difference between placebo and drug treatment as a trial enrolling macroalbuminuric patients with a wider range of UACR levels, but with a considerably smaller number of patients.
We did not observe a meaningful difference between patients receiving CTP-499 and patients receiving placebo in change in UACR at 24 weeks, the primary endpoint of the Phase 2 clinical trial. However, our preliminary analyses after 48 weeks of treatment suggested a favorable trend, which was not statistically significant, in UACR for patients receiving CTP-499 as compared to placebo. These preliminary analyses indicated that the mean rise in UACR for the CTP-499 group was 24 mg/g (2.2%) from a baseline mean of 1089 mg/g, compared to a mean rise of 222 mg/g for the placebo group from a baseline mean of 1066 mg/g (20.8%) (p = 0.13). While UACR has been commonly used as an indicator of efficacy in Phase 2 trials in type 2 diabetic kidney disease, it is not accepted by the FDA as an endpoint for a Phase 3 clinical trial for the treatment of type 2 diabetic kidney disease.
112
Business
Treatment with CTP-499 was generally well tolerated in Part 1 of our Phase 2 clinical trial. Data collection and monitoring remain ongoing with respect to safety and tolerability of CTP-499 in Part 2 of the trial. Overall, incidence of serious adverse events in Part 1 of the trial was balanced between the placebo (15.9%) and CTP-499 (15.7%) groups. None of the serious adverse events were attributed by trial investigators to drug treatment and there were numerically more serious adverse cardiac events in placebo-treated patients (5.7%) than in patients who received CTP-499 (3.4%). Two deaths occurred during Part 1 of the trial . Both deaths occurred in patients in the CTP-499 group; however, neither was attributed by trial investigators to drug treatment. Discontinuations due to adverse events were comparable in the placebo (10.2%) and CTP-499 (10.1%) groups. Adverse events with at least 10% incidence in either treatment group were gastrointestinal disorders (22.7% for placebo and 29.2% for CTP-499); infections (15.9% for placebo and 27.0% for CTP-499); vascular disorders (15.9% for placebo and 9.0% for CTP-499); peripheral edema, fatigue and fever (12.5% for placebo and 11.2% for CTP-499); nervous system disorders (9.1% for placebo and 11.2% for CTP-499); musculoskeletal and connective tissue disorders (6.8% for placebo and 11.2% for CTP-499); respiratory and thoracic disorders (6.8% for placebo and 10.1% for CTP-499); endocrine disorders (4.5% for placebo and 10.1% for CTP-499); and metabolism and nutritional disorders (10.2% for placebo and 3.4% for CTP-499). Our preliminary analyses after 48 weeks of treatment also suggest that levels of serum potassium in patients who received CTP-499 were similar to baseline levels. Elevated levels of serum potassium are considered unsafe and have the potential to limit dosing.
A summary of the serious adverse events in Part 1 of our Phase 2 clinical trial is shown in the table below.
Placebo | CTP-499 | |||||||
n = 88 | n = 89 | |||||||
Serious Adverse Events |
||||||||
Total serious adverse events |
14(15.9%) | 14(15.7%) | ||||||
Cardiac disorders |
5(5.7%) | 3(3.4%) | ||||||
Infections |
3(3.4%) | 5(5.6%) | ||||||
Vascular disorders |
4(4.5%) | 1(1.1%) | ||||||
Neoplasms |
| 2(2.2%) | ||||||
Psychiatric disorders |
| 2(2.2%) | ||||||
Blood and lymphatic system disorders |
| 1(1.1%) | ||||||
Gastrointestinal disorders |
1(1.1%) | | ||||||
Nervous system disorders |
1(1.1%) | |
AVP-786
Overview
In February 2012, we granted Avanir an exclusive license to develop and commercialize deuterated dextromethorphan analogs. Avanir is developing AVP-786, which is a combination of a deuterated dextromethorphan analog and an ultra-low dose of quinidine, for the treatment of neurologic and psychiatric disorders. In February 2013, Avanir reported positive results from a Phase 1 clinical trial of AVP-786. In June 2013, Avanir reported that the FDA had agreed to an expedited development pathway for AVP-786. In October 2013, Avanir reported plans to advance AVP-786 into a Phase 2 clinical trial in the second half of 2014 for treatment-resistant major depressive disorder in patients with insufficient response to conventional anti-depressants.
113
Business
Avanir currently markets a combination of dextromethorphan and quinidine, Nuedexta ® , for pseudobulbar affect, which is a neurological condition characterized by involuntary, sudden and sometimes frequent episodes of laughing or crying. The quinidine in Nuedexta inhibits the metabolism of dextromethorphan. Without a metabolic inhibitor such as quinidine, dextromethorphan is rapidly metabolized by most humans, limiting its effectiveness and resulting in the production of metabolites that are harmful in large amounts. However, quinidine can cause heart rhythm changes. As a result, it is preferable to minimize dosing of quinidine.
Planned Development by Avanir
Avanir has stated that it plans to develop AVP-786 for the treatment of neurologic and psychiatric disorders, including pain, behavioral disorders, mood disorders and movement disorders. Avanir has also reported that it plans to integrate its development of AVP-786 into its ongoing clinical development program for AVP-923, a dextromethorphan and quinidine combination product candidate. Avanir reported that AVP-786, which includes a lower dose of quinidine than AVP-923, provided approximately the same pharmacokinetic exposure as AVP-923 in a Phase 1 clinical trial. Avanir has announced conducting Phase 2 or Phase 3 clinical trials of AVP-923 in the following areas:
Ø |
agitation in Alzheimers disease; |
Ø |
central neuropathic pain in multiple sclerosis; |
Ø |
levodopa-induced dyskinesia, a movement disorder caused by the use of levodopa to treat Parkinsons disease; and |
Ø |
diabetic peripheral neuropathic pain. |
AVP-786 Clinical Development
Phase 1 Clinical Trial. In February 2013, Avanir reported the results of a randomized, double-blind, two-way crossover Phase 1 clinical trial of AVP-786 at a single center in Australia to assess the pharmacokinetic profile, safety and tolerability of single and multiple doses of AVP-786 both with and without quinidine. In this Phase 1 clinical trial, Avanir used AVP-923 as a control. The first stage of this study included 36 healthy subjects. Twelve additional subjects were enrolled in the second stage of the study. Avanir reported results indicating that AVP-786 with a reduced dose of quinidine relative to AVP-923 demonstrated a pharmacokinetic profile comparable to AVP-923 with comparable safety and tolerability.
Planned Phase 2 Clinical Trial. In October 2013, Avanir reported that it expects to file its IND for AVP-786 in the second half of 2014. Avanir was not required to file an IND prior to commencement of its Phase 1 clinical trial of AVP-786 because that trial was conducted in Australia. Avanir reported that, subject to the acceptance of this IND, it plans to initiate a Phase 2 randomized, placebo-controlled clinical trial in the second half of 2014 to evaluate the safety and efficacy of AVP-786 in patients with treatment-resistant major depressive disorder. Avanir reported that it expects to enroll patients with major depressive disorder who have insufficient response to conventional anti-depressants. Avanir further reported that treatment with AVP-786 or placebo in the trial is expected to be adjunctive to treatment with other anti-depressants.
114
Business
Expedited Development Path. Avanir has reported conducting Phase 2 and Phase 3 clinical trials to evaluate AVP-923 and has reported plans to expedite the completion of one of its ongoing AVP-923 clinical trials to guide development of AVP-786. Avanir has stated that it intends to replace AVP-923 with AVP-786 in future clinical evaluation and that the FDA has agreed to an expedited development pathway for AVP-786 that would permit Avanir to reference data generated during its clinical testing of AVP-923 in its IND, and any future NDA, for AVP-786.
CTP-730
In April 2013, we entered into a strategic collaboration with Celgene related to deuterium-substituted compounds for the treatment of cancer or inflammation. We are initially focusing on one program; however, the collaboration has the potential to encompass multiple programs. In the initial program, we have selected CTP-730, a product candidate for the treatment of inflammatory diseases, and expect to begin Phase 1 clinical trials in 2014. We are responsible for development, at our expense, through the completion of single and multiple ascending dose Phase 1 clinical trials.
JZP-386
In February 2013, we licensed to Jazz Pharmaceuticals the commercial rights to deuterated analogs of sodium oxybate, including JZP-386, under an exclusive worldwide license agreement. Sodium oxybate is the active ingredient in Xyrem, a prescription medicine marketed in the United States by Jazz Pharmaceuticals to treat two of the key symptoms of narcolepsy, excessive daytime sleepiness and cataplexy. For 2012, Jazz Pharmaceuticals reported Xyrem annual net sales of $378.7 million. For the nine months ended September 30, 2013, Jazz Pharmaceuticals reported Xyrem net sales of $404.9 million as compared to net Xyrem sales of $265.1 million for the nine months ended September 30, 2012.
In preclinical in vivo testing, JZP-386 demonstrated a prolonged pharmacokinetic profile and reduced variability relative to sodium oxybate. We are responsible for conducting specified preclinical and clinical activities for JZP-386 through and including Phase 1 clinical trials. We are also responsible for supplying a deuterated intermediate for making clinical trial material for a Phase 1 clinical trial and a subsequent Phase 2 clinical trial. Jazz Pharmaceuticals is responsible for reimbursing us for all costs associated with our program-related activities, subject to limitations specified in the agreement, including adherence within a particular percentage to a development budget. Jazz Pharmaceuticals is also responsible for conducting and funding all further development and commercialization of JZP-386.
In December 2013, an IMPD, the basis for initiating clinical trials in the European Union, was filed for JZP-386. Jazz Pharmaceuticals has reported that, subject to approval of the IMPD, it expects a first-in-human clinical trial of JZP-386 to commence in 2014. JZP-386 is being treated as a Schedule I Controlled Substance by the DEA and being regulated accordingly. See Government RegulationsRegulation of Controlled Substances for additional information.
C-10068
C-10068 is a novel oral deuterium-substituted analog of dextroethorphan, a compound with preclinical pharmacological activities qualitatively similar to those of dextromethorphan. Dextroethorphan was identified in a collaboration between the National Institutes of Health, or NIH, and Walter Reed Army Institute of Research, or WRAIR, to identify analogs of dextromethorphan with improved therapeutic properties. Similar to dextromethorphan, dextroethorphan forms the undesirable metabolite dextrorphan, but to a lesser degree.
115
Business
We believe that C-10068 has the potential to treat pain and seizure-generating diseases and injuries, such as epilepsy, ischemic stroke and traumatic brain injury. C-10068 has demonstrated anti-seizure activity in in vivo preclinical studies in animals. C-10068 has also shown therapeutic potential for the treatment of pain in in vivo models. In addition, we have found that C-10068 forms less dextrorphan than either dextromethorphan or dextroethorphan in vitro in human liver microsomes, which are small particles isolated in the laboratory to study metabolism. We have conducted a portion of our preclinical program for C-10068 in collaboration with the National Institute of Neurological Disorders and Stroke and WRAIR. We are conducting further preclinical evaluation of C-10068.
OTHER PRECLINICAL PROGRAMS AND PIPELINE OPPORTUNITIES
We are also conducting a number of other preclinical programs, including deuterated ivacaftor for the treatment of cystic fibrosis and chronic obstructive pulmonary disease and deuterated praziquantel in collaboration with the Therapeutics for Rare and Neglected Diseases division of the NIH for the treatment of schistosomiasis and other parasitic diseases.
We have discovered a significant number of additional compounds utilizing our DCE Platform that have potential application in many different therapeutic areas, including oncology, central nervous system disorders, inflammation and antivirals. We are evaluating these programs for possible further development, either by us alone or in collaboration with another party.
COLLABORATIONS
We are party to a number of collaborations for the research, development and commercialization of deuterated compounds. Through September 30, 2013, we had received an aggregate of $105.4 million in upfront and milestone payments, equity investments and research and development funding from current and former collaborations. Under our current collaborations, which are described below, we have the potential to receive up to $1.6 billion in future milestone payments, including over $1.2 billion in research, development and regulatory milestones, as well as royalties on any future net product sales.
Celgene
Overview. In April 2013, we entered into a master development and license agreement with Celgene, which is primarily focused on the research, development and commercialization of specified deuterated compounds targeting cancer or inflammation. The collaboration is initially focused on one program, but has the potential to encompass up to four programs. For the initial program, we granted Celgene an exclusive worldwide license to develop, manufacture and commercialize deuterated analogs of a selected non-deuterated compound and certain close chemical derivatives thereof. We further granted Celgene licenses with respect to two additional programs and an option with respect to a third additional program. We and Celgene have agreed on the non-deuterated compounds for each of the two additional license programs. For the option program, Celgene may select the non-deuterated compound at a later time, which, unless otherwise agreed by us, will be limited to a compound for which Celgene possesses exclusive rights. With respect to the two additional license programs, we granted Celgene an upfront exclusive worldwide license to develop, manufacture and commercialize deuterated products that contain deuterated analogs of the agreed non-deuterated compounds. Celgene is restricted from utilizing their research, development and commercialization rights under each of the upfront licenses, unless, within seven years after the effective date of the agreement, Celgene pays us a license exercise fee. If Celgene does not elect to pay the license exercise fee during the seven year period, the license will expire. With respect to the option program, once a compound is selected, Celgene may exercise its option by paying us an option exercise fee within seven years of the effective date of the agreement, and upon Celgenes exercise of the option we will grant to Celgene an exclusive worldwide license to develop, manufacture and commercialize deuterated products that contain deuterated analogs of the selected non-deuterated compound.
116
Business
Research Obligations. We are responsible for conducting and funding research and early development activities for the initial program at our own expense pursuant to agreed upon development plans. This includes the completion of single and multiple ascending dose Phase 1 clinical trials and any mutually agreed upon additional Phase 1 clinical trials, as set forth in the development plan and approved by the joint steering committee for the collaboration.
We do not have any obligation to conduct any research or development activities for any of the additional programs unless and until Celgene exercises its rights with respect to such program and pays us the applicable exercise fee. If Celgene exercises its rights with respect to any additional program and pays us the applicable exercise fee, we are responsible for conducting research and development activities at our own expense pursuant to agreed upon development plans until the completion of the first Phase 1 clinical trial, which will be defined in each development plan on a program-by-program basis. In addition, if Celgene exercises its rights with respect to the option program and pays us the applicable exercise fee, we are responsible for seeking to generate a deuterated compound for clinical development in the selected option program at our own expense.
Celgene is responsible for all development costs with respect to the initial program beyond the Phase 1 clinical trials that we conduct. If Celgene exercises its rights with respect to any additional program, Celgene will be solely responsible for all research, development and commercialization costs for such program following the completion of the first Phase 1 clinical trial for such program.
Following its assumption of responsibility for development costs of a product candidate, Celgene is required to use commercially reasonable efforts to develop, obtain regulatory approval for and commercialize the product candidate until such time, if any, as Celgene determines in its reasonable discretion based on comparative metrics that that product candidate does not represent a substantial improvement over the corresponding non-deuterated compound.
Governance. Oversight of the development program for each category of licensed products under the agreement is guided by separate joint steering committees. There is likewise a joint patent committee to discuss and guide all matters for any patents owned by or licensed to us relating to the licensed products.
Payments. Under the terms of the agreement, we received a non-refundable upfront payment of $35.0 million. In addition, we are eligible to earn up to $23.0 million in development milestone payments, including $8.0 million related to the completion of a Phase 1 clinical trial, up to $247.5 million in regulatory milestone payments and up to $50.0 million in sales-based milestone payments related to products within the initial program. If Celgene exercises its rights with respect to either of the two additional license programs, we will receive a license exercise fee for the applicable program of $30.0 million and will also be eligible to earn up to $23.0 million in development milestone payments and up to $247.5 million in regulatory milestone payments for that program. Additionally, with respect to one of the additional license programs we are eligible to receive up to $100.0 million in sales-based milestone payments based on net sales of products, and with respect to the other additional license program we are eligible to receive up to $50.0 million in sales-based milestone payments based on net sales of products. If Celgene exercises its option with respect to the option program in respect of a compound to be identified at a later time, we will receive an option exercise fee of $10.0 million and will be eligible to earn up to $23.0 million in development milestone payments and up to $247.5 million in regulatory milestone payments.
In addition, with respect to each program, Celgene is required to pay us royalties on net sales of each licensed product at defined percentages ranging from the mid-single digits to low double digits below 20%, on worldwide net product sales of licensed products. The royalty term for each licensed product in each country is the period commencing with first commercial sale of the applicable licensed product in the applicable country and ending on the latest of expiration of specified patent coverage, expiration of
117
Business
regulatory exclusivity or 10 years following commercial launch. The royalty rate is reduced, on a country-by-country basis, during any period within the royalty term when there is no patent claim or regulatory exclusivity covering the licensed product in the particular country.
Exclusivity Restrictions. During the term of the agreement, we may not research, develop or commercialize, or grant or offer to grant a third party a license to research, develop or commercialize, any licensed product, and with respect to the option program, certain products that Celgene has the right to select as an option product, other than pursuant to the agreement.
Term and Termination. The agreement will expire upon the later of the seventh anniversary of the effective date of the agreement and the expiration of all royalty terms with respect to each licensed product in each country. Celgene has the right to terminate the agreement, in whole or only with respect to a particular licensed product, upon 60 days prior written notice to us. The agreement may also be terminated by us in the event of an uncured material breach by Celgene. If the agreement is terminated for any reason, the licenses granted by us to Celgene will terminate and specified rights to licensed products will revert to us.
Avanir
Overview. In February 2012, we entered into a development and license agreement with Avanir under which we granted Avanir an exclusive worldwide license to develop, manufacture and commercialize deuterated dextromethorphan containing products. Avanir is initially focused on developing AVP-786, which is a combination of a deuterated dextromethorphan analog and an ultra-low dose of quinidine, for the treatment of neurologic and psychiatric disorders.
Research Obligations. Under the agreement, upon Avanirs request we are obligated to provide research and development services with respect to licensed products pursuant to an agreed upon research and development plan until the first acceptance of an IND for any licensed product filed by Avanir or its affiliates or sublicensees in the United States, European Union or Japan. We are obligated to use commercially reasonable efforts to conduct and complete the activities assigned to us under the agreement. Avanir is required to use commercially reasonable efforts to develop and commercialize licensed product candidates for specified numbers of indications in the United States, European Union and Japan. Avanir is responsible for funding 100% of our research and development costs incurred under the development plan or for activities conducted at Avanirs request, including pass-through costs and a rate per full-time equivalent, or FTE, year of our employees time, which we mutually agreed to, subject to limitations specified in the agreement. However, Avanir is currently conducting all research and development activities without our services.
Governance. Our collaboration with Avanir is guided by a joint steering committee. There is likewise a joint patent committee to discuss and guide all matters for any patents owned by or licensed to us relating to the licensed products or otherwise filed with respect to certain inventions within the scope of the collaboration.
Payments. Under the agreement, we received a non-refundable upfront payment of $2.0 million and a milestone payment of $2.0 million in 2013. We are also eligible to receive, with respect to licensed products comprising a combination of deuterated dextromethorphan and quinidine, up to $4.0 million in development milestone payments, including $2.0 million related to initiation of dosing in a Phase 2 or Phase 3 clinical trial for AVP-786, up to $37.0 million in regulatory and commercial launch milestone payments and up to $125.0 million in sales-based milestone payments based on net product sales of licensed products. In addition, we are eligible for higher development milestones, up to an additional $43.0 million, for licensed products that do not require quinidine. Avanir is currently developing deuterated dextromethorphan only in combination with quinidine. Avanir also is required to pay us royalties at defined percentages ranging from the mid-single digits to low double digits below 20% on worldwide net product sales of licensed products. The royalty term for each licensed product in each
118
Business
country is the period commencing with first commercial sale of the applicable licensed product in the applicable country and ending on the later of expiration of specified patent coverage or 10 years following commercial launch. The royalty rate is reduced, on a country-by-country basis, during any period within the royalty term when there is no patent claim covering the licensed product in the particular country.
Exclusivity Restrictions. During the term of the agreement, neither we nor Avanir may research, develop or commercialize any product that contains deuterated dextromethorphan or grant or offer a license under any deuterated dextromethorphan specific intellectual property, other than pursuant to the agreement. We are also subject to certain additional exclusivity restrictions as set forth in the agreement, including certain restrictions on the development, commercialization and licensing of deuterated dextromethorphan analogs, such as C-10068, for the treatment of pseudobulbar affect or behavioral symptoms in dementia patients.
Term and Termination. The agreement will expire on a licensed product-by-licensed product and country-by-country basis on the date of the expiration of the applicable royalty term with respect to each licensed product in each country. Following the earlier of the completion of a specified Phase 2 clinical trial milestone or the second anniversary of the effective date of the agreement, Avanir has the right to terminate the agreement upon 90 days prior written notice to us. We may terminate the agreement if Avanir ceases to develop or commercialize licensed products and does not recommence development or commercialization efforts following our notice to Avanir. The agreement may also be terminated by either Avanir or us in the event of an uncured material breach by the other party.
If the agreement is terminated for any reason, the licenses granted by us to Avanir will terminate. Further, if the agreement is terminated, other than by Avanir as a result of our material breach of the agreement, specified rights to licensed products will revert to us and Avanir will be required, following our request, to grant us a license under specified intellectual property controlled by Avanir and related to licensed products. If the termination takes place after the completion of a Phase 2 clinical trial for a licensed product, we are required to pay a royalty on our net product sales of licensed products until such time as Avanir has recovered a multiple of the out-of-pocket expenses paid by Avanir to develop the licensed product prior to termination of the agreement. If the termination takes place after Avanir has generated Phase 3 clinical data, we are generally restricted for a specified period of time following termination from marketing any licensed product that is approved by the applicable regulatory authority based on the Phase 3 clinical data generated by Avanir.
Jazz Pharmaceuticals
Overview. In February 2013, we entered into a development and license agreement with Jazz Pharmaceuticals to research, develop and commercialize products containing D-SXB. We are initially focusing on one analog, designated as JZP-386. Under the terms of the agreement, we granted Jazz Pharmaceuticals an exclusive, worldwide, royalty-bearing license under intellectual property controlled by us to develop, manufacture and commercialize D-SXB products including, but not limited to, JZP-386.
Research Obligations. We, together with Jazz Pharmaceuticals, are conducting certain development activities for a Phase 1 clinical trial with respect to JZP-386 pursuant to an agreed upon development plan. Our current responsibilities under the development plan are conducting a Phase 1 clinical trial with respect to JZP-386 and supplying a deuterated intermediate for making clinical trial material for a Phase 1 clinical trial and a subsequent Phase 2 clinical trial. Thereafter, our obligations to conduct further development activities are subject to mutual agreement. Pursuant to the agreement, our costs for activities under the development plan, including pass-through costs and the costs of our employees time at a rate per full-time equivalent year of our employees time, which we mutually agreed to, are reimbursed by Jazz Pharmaceuticals. This reimbursement is subject to limitations specified in the
119
Business
agreement, including adherence within a particular percentage to the development budget. Under the agreement, Jazz Pharmaceuticals is subject to specified diligence obligations regarding the development and commercialization of licensed products.
Governance. Our collaboration with Jazz Pharmaceuticals is guided by a joint steering committee and a joint patent committee.
Payments. Under the agreement, we received a non-refundable upfront payment of $4.0 million and we are eligible to receive an aggregate of up to $8.0 million in development milestone payments, up to $35.0 million in regulatory milestone payments and up to $70.0 million in sales milestone payments based on net product sales of licensed products. In addition, Jazz Pharmaceuticals is required to pay us royalties at defined percentages ranging from the mid-single digits to low double digits below 20%, on a country-by-country and licensed product-by-licensed product basis, on worldwide net product sales of licensed products. The royalty term for each licensed product in each country is the period commencing with first commercial sale of the applicable licensed product in the applicable country and ending on the later of the expiration of specified patent coverage or 10 years following commercial launch. The royalty rate is lowered, on a country by country basis, under certain circumstances as specified in the agreement.
Exclusivity Restrictions. During the term of the agreement, subject to exceptions specified in the agreement, we may not grant or offer a license or other rights to a third party with respect to, or research, develop, manufacture or commercialize, D-SXB compounds, licensed products, sodium oxybate or any compounds that are structurally similar to and have substantially similar biological activity to D-SXB.
Term and Termination. The agreement will expire on a licensed product-by-licensed product and country-by-country basis on the date of the expiration of the applicable royalty term with respect to each licensed product in each country. Jazz Pharmaceuticals may terminate the agreement, on a country-by-country basis or in its entirety, upon 90 days prior written notice to us. We may terminate the agreement upon written notice to Jazz Pharmaceuticals if Jazz Pharmaceuticals decides to permanently cease development and commercialization of all licensed products. We may also terminate the agreement if Jazz Pharmaceuticals has abandoned development or commercialization activities for licensed products and following notice from us does not resume development or commercialization activities. The agreement may also be terminated by either party in the event of an uncured material breach by the other party.
If the agreement is terminated for any reason, the licenses granted by us to Jazz Pharmaceuticals with respect to D-SXB products will terminate and specified rights to licensed products will revert to us. In addition, at our request, both parties will enter into good faith negotiations to agree upon commercially reasonable royalties payable by us for a non-exclusive license under intellectual property controlled by Jazz Pharmaceuticals, and made in the course of developing licensed products, to develop, manufacture and commercialize licensed products.
Following termination of the agreement with respect to a country or countries, but not in its entirety, by Jazz Pharmaceuticals for Jazz Pharmaceuticals convenience, Jazz Pharmaceuticals may provide us written notice that it desires to continue or recommence development and commercialization of licensed products in such country or countries, in which event Jazz Pharmaceuticals license with respect to D-SXB products in such country or countries and corresponding payment obligations under the agreement will be reinstated except in specified circumstances in which we have previously notified Jazz Pharmaceuticals of our intent to develop or commercialize licensed products in such country or countries either directly or through a third party licensee.
INTELLECTUAL PROPERTY
We protect our product candidates through the use of patents, trade secrets and careful monitoring of our proprietary know-how. As of December 31, 2013, we held 100 issued patents worldwide, including 50 issued patents in the United States. Our patents and patent applications, if they issue as patents, for our lead programs expire between 2028 and 2034.
120
Business
CTP-354
We hold U.S. patents covering the composition of matter of CTP-354 and related compounds. These patents expire in 2029. We also have a pending U.S. patent application claiming compositions and methods covering CTP-354. We have corresponding issued patents in Europe and Japan that expire in 2029. We have retained all of the CTP-354 patent rights.
CTP-499
We hold a U.S. patent that covers the composition of matter of CTP-499 and related compounds. This patent expires in 2029. We also have pending U.S. patent applications that cover CTP-499 and related compounds. We have two patent applications for CTP-499 in Europe and two issued patents in Japan that cover the composition of matter of CTP-499. Patents that issue from the European patent applications would expire in 2029 and 2030. The issued Japanese patents expire in 2029 and 2030. We have retained all of the CTP-499 patent rights.
AVP-786
We hold U.S. patents covering the composition of matter and methods of use of the deuterated dextromethorphan analog that comprises AVP-786. These patents have expirations from 2028 to 2030. We also have a pending U.S. patent application covering methods of use of certain other dextromethorphan compounds. We have corresponding issued patents in Europe and Japan that expire in 2028. We have granted exclusive licenses under these patent rights to Avanir.
Celgene Collaboration
We hold U.S. patents and a U.S. patent application covering the composition of matter of deuterated analogs of one of the compounds that we have exclusively licensed to Celgene and U.S. patent applications covering other compounds that we have exclusively licensed to Celgene. The patents expire in 2030 and the patent applications, if issued as patents, would expire between 2029 and 2034. We also have provisional U.S. patent applications for compounds that we have exclusively licensed to Celgene. We have an issued patent and an allowed patent application in Europe for compounds that we have exclusively licensed to Celgene and patent applications in Japan for these two compounds. These patent applications, if issued as patents, would expire between 2029 and 2034.
JZP-386
We hold a U.S. patent covering the composition of matter of deuterated analogs of sodium oxybate, including JZP-386, and their methods of use for treating certain diseases and disorders, including narcolepsy, as well as a corresponding U.S. continuing application. The expiration of this patent and this application occur in 2030. We hold a corresponding European patent that expires in 2030. We also have patent applications in the United States, Europe and Japan that cover JZP-386 and related compounds and their methods of use for treating certain diseases and disorders, including narcolepsy that, if issued, would expire in 2032. We have granted exclusive licenses under these patent rights to Jazz Pharmaceuticals.
C-10068
We have U.S. patent applications for the composition of matter of C-10068, and methods of use for treating certain diseases and disorders. The expiration of a patent issuing from these patent applications would be in 2029. We have a corresponding issued patent in Europe expiring in 2029 and a patent application in Japan that, if issued as a patent, would expire in 2029. We have retained all of the C-10068 patent rights.
121
Business
Other Product Candidates
We also have patent portfolios that are related to a number of other programs. These patent portfolios are wholly owned by us. These include issued patents or patent applications that claim deuterated analogs of more than 90 non-deuterated drugs and drug candidates.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In the United States and other countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application.
Under U.S. patent law, the patent term may be extended by patent term adjustment due to certain failures of the U.S. Patent and Trademark Office to act in a timely manner. The patent term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other non-U.S. jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical products receive FDA approval, we expect to apply for patent term extensions on patents that we believe are eligible for such extension. We also intend to seek patent term extensions in other jurisdictions where these are available. However, there is no guarantee that the applicable authorities, including the FDA, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions.
We also rely on trade secrets and careful monitoring of our proprietary know-how to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection, including our DCE Platform, such as:
Ø |
our methods of evaluating candidate compounds for deuteration; |
Ø |
our bioanalytical methods for identifying and measuring metabolites formed by the in vitro and in vivo metabolism of deuterated compounds; |
Ø |
our analytical methods for evaluating how selective deuterium substitution affects different pharmacokinetic and metabolic parameters in in vitro and in vivo systems; and |
Ø |
our methods to determine the degree of deuterium substitution in compounds we manufacture. |
MANUFACTURING AND SUPPLY
We have developed the internal capability to manufacture up to low kilogram quantities of deuterated active pharmaceutical ingredients for use in Phase 1 clinical trials. Our manufacturing facility occupies approximately 700 square feet at our facility in Lexington, Massachusetts.
While our manufacturing capabilities can support Phase 1 clinical trials, we currently rely, and expect to continue to rely, on third parties for the manufacture of product candidates for our clinical trials, including the ongoing clinical trials of CTP-354. We obtain these manufacturing services, including both the manufacture of the active pharmaceutical ingredients and finished drug product, on a purchase order basis and have not entered into long-term contracts with any of these third party manufacturers. We expect to rely on third parties for commercial manufacturing for any of our product candidates that receive marketing approval.
We have successfully transferred the methods we use in our internal manufacturing to our third party manufacturers, allowing them to produce multi-kilogram quantities of clinical trial materials with similar
122
Business
efficiency as we manufacture compounds internally. If any of our third party manufacturers should become unavailable to us for any reason, we believe that there are a number of potential replacements, although we might incur some delay in identifying and qualifying such replacements.
We believe that all of the deuterium that we use in manufacturing our product candidates is currently derived, directly or indirectly, from deuterium oxide. For most of our deuterium supply we rely on bulk supplies of deuterium oxide, which we currently source from two suppliers, one located in the United States and one located abroad, which is affiliated with a foreign government. We may establish deuterium oxide supply arrangements with an additional supplier, which is located outside of the United States and is affiliated with a foreign government. It is also possible that our current U.S. supplier of deuterium oxide relies on our current foreign supplier, as well as our potential future foreign supplier, for its supply of deuterium oxide, although we are not familiar with its procurement processes. In order to internationally transport any deuterium oxide that we purchase from either of these two foreign suppliers, we, or our U.S. supplier, may be required to obtain an export license from the country of origin and we may be required to obtain an International Import Certificate from the country of destination. We are also required to obtain an export license from the Nuclear Regulatory Commission before shipping deuterium oxide from the United States to any contract manufacturer in another country. Each of these documents specifies the maximum amount of deuterium oxide that we, or our suppliers, are permitted to either import or export. In particular, in order to obtain additional supplies of deuterium oxide from the foreign-government affiliated supplier from which we have purchased deuterium oxide, we will be required to obtain an additional export license from the country of origin and a U.S. import certificate. While we have obtained similar licenses and certificates in the past, we may not be able to obtain them in the future in a timely manner or at all.
Certain of our manufacturing processes for our product candidates incorporate deuterium by using deuterated chemical intermediates or reagents that are derived from deuterium oxide. For the deuterated chemical intermediates and reagents, we are not subject to the license requirements applicable to deuterium oxide. However, the manufacturer of the deuterated chemical intermediate or reagent may themselves be required to obtain deuterium oxide under applicable licensing requirements. Most of the manufacturers of these deuterated chemical intermediates and reagents are not located in countries that produce bulk quantities of deuterium oxide. Therefore, our ability to source these deuterated chemical intermediates or reagents will depend on the ability of these manufacturers to obtain deuterium oxide from other countries.
We purchase our raw materials on a purchase order basis and have not entered into long-term contracts with any of these third party suppliers. We believe that the raw materials for our product candidates are readily available and that the cost of manufacturing for our product candidates will not preclude us from selling them profitably, if approved for sale.
COMMERCIALIZATION
We have not yet established a sales, marketing or product distribution infrastructure. We plan to use a combination of third party collaboration, licensing and distribution arrangements and a focused in-house commercialization capability to sell any of our products that receive marketing approval. With respect to the United States, we plan to seek to retain full commercialization rights for products that we can commercialize with a specialized sales force and to retain co-promotion or similar rights when feasible in indications requiring a larger commercial infrastructure. We plan to collaborate with third parties for commercialization in the United States of any products that require a large sales, marketing and product distribution infrastructure. We also plan to collaborate with third parties for commercialization outside the United States.
We plan to build a marketing and sales management organization to create and implement marketing strategies for any products that we market through our own sales organization and to oversee and
123
Business
support our sales force. We expect the responsibilities of the marketing organization would include developing educational initiatives with respect to approved products and establishing relationships with thought leaders in relevant fields of medicine.
COMPETITION
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available 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 spasticity, kidney disease, neurologic disorders, cancer and inflammation, the key indications for our priority programs. Several large pharmaceutical and biotechnology companies have also begun to cover deuterated analogs of their product candidates in patent applications and may choose to develop these deuterated compounds. In addition, we know of one small biotechnology company, Auspex Pharmaceuticals, Inc., and possibly two others, DeutRx LLC and Berolina innovative Research and Development Services Pharma GmbH, that are developing product candidates based on deuterium substitution. Potential competitors also include academic institutions, government agencies and other public and private research organizations.
Many of our existing and potential future 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 or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, product labeling, side effect profiles, safety, convenience, price, particularly if there is generic competition, differentiation from their corresponding non-deuterated compounds when applicable, and the availability of reimbursement from government and other third party payors.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we or our collaborators may develop. Our competitors also may obtain FDA or other regulatory approval for their products sooner than we or our collaborators may obtain approval for ours, which could result in our competitors establishing a strong market position before we or our collaborators are able to enter the market.
In addition, we anticipate that some of the product candidates that we or our collaborators may develop will be deuterated analogs of approved drugs, some of which are or will then be available on a generic basis. If such deuterated analogs are approved, we expect that they will compete against branded and generic non-deuterated compounds in the same indications based on enhanced efficacy, safety or convenience of dosing. If physicians do not believe that a product that we or our collaborators develop offers substantial advantages over the corresponding non-deuterated compound, or that the advantages offered by our product as compared to the corresponding non-deuterated compound are not sufficient to merit the increased price over the corresponding non-deuterated compound that we or our collaborators would seek, physicians might not prescribe our product.
124
Business
If the product candidates for our priority programs are approved for the indications for which we or our collaborators are currently undertaking clinical trials, they will compete with the therapies discussed below and will likely compete with other therapies that are currently in development.
CTP-354
We are initially developing CTP-354 for the treatment of spasticity associated with multiple sclerosis and spinal cord injury. Current first-line treatment for spasticity includes oral and local agents and physical and occupational therapy. Four oral drugs have been approved in the United States for the treatment of spasticity: baclofen (Lioresal), tizanidine (Zanaflex), diazepam (Valium) and dantrolene (Dantrium), each of which is available on a generic basis. Spasticity is also treated through localized injections of botulinum toxin. In addition, there are several potentially competitive product candidates in Phase 3 clinical development being pursued by pharmaceutical and biotechnology companies, including GW Pharmaceuticals plc and Osmotica Pharmaceuticals Corp.
CTP-499
The current standard of care for type 2 diabetic kidney disease in patients with macroalbuminuria is treatment with angiotensin modulators. Angiotensin modulators are available on a generic basis. We are developing CTP-499 as an additive treatment to this current standard of care. If CTP-499 receives marketing approval, it may also face competition from a number of product candidates that are currently in clinical development, including one potentially competitive product candidate in Phase 3 clinical development being pursued by AbbVie Inc.
AVP-786
Avanir is developing AVP-786 for the treatment of neurologic and psychiatric disorders. There are a number of marketed drugs and product candidates in clinical development for these indications.
GOVERNMENT REGULATIONS
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, manufacturing changes, packaging, storage, recordkeeping, labeling, advertising, promotion, sales, distribution, marketing, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.
Review and Approval of Drugs in the United States
In the United States, the FDA regulates drugs under the 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 and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities.
125
Business
An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:
Ø |
completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDAs good laboratory practice, or GLP, regulations; |
Ø |
submission to the FDA of an IND, which allows human clinical trials to begin unless the FDA objects within 30 days; |
Ø |
approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated; |
Ø |
performance of adequate and well-controlled human clinical trials in accordance with the FDAs cGCPs to establish the safety and efficacy of the proposed drug product for each indication; |
Ø |
preparation and submission to the FDA of an NDA; |
Ø |
satisfactory review of the NDA by an FDA advisory committee, where appropriate or if applicable; |
Ø |
satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the drug product, and the active pharmaceutical ingredient or ingredients thereof, are produced to assess compliance with cGMPs and to assure that the facilities, methods and controls are adequate to ensure the products identity, strength, quality and purity; |
Ø |
payment of user fees and securing FDA approval of the NDA; and |
Ø |
compliance with any post-approval requirements, including REMS and post-approval studies required by the FDA. |
Preclinical Studies and an IND
Preclinical studies can include in vitro and animal studies to assess the potential for adverse events and, in some cases, to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. Other studies include laboratory evaluation of the purity, stability and physical form of the manufactured drug substance or active pharmaceutical ingredient and the physical properties, stability and reproducibility of the formulated drug or drug product. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, to the FDA as part of an IND. Some preclinical testing, such as longer-term toxicity testing, animal tests of reproductive adverse events and carcinogenicity, may continue 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 a proposed clinical trial and places the trial on 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.
Following commencement of a clinical trial under an IND, the FDA may place a clinical hold on that trial. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part of the clinical work requested under the IND. For example, a specific protocol or part of a protocol is not allowed to proceed, while other protocols may do so. No more than 30 days after imposition of a clinical hold or partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold. Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may proceed. The FDA will base that determination on information provided by the sponsor correcting the deficiencies previously cited or otherwise satisfying the FDA that the investigation can proceed.
126
Business
Human Clinical Studies in Support of an NDA
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with cGCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. 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 representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the 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 product candidate 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 product candidate 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 product candidate 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, or an institution it represents, 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. The FDA will typically inspect one or more clinical sites in late-stage clinical trials to assure compliance with cGCP and the integrity of the clinical data submitted.
Section 505(b)(2) NDAs
NDAs for most new drug products are based on two adequate and well-controlled clinical trials which must contain substantial evidence of the safety and efficacy of the proposed new product. These applications are submitted under Section 505(b)(1) of the FDCA. The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA. This type of application allows the applicant to rely, in part, on the FDAs previous findings of safety and efficacy for a similar product, or published literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the applicant relies, as part of its application, on investigations made to show whether or not the drug is safe and effective for use that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted.
127
Business
Thus, Section 505(b)(2) authorizes the FDA to approve an NDA based on safety and effectiveness data that were not developed by the applicant. NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations or new uses of previously approved products. If the 505(b)(2) applicant can establish that reliance on the FDAs previous approval is scientifically appropriate, the applicant may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new drug candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
If our partners submit NDAs for approval of deuterated analogs of marketed compounds for which they are the NDA holder, we believe that in certain cases the FDA may allow referencing of data from the non-deuterated compound in support of the application for approval of the deuterated product. Since this referencing by our partners would involve use of their own data and not require the use of another partys data, it would constitute a Section 505(b)(1) application.
Submission of an NDA to the FDA
Assuming successful completion of required clinical testing and other requirements, 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 drug product for one or more indications. Under federal law, the submission of most NDAs is additionally subject to an application user fee, currently exceeding $2.1 million, and the sponsor of an approved NDA is also subject to annual product and establishment user fees, currently exceeding $104,000 per product and $554,600 per establishment. These fees are typically increased annually.
Under certain circumstances, the FDA will waive the application fee for the first human drug application that a small business, defined as a company with less than 500 employees, or its affiliate submits for review. An affiliate is defined as a business entity that has a relationship with a second business entity if one business entity controls, or has the power to control, the other business entity, or a third party controls, or has the power to control, both entities.
The FDA conducts a preliminary review of an NDA within 60 days of its receipt and informs the sponsor by the 74 th day after the FDAs receipt of the submission to determine whether the application is 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 has agreed to specified performance goals in the review process of NDAs. Most such applications are meant to be reviewed within ten months from the date of filing, and most applications for priority review products are meant to be reviewed within six months of filing. The review process may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.
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 sites to assure compliance with cGCP.
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,
128
Business
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 is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically, 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.
The FDAs Decision on an NDA
On the basis of the FDAs evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDAs satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
If the FDA approves a product, it may limit the approved indications for use for 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 the 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, including 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-market 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.
The product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release, the manufacturer must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturers tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmatory tests on lots of some products before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety and effectiveness of drug products.
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.
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
129
Business
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 or problems with manufacturing processes of unanticipated severity or frequency, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
Ø |
restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; |
Ø |
fines, warning letters or holds on post-approval clinical trials; |
Ø |
refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals; |
Ø |
product seizure or detention, or refusal to permit the import or export of products; or |
Ø |
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.
Abbreviated New Drug Applications for Generic Drugs
In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an ANDA to the agency. In support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference listed drug, or RLD. To reference that information, however, the ANDA applicant must demonstrate, and the FDA must conclude, that the generic drug does, in fact, perform in the same way as the RLD it purports to copy.
Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug is
130
Business
bioequivalent to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if the rate and extent of absorption of the generic drug do not show a significant difference from the rate and extent of absorption of the reference listed drug. . . .
Upon approval of an ANDA, the FDA indicates that the generic product is therapeutically equivalent to the RLD and it assigns a therapeutic equivalence rating to the approved generic drug in its publication Approved Drug Products with Therapeutic Equivalence Evaluations, also referred to as the Orange Book. Physicians and pharmacists consider the therapeutic equivalence rating to mean that a generic drug is fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, the FDAs designation of a therapeutic equivalence rating often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.
Under the Hatch Waxman Amendments, the FDA may not approve an ANDA until any applicable period of non-patent exclusivity for the RLD has expired. The FDCA provides a period of five years of data exclusivity for new drug containing a new chemical entity. In cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product approval. The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration, combination or indication.
Hatch-Waxman Patent Certification and the 30 Month Stay
Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicants product or a method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval.
Specifically, the applicant must certify with respect to each patent that:
Ø |
the required patent information has not been filed; |
Ø |
the listed patent has expired; |
Ø |
the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or |
Ø |
the listed patent is invalid, unenforceable or will not be infringed by the new product. |
A certification that the new product will not infringe the already approved products listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicate that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.
If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that is favorable to the ANDA applicant.
131
Business
To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. As a result, approval of a 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.
Pediatric Studies and Exclusivity
Under the Pediatric Research Equity Act of 2003, a NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product 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. With enactment of the Food and Drug Administration Safety and Innovation Act, or FDASIA, in 2012, sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and other information required by regulation. The applicant, the FDA, and the FDAs internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.
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. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.
Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity. This six-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDAs request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot accept or approve another application.
Patent Term Restoration and Extension
A patent claiming a new drug product may be eligible for a limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984 (commonly referred to as the Hatch-Waxman Amendments). Those Amendments permit a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. The restoration period granted is typically one-half the time between the effective date of an IND and the submission date of a NDA, plus the time between the submission date of a NDA and ultimate approval. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the products approval date. Only one patent applicable to an approved drug product is eligible for the extension, and the
132
Business
application for the extension must be submitted prior to the expiration of the patent in question. The U.S. Patent and Trademark Office reviews and approves the application for any patent term extension or restoration in consultation with the FDA.
Regulation of Controlled Substances
We handle a product that is treated as a controlled substance under the CSA. The CSA authorizes the DEA to regulate the registration, procurement, manufacturing, production, possession, labeling and distribution of controlled substances. Controlled substances are classified as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest risk of substance abuse and Schedule V substances the lowest risk.
Our product candidate JZP-386, which we have licensed to Jazz Pharmaceuticals, is a deuterium substituted analog of sodium oxybate. Sodium oxybate is regulated as a chemical by the DEA as a Schedule I controlled substance. However, when formulated into Xyrem, the drug product is regulated as a Schedule III substance. Because of the Schedule I classification of sodium oxybate, JZP-386 is regulated by the DEA as a Schedule I controlled substance. If JZP-386 becomes approved as the active pharmaceutical ingredient in a drug product, the DEA may decide to regulate the drug product as a Schedule III controlled substance, similar to Xyrem.
The manufacture, shipment, storage, sale and use of Schedule I substances are subject to a high degree of regulation. Every person who manufactures, distributes, dispenses, imports or exports any controlled substance must register with the DEA, unless they are exempt. Moreover, for Schedule I substances, the CSA authorizes the DEA to establish aggregate production quotas for all manufacturers, individual production quotas for specific registered manufactures and individual production quotas for registrants who have not manufactured controlled substances during one or more proceeding years.
We expect our product candidate CTP-354 to be classified as a Schedule IV substance under the CSA. The CSA also places significant restrictions on substances which have been classified in Schedules III and IV. While these restrictions are not as severe as those governing substances in Schedules I and II, they nonetheless establish strict limitations on the manufacture, sale and distribution of Schedule III and IV substances. For example, prescriptions for controlled substances that are prescription drugs in such schedules may only be filled or refilled by pharmacists up to five times within six months after the date on which the prescription was issued, unless the prescribing practitioner renews the prescription.
The failure to maintain compliance with applicable requirements under the CSA can result in enforcement action that could have a material adverse effect on our business, results of operations and financial condition. The DEA may inspect facilities, seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal proceedings. Individual states also regulate controlled substances, and we and our contract manufacturers are subject to state regulation on distribution of these products.
Review and Approval of Drug Products in the European Union
In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Whether or not it obtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory
133
Business
approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.
Pursuant to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, an applicant must obtain approval from the competent national authority of a European Union member state in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial after a competent ethics committee has issued a favorable opinion. Clinical trial applications must be accompanied by an investigational medicinal product dossier with supporting information prescribed by the European Clinical Trials Directive and corresponding national laws of the member states and further detailed in applicable guidance documents.
To obtain marketing approval of a drug under European Union regulatory systems, an applicant must submit a marketing authorization application, or MAA, either under a centralized or decentralized procedure.
The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all European Union member states. The centralized procedure is compulsory for specific products, including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy products and products with a new active substance indicated for the treatment of certain diseases. For products with a new active substance indicated for the treatment of other diseases and products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional.
Under the centralized procedure, the Committee for Medicinal Products for Human Use, or the CHMP, established at the EMA is responsible for conducting the initial assessment of a drug. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing marketing authorization. Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days.
The decentralized procedure is available to applicants who wish to market a product in various European Union member states where such product has not received marketing approval in any European Union member states before. The decentralized procedure provides for approval by one or more other, or concerned, member states of an assessment of an application performed by one member state designated by the applicant, known as the reference member state. Under this procedure, an applicant submits an application based on identical dossiers and related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states. The reference member state prepares a draft assessment report 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 and related materials, each concerned member state must decide whether to approve the assessment report and related materials.
If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputed points are subject to a dispute resolution mechanism and may eventually be referred to the European Commission, whose decision is binding on all member states.
134
Business
Data and Market Exclusivity in the European Union
In the European Union, new chemical entities qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union from referencing the innovators data to assess a generic (abbreviated) application for eight years, after which generic marketing authorization can be submitted, and the innovators data may be referenced, but not approved for two years. The overall ten-year period will be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical entity and the sponsor is able to gain the prescribed period of data exclusivity, another company nevertheless could also market another version of the drug if such company can complete a full MAA with a complete database of pharmaceutical test, preclinical tests and clinical trials and obtain marketing approval of its product.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Sales of products will depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A payors decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on our investment in product development.
The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid health care costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceuticals.
As a result, the marketability of any product which receives regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and will continue to increase the pressure on drug pricing. Coverage policies, third-party reimbursement rates and drug pricing regulation may change at any time. In particular, the PPACA contains provisions that may reduce
135
Business
the profitability of drug products, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies share of sales to federal health care programs. Even if favorable coverage and reimbursement status is attained for one or more products that receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. Any country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements for any of our products.
Healthcare Law and Regulation
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements with third-party payors and customers are subject 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 our products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following:
Ø |
the federal healthcare Anti-Kickback Statute prohibits, among other things, 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, in whole or in part, under a federal healthcare program such as Medicare and Medicaid; |
Ø |
the federal False Claims Act imposes civil penalties, and provides for civil whistleblower or 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; |
Ø |
HIPAA imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
Ø |
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; |
Ø |
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; |
136
Business
Ø |
the federal transparency requirements under the Health Care Reform Law will require manufacturers of drugs, devices, drugs and medical supplies to report to the Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals and physician ownership and investment interests; and |
Ø |
analogous state and foreign 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. |
Some state laws require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Regulation of Deuterium Oxide
We believe that all of the deuterium that we use in manufacturing our product candidates is currently derived, directly or indirectly, from deuterium oxide. For most of our deuterium supply we rely on bulk supplies of deuterium oxide, which we currently source from two suppliers, one located in the United States and one located abroad, which is affiliated with a foreign government. We may establish deuterium oxide supply arrangements with an additional supplier, which is located outside of the United States and is affiliated with a foreign government. In order to internationally transport any deuterium oxide that we purchase from either of these two foreign suppliers, we, or our U.S. supplier, may be required to obtain an export license from the country of origin and we may be required to obtain an International Import Certificate from the country of destination. We are also required to obtain an export license from the Nuclear Regulatory Commission before shipping deuterium oxide from the United States to any contract manufacturer in another country. Each of these documents specifies the maximum amount of deuterium oxide that we, or our suppliers, are permitted to either import or export. We have obtained an export license from the Nuclear Regulatory Commission for the export of 20,000 kilograms of heavy water over the life of the license, which is valid until December 2015. However, in order to obtain additional supplies of deuterium oxide from the foreign-government affiliated supplier from which we have purchased deuterium oxide, we will be required to obtain an additional export license from the country of origin and a U.S. import certificate. While we have obtained similar licenses and certificates in the past, we may not be able to obtain them in the future in a timely manner or at all. We have not obtained an export license from the country in which our potential future foreign supplier is located. In addition, if any our product candidates is approved by the FDA, then the FDA will also have regulatory jurisdiction over the manufacture and use of deuterium oxide in such product.
EMPLOYEES
As of December 31, 2013, we had 43 employees, 25 of whom were primarily engaged in research and product development activities. A total of 16 employees have Ph.D. degrees. None of our employees are represented by a labor union and we believe our relations with our employees are good.
FACILITIES
Our offices are located in Lexington, Massachusetts, consisting of approximately 45,000 square feet of leased office and laboratory space. The term of the lease expires in September 2015.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
137
The following table sets forth the name, age and positions of each of our executive officers and directors as of January 10, 2014.
Name | Age | Position(s) | ||
Executive Officers |
||||
Roger D. Tung, Ph.D. |
54 | President and Chief Executive Officer, Director | ||
Nancy Stuart |
55 | Chief Operating Officer | ||
Ian Robert Silverman, J.D., Ph.D. |
61 | Senior Vice President and General Counsel | ||
Non-Employee Directors |
||||
Richard H. Aldrich (2)(3) |
59 | Director, Chairman of the Board of Directors | ||
Ronald W. Barrett, Ph.D (2) |
58 | Director | ||
John G. Freund, M.D. (1) |
60 | Director | ||
Peter Barton Hutt (3) |
79 | Director | ||
Wilfred E. Jaeger, M.D (1)(2) |
57 | Director | ||
Helmut M. Schühsler, Ph.D (1) |
54 | Director |
(1) | Member of audit committee. |
(2) | Member of compensation committee. |
(3) | Member of the nominating and corporate governance committee. |
EXECUTIVE OFFICERS
Roger D. Tung, Ph.D. is our co-founder and has served as our President and Chief Executive Officer and as a member of our board of directors since April 2006. Before Concert, Dr. Tung was a founding scientist at Vertex, a pharmaceutical company, where he was employed from 1989 to 2005, most recently as its Vice President of Drug Discovery. Prior to Vertex, he held various positions at Merck, Sharp & Dohme Research Laboratories, a global healthcare provider, and The Squibb Institute for Medicinal Chemistry. Dr. Tung received a B.A. in Chemistry from Reed College and a Ph.D. in Medicinal Chemistry at the University of Wisconsin-Madison. We believe that Dr. Tungs detailed knowledge of our company and his 28 year career in the global pharmaceutical and biotechnology industries, including his roles at Vertex, provide a critical contribution to our board of directors.
Nancy Stuart has served as our Chief Operating Officer since October 2007 and was our Senior Vice President, Corporate Strategy and Operations from July 2006 to October 2007. Prior to joining Concert Ms. Stuart held various business operations and business development positions at Amgen Inc., a biopharmaceutical company, Kinetix Pharmaceuticals, Inc., a pharmaceutical company subsequently acquired by Amgen, Scion Pharmaceuticals, Inc., a pharmaceutical company, Vertex and Genzyme Corporation, a biotechnology company subsequently acquired by Sanofi S.A. Ms. Stuart holds a B.S. from the University of Michigan, and an M.B.A. from the Simmons College Graduate School of Management.
Ian Robert Silverman, J.D., Ph.D. has served as our Senior Vice President and General Counsel since December 2010 and prior to that was our Vice President and General Counsel from January 2007 to December 2010. Prior to joining Concert, he served in various legal related roles at Millennium Pharmaceuticals, Inc., a pharmaceutical company, Vertex and FMC Corporation, a chemical manufacturing company. Dr. Silverman received his J.D. from Rutgers-Camden Law School, a Ph.D. in organic chemistry from the University of New Mexico and a B.A. from Lehigh University.
138
Management
NON-EMPLOYEE DIRECTORS
Richard H. Aldrich is our co-founder and has served as a member of our board of directors and as Chairman of our board of directors since May 2006. Mr. Aldrich is a Founder and has been Partner of Longwood Fund, a venture capital firm, since February 2010. Mr. Aldrich founded RA Capital Management LLC, a hedge fund, in 2004 and served as a Managing Member from 2004 to 2008 and as a Co-Founding Member from 2008 until 2011. Mr. Aldrich has co-founded several biotechnology companies including Sirtris Pharmaceuticals, Inc., which was acquired by GlaxoSmithKline in 2008, and Alnara Pharmaceuticals, Inc., which was acquired by Eli Lilly in 2011. He has also held management positions at Vertex, where he was a co-founding employee, and Biogen Corporation (now Biogen Idec Inc., a biotechnology company). Mr. Aldrich co-founded and serves on the board of directors of Verastem, Inc., a public biopharmaceutical company and also serves on the boards of directors of OvaScience, Inc., a public life sciences company of which he serves as chairman of the board, and PTC Therapeutics, Inc., a public biopharmaceutical company. Mr. Aldrich received his undergraduate degree from Boston College, and an M.B.A. from the Amos Tuck School at Dartmouth College. We believe Mr. Aldrichs broad-based experience in business, including his leadership and board experience at life science companies, and his familiarity with our business as a co-founder of our company allows him to be a key contributor to our board of directors.
Ronald W. Barrett, Ph.D. has served as a member of our board of directors since December 2007. Dr. Barrett is a founder of XenoPort, Inc., a public biopharmaceutical company, and has served as its Chief Executive Officer since 2001, its Chief Scientific Officer from 1999 to 2001 and as a member of its board of directors since 1999. Prior to XenoPort he held various positions at Affymax Research Institute, a drug discovery company now owned by GlaxoSmithKline plc, and Abbott Laboratories, a healthcare company. Dr. Barrett received a B.S. from Bucknell University and a Ph.D. in pharmacology from Rutgers University. We believe that Dr. Barretts industry and board experience, including his experience as the chief executive officer of a publically traded biopharmaceutical company, makes him a key contributor to our board of directors.
John G. Freund, M.D. has served as a member of our board of directors since December 2013. 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 XenoPort, Inc., a publicly traded biopharmaceutical company, since 1999, and Tetraphase Pharmaceuticals, Inc., a publicly traded biopharmaceutical company, since 2012. 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 four publicly traded companies, Map Pharmaceuticals, a biopharmaceutical company, Hansen Medical, a biotechnology company, Sirtris Pharmaceuticals, a biopharmaceutical company, and Mako Surgical Corp., a medical device 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.
139
Management
Peter Barton Hutt has served as a member of our board of directors since December 2006. Mr. Hutt has practiced law at Covington & Burling LLP, specializing in food and drug law, since 1960 (except for the period from 1971 to 1975) and currently serves as senior counsel. From 1971 to 1975 he was Chief Counsel for the Food and Drug Administration. Mr. Hutt is a member of the board of directors of Momenta Pharmaceuticals, Inc., a public pharmaceutical company, DBV Technologies SA, Q Therapeutics, Inc. and Xoma Ltd., each of which is a public biotechnology company, as well as numerous private companies. During the last five years, Mr. Hutt also served as a member of the board of directors of Celera Genomics, a public biotechnology company that was acquired by Quest Diagnostics, Inc. in 2011, CV Therapeutics, Inc., a public biotechnology company that was acquired by Gilead Sciences, Inc. in 2009, and Ista Pharmaceuticals, Inc., a public pharmaceuticals company that was acquired by Bausch & Lomb Inc. in 2012. Mr. Hutt received a B.A. from Yale University, an LL.B. from Harvard Law School and an LL.M. from New York University School of Law. We believe Mr. Hutts extensive knowledge of regulatory and legal issues related to drug development and his service on numerous boards of directors allows him to be a key contributor to our board of directors.
Wilfred E. Jaeger, M.D. has served as a member of our board of directors since May 2006. Dr. Jaeger co-founded Three Arch Partners, a venture capital firm, in 1993 and has served as a Partner since that time. Prior to co-founding Three Arch Partners, Dr. Jaeger was a general partner at Schroder Ventures. He is also a member of the board of directors of Threshold Pharmaceuticals, Inc., a public pharmaceutical company, as well as numerous private companies. Dr. Jaeger received a B.S. in Biology from the University of British Columbia, his M.D. from the University of British Columbia School of Medicine and an M.B.A. from Stanford University. In addition to representing one of our principal stockholders, we believe that that Dr. Jaegers financial and medical knowledge and experience allows him to be a key contributor to our board of directors.
Helmut M. Schühsler, Ph.D. has served as a member of our board of directors since September 2011. Dr. Schühsler has worked for TVM Capital, a group of life science venture capital and healthcare private equity firms, since 1990 and currently serves as its Chairman and Managing Partner. During 2007 and 2008, Dr. Schühsler also served as Chairman of the European Private Equity and Venture Capital Association. Dr. Schühsler currently serves as a member of the board of Enanta Pharmaceuticals, Inc., a public pharmaceutical company, several other healthcare growth companies and Max Planck Innovation, the technology transfer organization of the German Max Planck Society. For several years he was a member of the Selection Committee for the Technology Pioneers program. Prior to joining TVM Capital, Dr. Schühsler worked for Horizonte Venture Management, a venture capital firm, and was an assistant professor for corporate finance at the Institute for Advanced Studies in Vienna. Dr. Schühsler received a Ph.D. in the Social and Economic Sciences from the University of Economics in Vienna. In addition to representing one of our principal stockholders, we believe that Dr. Schühslers business and financial experience as a director and investor in several companies in our industry 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 seven members, all of whom were elected as directors pursuant to a voting agreement that we have entered into with the holders of our preferred stock and certain of our founders. The voting 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
140
Management
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:
Ø |
the class I directors will be Peter Barton Hutt, Wilfred E. Jaeger and Roger D. Tung, and their term will expire at the annual meeting of stockholders to be held in 2015; |
Ø |
the class II directors will be Ronald W. Barrett and John G. Freund, and their term will expire at the annual meeting of stockholders to be held in 2016; and |
Ø |
the class III directors will be Richard H. Aldrich and Helmut M. Schühsler, and their term will expire at the annual meeting of stockholders to be held in 2017. |
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 December 2013 and January 2014, 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 Dr. Tung, is an independent director as defined under Rule 5605(a)(2) of the NASDAQ Listing Rules. Our board of directors also determined that John G. Freund, Wilfred E. Jaeger and Helmut M. Schühsler, who will comprise our audit committee following this offering, and Richard H. Aldrich, Ronald W. Barrett and Wilfred E. Jaeger, who will comprise our
141
Management
compensation committee following this offering, satisfy the independence standards for such committees established by the SEC 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 an audit committee, a compensation committee and a nominating and corporate governance committee. Each of these committees will operate under a charter that has been approved by our board of directors.
Audit committee
Effective at the time of this offering, the members of our audit committee will be John G. Freund, Wilfred E. Jaeger and Helmut M. Schühsler. Dr. Schühsler will be the chair of the audit committee. Our board of directors has determined that each of these directors is independent within the meaning of Rule 10A-3 under the Exchange Act. In addition, our board of directors has determined that each of Dr. Schühsler and Dr. Jaeger 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 audit committee assists our board of directors in its oversight of our accounting and financial reporting process and the audits of our financial statements. Following this offering, our audit committees responsibilities will include:
Ø |
appointing, approving the compensation of, and assessing the independence of the our registered public accounting firm; |
Ø |
overseeing the work of our independent registered public accounting firm, including through the receipt and consideration of reports from such firm; |
Ø |
reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures; |
Ø |
monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics; |
Ø |
overseeing our internal audit function, if any; |
Ø |
discussing our risk management policies; |
Ø |
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; |
Ø |
meeting independently with our internal auditing staff, our independent registered public accounting firm and management; |
Ø |
reviewing and approving or ratifying any related person transactions; and |
Ø |
preparing the audit committee report required by 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 audit committee. |
Compensation committee
Effective at the time of this offering, the members of our compensation committee will be Richard H. Aldrich, Ronald W. Barrett and Wilfred E. Jaeger. Dr. Barrett will be the chair of the compensation
142
Management
committee. Our compensation committee assists our board of directors in the discharge of its responsibilities relating to the compensation of our executive officers. Following this offering, the compensation committees responsibilities will include:
Ø |
reviewing and approving, or making recommendations to our board with respect to, the compensation of our Chief Executive Officer and other executive officers; |
Ø |
overseeing the evaluation of our senior executives; |
Ø |
reviewing and making recommendations to our board of directors with respect to our incentive-compensation and equity-based compensation plans; |
Ø |
overseeing and administering our equity-based plans; |
Ø |
reviewing and making recommendations to our board with respect to director compensation; |
Ø |
reviewing and discussing with management our Compensation Discussion and Analysis disclosure to the extent such disclosure is required by SEC rules; and |
Ø |
preparing the compensation committee report required by SEC rules. |
Nominating and corporate governance committee
Effective at the time of this offering, the members of our nominating and corporate governance committee will be Richard H. Aldrich and Peter Barton Hutt. Mr. Aldrich will be the chair of the nominating and corporate governance committee. Upon the completion of this offering, the nominating and corporate governance committees responsibilities will include:
Ø |
identifying individuals qualified to become members of our board; |
Ø |
recommending to our board the persons to be nominated for election as directors and to each of our boards committees; |
Ø |
developing and recommending to our board corporate governance principles; and |
Ø |
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
We have adopted 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.concertpharma.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.
143
This section discusses the material elements of our executive compensation policies for our named executive officers and the most important factors relevant to an analysis of these policies. 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, our next two highest paid executive officers during the year ended December 31, 2013 and one individual who would have been one of our next two highest paid executive officers during the year ended December 31, 2013 but for the fact that this individual was not serving as one of our executive officers as of December 31, 2013. We refer to these individuals as our named executive officers.
Name | Year |
Salary ($) |
Non-equity
incentive plan compensation ($) |
All other
compensation ($) |
Total ($) | |||||||||||||||
Roger D. Tung, Ph.D. |
2013 | 373,171 | 212,211 | (1) | 8,178 | (2) | 593,560 | |||||||||||||
President and Chief Executive Officer |
2012 | 365,863 | 31,025 | (3) | 8,028 | (4) | 404,916 | |||||||||||||
Nancy Stuart |
2013 | 300,054 | 127,901 | (1) | 8,178 | (2) | 436,133 | |||||||||||||
Chief Operating Officer |
2012 | 294,180 | 18,699 | (3) | 8,028 | (4) | 320,907 | |||||||||||||
Ian Robert Silverman, J.D., Ph.D. |
2013 | 295,399 | 125,911 | (1) | 8,178 | (2) | 429,488 | |||||||||||||
Senior Vice President and General Counsel |
||||||||||||||||||||
James Shipley, M.D. (5) |
2013 | 261,627 | 60,013 | (6) | 365,188 | (7) | 686,828 | |||||||||||||
Former Chief Medical Officer |
2012 | 324,038 | 20,005 | (3) | 8,028 | (4) | 352,071 |
(1) | Consists of a cash bonus paid under our 2013 executive bonus program that was earned as of the end of 2013 and a cash bonus under our 2012 executive bonus program that became payable during 2013 as the result of the satisfaction of a contingency during 2013. See the Narrative disclosure to summary compensation table described below for a description of these programs. |
(2) | Consists of $7,650 that we matched pursuant to our 401(k) plan and $528 in life insurance premiums. |
(3) | Consists of a cash bonus paid under our 2012 executive bonus program that was earned and no longer remained subject to contingencies at the end of 2012. See the Narrative disclosure to summary compensation table described below for a description of this program. |
(4) | Consists of $7,500 that we matched pursuant to our 401(k) plan and $528 in life insurance premiums. |
(5) | Dr. Shipley served as our Chief Medical Officer until his departure from our company effective October 15, 2013. |
(6) | Consists of a cash bonus under our 2012 executive bonus program that became payable during 2013 as the result of the satisfaction of a contingency during 2013. See the Narrative disclosure to summary compensation table described below for a description of this program. |
(7) | Consists of $7,650 that we matched pursuant to our 401(k) plan, $440 in life insurance premiums and $357,098 in severance, accrued vacation and continuation of medical and dental benefits payable in connection with Dr. Shipleys termination. |
144
Executive compensation
Narrative disclosure to summary compensation table
Base salary. In 2013, we paid base salaries of $373,171 to Dr. Tung, $300,054 to Ms. Stuart, $295,399 to Dr. Silverman and, prior to his departure from our company effective October 15, 2013, $261,627 to Dr. Shipley. We use base salaries 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.
Annual bonus. Our board of directors may, in its discretion, award bonuses to our named executive officers from time to time. We typically establish annual bonus targets based around a set of specified corporate goals for our named executive officers and conduct an annual performance review to determine the attainment of such goals. 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. With respect to 2013, we awarded and paid bonuses of $119,136 to Dr. Tung, $71,804 to Ms. Stuart and $70,687 to Dr. Silverman, in each case as determined by our board of directors based on our achievement of company goals, with such amounts representing 80% of their respective bonus targets. With respect to 2012, we awarded and paid bonuses of $124,100 to Dr. Tung, $74,796 to Ms. Stuart, $73,632 to Dr. Silverman and $80,018 to Dr. Shipley, in each case as determined by our board of directors based on our achievement of company goals, with such amounts representing 85% of their respective bonus targets. Of these amounts, 25% was awarded and paid on December 31, 2012 as reflected in the summary compensation table above, while the remaining amounts remained contingent on the closing of a licensing transaction with Celgene, which occurred on April 4, 2013. These remaining amounts were subsequently paid on April 30, 2013.
Equity incentives. 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.
We typically grant stock option awards at the start of employment to each executive and our other employees. Through 2013, we have not maintained a practice of granting additional equity on an annual basis, but we have retained discretion to provide additional targeted grants in certain circumstances.
We award our stock options on the date our board of directors or compensation committee approves the grant. We set the option exercise price and grant date fair value based on our per-share estimated valuation on the date of grant. For grants in connection with initial employment, vesting begins on the initial date of employment. Time vested stock option grants to our executives and other employees typically vest 25% on the first anniversary of grant or, if earlier, the initial employment date and 6.25% per quarter thereafter, through the fourth anniversary of the vesting commencement date, and have a term of 10 years from the grant date. In 2013, we did not grant equity awards to any of our named executive officers.
145
Executive compensation
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, 2013.
Option awards | ||||||||||||||||
Name |
Number of securities
underlying unexercised options (#) exercisable |
Number of securities
underlying unexercised options (#) unexercisable |
Option
exercise price ($) |
Option
date |
||||||||||||
Roger D. Tung, Ph.D. |
500,000 | | 0.20 | 12/11/2017 | ||||||||||||
300,000 | | 0.81 | 12/19/2018 | |||||||||||||
215,000 | | 0.78 | 12/10/2019 | |||||||||||||
123,750 | (1) | 41,250 | 0.67 | 12/14/2020 | ||||||||||||
112,500 | (2) | 112,500 | 0.62 | 12/15/2021 | ||||||||||||
Nancy Stuart |
450,000 | | 0.10 | 8/30/2016 | ||||||||||||
200,000 | | 0.20 | 12/11/2017 | |||||||||||||
300,000 | | 0.81 | 12/19/2018 | |||||||||||||
195,000 | | 0.78 | 12/10/2019 | |||||||||||||
90,000 | (1) | 30,000 | 0.67 | 12/14/2020 | ||||||||||||
62,500 | (2) | 62,500 | 0.62 | 12/15/2021 | ||||||||||||
Ian Robert Silverman, J.D., Ph.D |
300,000 | | 0.20 | 6/4/2017 | ||||||||||||
110,000 | | 0.20 | 12/11/2017 | |||||||||||||
80,000 | | 0.81 | 12/19/2018 | |||||||||||||
175,000 | | 0.78 | 12/10/2019 | |||||||||||||
90,000 | (1) | 30,000 | 0.67 | 12/14/2020 | ||||||||||||
62,500 | (2) | 62,500 | 0.62 | 12/15/2021 | ||||||||||||
James Shipley, M.D |
446,875 | (3) | | 0.67 | 3/24/2021 | |||||||||||
54,688 | (4) | | 0.62 | 12/15/2021 |
(1) | This option vested as to 6.25% of the shares on March 14, 2011 and vests as to an additional 6.25% of the shares at the end of each successive three-month period through and including December 14, 2014. |
(2) | This option vested as to 6.25% of the shares on March 15, 2012 and vests as to an additional 6.25% of the shares at the end of each successive three-month period through and including December 15, 2015. |
(3) | This option provided for vesting as to 25% of the shares on January 1, 2012 and as to an additional 6.25% of the shares at the end of each successive three-month period through and including January 1, 2015. All vesting under this option ceased upon Dr. Shipleys departure from our company on October 15, 2013, after which this option remained exercisable for a period of one year. |
(4) | This option provided for vesting as to 6.25% of the shares on March 15, 2012 and as to an additional 6.25% of the shares at the end of each successive three-month period through and including December 15, 2015. All vesting under this option ceased upon Dr. Shipleys departure from our company on October 15, 2013, after which this option remains exercisable for a period of one year. |
EMPLOYMENT AGREEMENTS, SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS
Employment agreements
We have entered into employment agreements with each of Dr. Tung, Ms. Stuart and Dr. Silverman. The employment agreements confirm the executive officers titles, compensation arrangements, eligibility for benefits made available to employees generally and also provide for certain benefits upon termination of employment under specified conditions. Each named executive officers employment is at will.
Benefits provided upon termination without cause
Under the terms of the employment agreements we have entered into with each of Dr. Tung, Ms. Stuart and Dr. Silverman, if an executives employment is terminated by us without cause and other than as a
146
Executive compensation
result of death or disability or by such executive officer for good reason, each as defined in such employment agreement, prior to a change of control, as defined in such employment agreement, and subject to the executives execution of a general release of potential claims against us, we will be obligated to (1) pay an amount equal to his or her then-current monthly base salary for a period of 12 months, any bonus that has been awarded to and earned by him or her but that has not been paid before termination, any base salary earned but not paid through the date of termination and any vacation time accrued but unused on the date of termination and (2) continue to provide medical and dental benefits to the extent that he or she was receiving them at the time of termination for up to 12 months, subject to certain legal restrictions.
In connection with Dr. Shipleys departure from our company effective October 15, 2013, we entered into a separation agreement with Dr. Shipley under which we agreed to (1) make severance payments to Dr. Shipley in the amount of his then-current base salary for 12 months following his termination and (2) continue to provide medical and dental benefits to the extent that he was receiving them at the time of termination for 12 months.
Benefits provided upon a change of control
Under the terms of the employment agreements we have entered into with each of Dr. Tung, Ms. Stuart and Dr. Silverman, if the executives employment is terminated by us or our successor without cause or by such executive officer for good reason, as defined in such employment agreement, within one year following a change of control, as defined in such employment agreement, and subject to the executives execution of a general release of potential claims against us, in lieu of the severance benefits described above:
Ø |
If the change of control constituted a change in our ownership or effective control, or a change in the ownership of a substantial portion of our assets, each within the meaning of Treasury Regulation Section 409A, or a 409A change of control event, we will be obligated to pay the executive, in a lump sum payment, an amount equal to his or her then-current monthly base salary for a period of 12 months. |
Ø |
If the change of control is not a 409A change of control event, we will be obligated to pay the executive an amount equal to his or her then-current monthly base salary for a period of 12 months over the course of one year in installments in accordance with our normal payroll practices. |
Ø |
We will be obligated to pay the executive any bonus that has been awarded to and earned by him or her but that has not been paid before termination, any base salary earned but not paid through the date of termination and any vacation time accrued but unused on the date of termination. |
Ø |
The executive will be entitled to medical and dental benefits, to the extent that he or she was receiving them at the time of such termination, for up to 12 months, subject to certain legal restrictions. |
In addition, if a change of control, as defined in such employment agreement, occurs and within one year following such change of control we or our successor terminate the executives employment other than for cause, as defined in such employment agreement, or the executives employment ends on death or disability, or the executive terminates his or her employment for good reason, as defined in such employment agreement, all stock options held by the executive will immediately vest in full.
Other agreements
We have also entered into employee confidentiality, non-competition and proprietary information agreements with each of our named executive officers. Under the employee confidentiality, non-competition and proprietary information agreements, each named executive officer has agreed (1) not to compete with us during his or her employment and for a period of one year after the termination of his or her employment, (2) not to solicit our employees during his employment and for a period of one year after the termination of his or her employment, (3) to protect our confidential and proprietary information and (4) to assign to us related intellectual property developed during the course of his or her employment.
147
Executive compensation
STOCK OPTION AND OTHER COMPENSATION PLANS
Amended and Restated 2006 Stock Option and Grant Plan
Our Amended and Restated 2006 Stock Option and Grant Plan, which we refer to as the 2006 Plan, was first adopted by our board of directors and first approved by our stockholders in May 2006 and was amended in November 2006, February 2008 and April 2009. The 2006 Plan was amended and restated in April 2009 and further amended in April 2010. 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:
Ø |
the number of shares of common stock covered by options and the dates upon which those options become exercisable; |
Ø |
the exercise prices of options; |
Ø |
the duration of options; |
Ø |
the methods of payment of the exercise price of options; and |
Ø |
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:
Ø |
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), provided, however, that unless the board determines otherwise such award shall be deemed vested and exercisable upon the date on which the employment or service relationship of the participant terminates, if such termination occurs within 18 months of the reorganization event and such termination is without cause; |
Ø |
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; |
Ø |
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; |
Ø |
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 |
Ø |
provide that in the event of a liquidation or dissolution, awards will convert into the right to receive liquidation proceeds. |
As of December 31, 2013, there were options to purchase an aggregate of 11,032,977 shares of common stock outstanding under the 2006 Plan at a weighted-average exercise price of $0.56 per share and an aggregate of 522,658 shares of common stock had been issued upon the exercise of options granted under the 2006 Plan, of which 7,124 shares have been repurchased. As of December 31, 2013, there were 951,489 shares of common stock reserved for future issuance under the 2006 Plan. Effective as of immediately prior to the closing of this offering, we will grant no further stock options or other awards under the 2006 Plan.
148
Executive compensation
2014 Stock Incentive Plan
In , our board of directors and our stockholders approved the 2014 Plan, which will become effective on the date immediately prior to the date of effectiveness of the registration statement of which this prospectus is a part. The 2014 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards and other stock-based awards. Upon effectiveness of the 2014 Plan, the number of shares of our common stock that will be reserved for issuance under the 2014 Plan will equal .
Our employees, officers, directors, consultants and advisors will be eligible to receive awards under the 2014 Plan; however, incentive stock options may only be granted to our employees.
Pursuant to the terms of the 2014 Plan, our board of directors will select the recipients of awards and determine:
Ø |
the number of shares of common stock covered by options and the dates upon which those options become exercisable; |
Ø |
the exercise price of options; |
Ø |
the duration of options; |
Ø |
the methods of payment of the exercise price of options; and |
Ø |
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 2014 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 2014 Plan, as to some or all outstanding awards, other than restricted stock awards:
Ø |
provide that all outstanding awards will be assumed or substituted by the successor corporation; |
Ø |
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; |
Ø |
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; |
Ø |
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 |
Ø |
provide that, in connection with a liquidation or dissolution, awards convert into the right to receive liquidation proceeds. |
149
Executive compensation
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 2014 Plan after the expiration of 10 years from the effective date of the 2014 Plan. Our board of directors may amend, suspend or terminate the 2014 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, 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 $17,500 in 2014, and have the amount of the reduction contributed to the 401(k) plan. Currently, we match 50% of employee contributions up to 6% of the employees salary, subject to the statutorily prescribed limit, equal to $7,800 in 2014. The match immediately vests in full.
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:
Ø |
any breach of the directors duty of loyalty to us or our stockholders; |
Ø |
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
Ø |
any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or |
Ø |
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:
Ø |
we will indemnify our directors and officers to the fullest extent permitted by law; |
Ø |
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 |
Ø |
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. |
150
Executive compensation
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 have entered into indemnification agreements with our directors and executive officers. These indemnification agreements require us, among other things, to indemnify each such director and executive officer for some expenses, including attorneys fees, judgments, fines and settlement amounts incurred by him or her in any action or proceeding arising out of his or her service as one of our directors or executive officers.
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.
DIRECTOR COMPENSATION
Prior to this offering, we did not have a formal non-employee director compensation policy. However, we have provided compensation for board service to Richard H. Aldrich, Ronald W. Barrett and Peter Barton Hutt in the form of an annual cash retainer and an equity stock option grant. Mr. Hutt received additional cash compensation for his service on board committees. 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 did not grant stock options or other equity-based awards to any of our non-employee directors during 2013.
The compensation of our non-employee directors was established through arms length negotiation, taking into account the responsibilities of each director and the directors qualifications and prior experience and industry data for such positions. This compensation was approved by our compensation committee. We have not paid any compensation to our President and Chief Executive Officer in connection with his service on our board of directors. However, as described below, following this offering our President and Chief Executive Officer will be eligible to receive annual stock option grants as compensation for his service on our board of directors. The compensation that we paid to our President and Chief Executive Officer in 2013 is discussed in the Executive compensation section of this prospectus.
In December 2013, our board of directors approved a director compensation program to be effective at the time of this offering. Under this director compensation program, we will pay our non-employee directors retainers in cash. Each non-employee director will receive a cash retainer for service on the board of directors and for service on each committee of which the director is a member. The chairmen of the board and of each committee will receive higher retainers for such service. These fees are payable quarterly in arrears. The fees paid to non-employee directors for service on the board of directors and for service on each committee of the board of directors of which the director is a member are as follows:
Member
Annual Fee |
Chairman
Annual Fee |
|||||||
Board of Directors |
$ | 30,000 | $ | 60,000 | ||||
Audit Committee |
$ | 7,500 | $ | 15,000 | ||||
Compensation Committee |
$ | 5,000 | $ | 10,000 | ||||
Nominating and Corporate Governance Committee |
$ | 3,000 | $ | 7,000 |
151
Executive compensation
We will also continue to reimburse our non-employee directors for reasonable travel and out-of-pocket expenses incurred in connection with attending board of director and committee meetings.
In addition, under our director compensation program, each director elected to our board of directors after the closing of this offering will receive an option to purchase 25,000 shares of our common stock. Each of these options will vest in equal quarterly installments over a three-year period measured from the date of grant, subject to the directors continued service as a director, and will become exercisable in full upon a change in control of our company. Further, on the date of the first board meeting held after each annual meeting of stockholders, each director that has served on our board of directors for at least six months will receive an option to purchase 10,000 shares of our common stock. Each of these options will vest in equal quarterly installments over a one-year period measured from the date of grant, subject to the directors continued service as a director, and will become exercisable in full upon a change in control of our company. The exercise price of these options will equal the fair market value of our common stock on the date of grant.
This policy is 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.
The following table sets forth information regarding compensation earned by our non-employee directors during 2013.
Name |
Fees earned or paid
in cash ($) |
Option awards ($) (1) | Total ($) | |||||||||
Richard H. Aldrich |
60,000 | | 60,000 | |||||||||
Ronald W. Barrett, Ph.D. |
30,000 | | 30,000 | |||||||||
Douglas G. Cole, M.D. (2) |
| | | |||||||||
John G. Freund, M.D. |
| | | |||||||||
Peter Barton Hutt |
30,000 | | 30,000 | |||||||||
Wilfred E. Jaeger, M.D. |
| | | |||||||||
Helmut M. Schühsler, Ph.D. |
| | |
(1) | We did not grant stock options or other equity-based awards to any of our non-employee directors during 2013. As of December 31, 2013: |
Ø |
Mr. Aldrich held stock options to purchase 120,000 shares of common stock in the aggregate, which were vested in full; |
Ø |
Dr. Barrett held stock options to purchase 180,000 shares of common stock in the aggregate, which were vested in full; and |
Ø |
Mr. Hutt held stock options to purchase 205,000 shares of common stock in the aggregate, which were vested in full. |
(2) | Dr. Cole resigned from our board of directors effective January 9, 2014. |
152
Transactions with related persons
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.
AGREEMENT WITH GLAXOSMITHKLINE
In May 2009, we entered into a research and development collaboration and license agreement with GSK a wholly owned subsidiary of GlaxoSmithKline plc, to research, develop and commercialize multiple products containing deuterated compounds, including CTP-499 and, ultimately, CTP-298, which was developed pursuant to the agreement. Our agreement with GSK, as subsequently amended, expired in 2012. The rights to the products developed under the agreement have reverted to us and we are free to pursue them without further obligation to GSK other than to repay GSK an amount of up to $2.75 million, if we commercialize CTP-499 or if, prior to a specified date in 2018, we re-license or transfer the rights to our CTP-499 program prior to a specified date in 2018.
REGISTRATION RIGHTS AGREEMENT
In connection with our Series D preferred stock financing in June 2009, we entered into a registration rights agreement with GSK, the purchaser of Series D preferred stock in the financing, and existing holders of our preferred stock. In connection with the issuance of a warrant to purchase shares of our Series C preferred stock to Hercules, in December 2011, we amended the registration rights agreement to add Hercules as a party. The registration rights agreement provides holders of registrable shares with the right to demand that we file a registration statement, subject to certain limitations, and to request that such registrable shares be covered by a registration statement that we are otherwise filing. See Description of capital stockRegistration rights for additional information.
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 have entered into indemnification agreements with each of our directors and executive officers 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 has adopted a written related person transaction policy, which will become effective at the time of this offering, to set forth policies and procedures for the review and approval or ratification of related person transactions. This policy will cover any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are
153
Transactions with related persons
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.
Our related person transaction policy contains 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, the policy provides 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:
Ø |
the related person and all other related persons own in the aggregate less than a 10% equity interest in such entity; |
Ø |
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 |
Ø |
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. |
The policy provides that any related person transaction proposed to be entered into by us must be reported to our General Counsel and will be reviewed and approved by our audit committee in accordance with the terms of the policy, prior to effectiveness or consummation of the transaction whenever practicable. The policy provides that if our chief financial officer determines that advance approval of a related person transaction is not practicable under the circumstances, our audit committee will review and, in its discretion, may ratify the related person transaction at the next meeting of the audit committee. The policy also provides that alternatively, our chief financial officer may present a related person transaction arising in the time period between meetings of the audit committee to the chair of and audit committee, who will review and may approve the related person transaction, subject to ratification by the audit committee at the next meeting of the audit committee.
In addition, the policy provides that any related person transaction previously approved by the audit committee or otherwise already existing that is ongoing in nature will be reviewed by the audit committee annually to ensure that such related person transaction has been conducted in accordance with the previous approval granted by the audit committee, if any, and that all required disclosures regarding the related person transaction are made.
The policy provides 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.
A related person transaction reviewed under this policy will be considered approved or ratified if it is authorized by the 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, the policy provides that the audit committee will review and consider:
Ø |
the related persons interest in the related person transaction; |
Ø |
the approximate dollar value of the amount involved in the related person transaction; |
Ø |
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; |
Ø |
whether the transaction was undertaken in the ordinary course of business of our company; |
154
Transactions with related persons
Ø |
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; |
Ø |
the purpose of, and the potential benefits to us of, the transaction; and |
Ø |
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. |
The policy provides that the audit committee will review all relevant information available to it about the related person transaction. The policy provides that the audit committee may approve or ratify the related person transaction only if the audit committee determines that, under all of the circumstances, the transaction is in, or is not inconsistent with, our best interests. The policy provides that the 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.
155
The following table sets forth information regarding the beneficial ownership of our common stock as of December 31, 2013 by:
Ø |
each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock; |
Ø |
each of our named executive officers; |
Ø |
each of our directors; and |
Ø |
all of our directors and executive officers as a group. |
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. 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, 2013. 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 community property laws, where applicable. The information is not necessarily indicative of beneficial ownership for any other purpose.
The number of shares beneficially owned in the following table assumes 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 63,382,601 shares outstanding as of December 31, 2013, 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 Concert Pharmaceuticals, Inc., 99 Hayden Avenue, Suite 500, Lexington, Massachusetts 02421.
156
Principal stockholders
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, 2013. 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 Three Arch Partners (1) |
8,090,000 | 12.8 | % | % | ||||||||
Entities affiliated with TVM Capital (2) |
7,879,900 | 12.4 | % | % | ||||||||
Entities affiliated with GlaxoSmithKline (3) |
7,466,667 | 11.8 | % | % | ||||||||
Brookside Capital Partners Fund, L.P. (4) |
6,485,259 | 10.2 | % | % | ||||||||
Skyline Venture Partners Qualified Purchaser Fund IV, L.P. (5) |
5,982,902 | 9.4 | % | % | ||||||||
Entities affiliated with Fidelity Investments (6) |
4,186,198 | 6.6 | % | % | ||||||||
Entities affiliated with Greylock Partners (7) |
4,000,000 | 6.3 | % | % | ||||||||
Flagship Ventures Fund 2004, L.P. (8) |
3,709,171 | 5.9 | % | % | ||||||||
Executive Officers and Directors |
||||||||||||
Roger D. Tung, Ph.D. (9) |
4,426,250 | 6.9 | % | % | ||||||||
James Shipley, M.D. (10) |
501,563 | * | % | |||||||||
Nancy Stuart (11) |
1,297,500 | 2.0 | % | % | ||||||||
Ian Robert Silverman, J.D., Ph.D. (12) |
817,500 | 1.3 | % | % | ||||||||
Richard H. Aldrich (13) |
2,670,000 | 4.2 | % | % | ||||||||
Ronald W. Barrett, Ph.D. (14) |
180,000 | * | % | |||||||||
John G. Freund, M.D. (15) |
5,982,902 | 9.4 | % | % | ||||||||
Peter Barton Hutt (16) |
230,000 | * | % | |||||||||
Wilfred E. Jaeger, M.D. (17) |
8,090,000 | 12.8 | % | % | ||||||||
Helmut M. Schühsler, Ph.D. (18) |
7,879,900 | 12.4 | % | % | ||||||||
All current executive officers and directors as a group (10 persons) (19) |
32,075,615 | 47.3 | % | % |
* | Represents beneficial ownership of less than 1% of our outstanding stock. |
(1) | Consists of 3,957,616 shares of common stock held by Three Arch Partners IV, L.P., 3,838,622 shares of common stock held by Three Arch Partners III, L.P., 206,378 shares of common stock held by Three Arch Associates III, L.P. and 87,384 shares of common stock held by Three Arch Associates IV, L.P. The voting and dispositive decisions with respect to the shares held by Three Arch Associates III, L.P. and Three Arch Partners III, L.P., are made by the following managing members of their general partner, Three Arch Management III, L.L.C.: Mark Wan and Wilfred Jaeger, each of whom disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. The voting and dispositive decisions with respect to the shares held by Three Arch Partners IV, L.P. and Three Arch Associates IV, L.P. are made by the following managing members of their general partner, Three Arch Management IV, L.L.C.: Mark Wan and Wilfred Jaeger, each of whom disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. The address for the funds affiliated with Three Arch Partners is 3200 Alpine Road, Portola Valley, CA 94028. |
(2) | Consists of 5,868,555 shares of common stock held by TVM Life Science Ventures VI GMBH & Co. KG and 2,011,345 shares of common stock held by TVM Life Science Ventures VI LP. Alexandra Goll, Helmut Schühsler, Hubert Birner, Stefan Fischer and Axel Polack are members of the investment committee of TVM Life Science Ventures VI Management Limited Partnership, a special limited partner of TVM Life Science Ventures VI GMBH & Co. KG and TVM Life Science Ventures VI LP with voting and dispositive power over the shares held by those entities. TVM Life Science Venture VI Management Limited Partnership and these individuals each disclaim 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 c/o TVM Capital GmbH, Maximilianstrasse 35, Entrance C, 80539 Munich, Germany. |
footnotes continued on following page
157
Principal stockholders
(3) | Consists of 6,666,667 shares of common stock held by Glaxo Group Limited and 800,000 shares of common stock held by S.R. One, Limited, each of whom are wholly owned subsidiaries of GlaxoSmithKline plc. The address of these entities is 980 Great West Road, Brentford, Middlesex, United Kingdom TW8 9GS. |
(4) | Brookside Capital, LLC is the investment advisor to Brookside Capital Partners Fund, L.P. Dr. Adam Koppel is the managing director of Brookside Capital, LLC and each of Dr. Koppel and Brookside Capital, LLC disclaims beneficial ownership except to the extent of any pecuniary interest therein. The address for Brookside Capital Partners Fund, L.P. and Dr. Koppel is John Hancock Tower, 200 Clarendon Street, Boston, MA 02116. |
(5) | 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 610, Palo Alto, California 94301. |
(6) | Consists of 4,000,000 shares of common stock held by Ball & Co fbo Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund and 186,198 shares of common stock held by Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund. Each of these entities is a registered investment fund (the Funds) advised by Fidelity Management & Research Company (Fidelity) a wholly-owned subsidiary of FMR LLC and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940. Edward C. Johnson 3d and FMR LLC, through its control of Fidelity and the Funds, each has sole power to dispose of the shares owned by the Funds. Members of the family of Edward C. Johnson 3d, chairman of FMR LLC, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC. Neither FMR LLC nor Edward C. Johnson 3d, chairman of FMR LLC, has the sole power to vote or direct the voting of the shares owned directly by the Fidelity Funds, which power resides with the Funds Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the Funds Boards of Trustees. The address for Fidelity is 82 Devonshire Street, Boston, MA 02109. |
(7) | Consists of 3,420,000 shares of common stock held by Greylock XII Limited Partnership, 380,000 shares of common stock held by Greylock XII-A Limited Partnership and 200,000 shares of common stock held by Greylock XII Principals LLC. William W. Helman and Aneel Bhussri are the Senior Managing Members of Greylock XII GP Limited Liability Company, the sole general partner of Greylock XII Limited Partnership and Greylock XII-A Limited Partnership and as such, each of them may be deemed to share voting power and investment control over the shares held by these entities. The shares held by Greylock XII Principals LLC are held in nominee form only and as a result, Greylock XII Principals LLC does not have voting power or investment control over these shares. Each of these entities and individuals disclaims beneficial ownership of shares other than those reflective of his or its pecuniary interest. The address for Greylock Partners is 2550 Sand Hill Road, Menlo Park, CA 94025. |
(8) | Flagship Ventures General Partner LLC is the general partner of Flagship Ventures Fund 2004, L.P. Noubar B. Afeyan Ph.D. and Edwin M. Kania, Jr. are the managers of Flagship Ventures General Partner LLC and may be deemed to share voting and investment power with respect to all shares held by Flagship Ventures General Partner LLC and Flagship Ventures Fund 2004, 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 One Memorial Drive, 7th Floor, Cambridge, Massachusetts 02140. |
(9) | In addition to shares of common stock held directly, includes 761,400 shares of common stock held by the Roger D. Tung 2011 GRAT, for which Dr. Tung is the sole trustee, 70,000 shares of common stock held by the RD Tung Irrevocable Trust, for which Dr. Tungs wife is a co-trustee, and 75,000 shares of common stock held by the Tung Family Investment Trust, for which Dr. Tung is a co-trustee. Includes 1,251,250 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2013. |
(10) | Consists of 501,563 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2013. Dr. Shipley departed our company effective October 15, 2013 upon which date all vesting of Dr. Shipley options ceased. Accordingly this number of shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2013 includes vesting of such options only through October 15, 2013. |
(11) | Consists of 1,297,500 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2013. |
(12) | Consists of 817,500 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2013. |
footnotes continued on following page
158
Principal stockholders
(13) | In addition to shares of common stock held directly, includes 350,000 shares of common stock held by RA Capital Associates, Inc. and 578,659 shares of common stock held by the Richard H. Aldrich 2011 GRAT. Mr. Aldrich is the sole stockholder of RA Capital Associates, Inc. and is the sole trustee of the Richard H Aldrich 2011 GRAT. Includes 120,000 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2013. |
(14) | Consists of 180,000 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2013. |
(15) | Consists of the shares described in note (5) 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 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 610, Palo Alto, California 94301. |
(16) | Includes 205,000 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2013. |
(17) | Consists of the shares described in note (1) above. Dr. Jaeger is a managing member of Three Arch Management III, L.L.C, the general partner of Three Arch Associates III, L.P. and Three Arch Partners III, L.P. and Three Arch Management IV, L.L.C, the general partner of Three Arch Partners IV, L.P. and Three Arch Associates IV, L.P. Dr. Jaeger disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. Dr. Jaegers address is 3200 Alpine Road, Portola Valley, CA 94028. |
(18) | Consists of the shares described in note (2) above. Dr. Schühsler is a member of the investment committee of TVM Life Science Ventures VI Management Limited Partnership, the general partner of TVM Life Science Ventures VI GMBH & Co. KG and TVM Life Science Ventures VI LP, and as such Dr. Schühsler may be deemed to share voting and dispositive power with respect to all shares held by these entities Dr. Schühsler disclaims beneficial ownership of such shares except to the extent of any pecuniary interest therein. Dr. Schühslers address is c/o TVM Capital GmbH, Maximilianstrasse 35, Entrance C, 80539 Munich, Germany. |
(19) | Includes 4,372,813 shares of common stock issuable upon the exercise of options exercisable within 60 days after December 31, 2013. |
159
GENERAL
Following the closing of this offering, our authorized capital stock will consist of 100,000,000 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 the closing of this offering. We have filed copies of these documents 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, 2013, we had outstanding 63,382,601 shares of common stock, held of record by 54 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, except as otherwise disclosed below. 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.
160
Description of capital stock
STOCK OPTIONS
As of December 31, 2013, options to purchase 11,032,977 shares of our common stock at a weighted average exercise price of $0.56 per share were outstanding, of which options to purchase 9,455,542 shares of our common stock were exercisable, at a weighted average exercise price of $0.54 per share.
WARRANTS
As of December 31, 2013, we had outstanding a warrant to purchase shares of our Series C preferred stock that upon the closing of this offering will be exercisable for an aggregate of 400,000 shares of our common stock at an exercise price of $2.50 per share.
REGISTRATION RIGHTS
We have entered into a third amended and restated registration rights agreement, dated as of June 1, 2009, as amended on December 22, 2011, which we refer to as the Registration Rights Agreement, with certain of our stockholders and Hercules. Upon the closing of this offering, holders of a total of 56,447,067 shares of our common stock as of December 31, 2013, consisting of 56,047,067 shares of our common stock issuable upon conversion of our preferred stock upon the closing of this offering and 400,000 shares issuable upon exercise of an outstanding warrant to purchase shares of our Series C preferred stock, which we refer to as the warrant shares, will have the right to require us to register these shares under the Securities Act under specified circumstances 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 six months after the closing of this offering, subject to specified limitations set forth in the Registration Rights Agreement, at any time the holders of at least one-third of the then outstanding registrable shares, as defined in the Registration Rights Agreement, excluding the warrant shares, acting together, may demand in writing that we register their registrable securities under the Securities Act so long as the total amount of registrable shares requested to be registered represents at least one-third of the then-outstanding registrable shares other than the warrant shares or has an aggregate expected price to the public 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 registrable shares may demand in writing that we register on Form S-3 registrable shares held by them so long as the total amount of registrable shares requested to be registered has an aggregate expected price to the public of at least $1.0 million. We are not obligated to file a registration statement pursuant to this demand provision on more than four occasions, subject to specified exceptions.
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 that are not holders or registrable shares, solely for cash and on a form that would also permit the registration of registrable shares, the holders of our registrable shares are entitled to notice of registration and, subject to specified exceptions, we will be required to register the registrable shares then held by them that they request that we register.
161
Description of capital stock
Expenses
Pursuant to the Registration Rights Agreement, we are required to pay all registration expenses, including registration fees, printing expenses, fees and disbursements of our counsel and accountants 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 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
Upon the completion of this offering, our certificate of incorporation and bylaws will divide our board of directors into three classes with staggered three-year terms. In addition, a director will only be able to be removed 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, will only be able to be filled 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.
162
Description of capital stock
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.
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 CNCE.
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 will be Computershare Trust Company, N.A.
163
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 substantial amounts of our common stock in the public market, 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 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 CNCE.
Upon the closing of this offering, we will have outstanding shares of our common stock, after giving effect to the issuance of the shares of our common stock in this offering and the conversion of all outstanding shares of our preferred stock into 56,047,067 shares of common stock upon the closing of this offering, and assuming no exercise of outstanding options or our outstanding warrant after December 31, 2013. Of the shares to be outstanding immediately after the closing of this offering, the shares sold in this offering (assuming that the underwriters do not exercise their over-allotment option), 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 63,382,601 shares of common stock will be restricted securities, as that term is defined in Rule 144 under the Securities Act and will further be subject to either restrictions on transfer under the lock-up agreements described below or restrictions on transfer for a period of 180 days from the effectiveness of the registration statement of which this prospectus forms a part under stock option agreements entered into between us and the holders of those shares. Following the expiration of these restrictions, these shares will become eligible for public sale 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.
In addition, of the 11,032,977 shares of common stock that were issuable pursuant to stock options outstanding as of December 31, 2013, options to purchase 9,455,542 shares of common stock had vested and were exercisable as of December 31, 2013. Upon exercise, these shares will be eligible for sale, subject to the lock-up agreements and securities laws described below. All of the 400,000 shares of common stock that were issuable pursuant to our warrant outstanding as of December 31, 2013 were exercisable as of December 31, 2013 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 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:
Ø |
1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; or |
Ø |
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. |
164
Shares eligible for future 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
We, and each of our executive officers and directors and the holders of substantially all of our outstanding stock have agreed that, without the prior written consent of UBS Securities LLC and Wells Fargo Securities, LLC, we and they will not, subject to limited exceptions, during the period ending 180 days after the date of this prospectus:
Ø |
sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exchangeable or exercisable for shares of our common stock, or publicly announce an intention to do the same; |
Ø |
establish or increase a put equivalent position or liquidate or decrease a call equivalent position with respect to any shares of our common stock or any securities convertible into or exchangeable or exercisable for shares of our common stock, or publicly announce an intention to do the same; |
Ø |
enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock or any securities convertible into or exchangeable or exercisable for shares of our common stock, whether any such transaction is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise, or publicly announce an intention to do the same; or |
Ø |
make any demand for, or exercise any right with respect to, the registration of any shares of our common stock or any securities convertible into or exchangeable or exercisable for shares of our common stock. |
REGISTRATION RIGHTS
Subject to the lock-up agreements described above, upon the closing of this offering, the holders of an aggregate of 56,047,067 shares of our common stock, along with the holder of a warrant to purchase 400,000 shares of 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 and expiration of the lock-up agreement, these shares will become freely tradable without restriction under the Securities Act. See Description of capital stockRegistration rights for additional information regarding these registration rights.
165
Shares eligible for future sale
STOCK OPTIONS AND WARRANTS
As of December 31, 2013, we had outstanding options to purchase 11,032,977 shares of common stock, of which options to purchase 9,455,542 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 shares of common stock subject to outstanding options and options and other awards issuable pursuant to the 2006 Plan and 2014 Plan.
As of December 31, 2013, we also had outstanding and exercisable a warrant to purchase 400,000 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 to a 180-day lock-up period. 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.
166
Material U.S. federal tax considerations for non-U.S. holders of common stock
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 that is not for U.S. federal income tax purposes:
Ø |
an individual who is a citizen or resident of the United States; |
Ø |
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; |
Ø |
an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
Ø |
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, including the Medicare contribution tax, 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:
Ø |
insurance companies; |
Ø |
tax-exempt organizations; |
Ø |
financial institutions; |
Ø |
brokers or dealers in securities; |
Ø |
regulated investment companies; |
Ø |
pension plans; |
Ø |
controlled foreign corporations; |
Ø |
passive foreign investment companies; |
Ø |
owners that hold our common stock as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment; and |
Ø |
certain U.S. expatriates. |
167
Material U.S. federal tax considerations for non-U.S. holders of common stock
In addition, this discussion does not address the tax treatment of partnerships or persons that 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 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. Any such distributions will also be subject to the discussion below under the section titled Withholding and information reporting requirementsFATCA.
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.
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:
Ø |
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 |
168
Material U.S. federal tax considerations for non-U.S. holders of common stock
base maintained by such non-U.S. holder in the United States, in which case the non-U.S. holder generally 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; |
Ø |
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 |
Ø |
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
169
Material U.S. federal tax considerations for non-U.S. holders of common stock
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 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.
WITHHOLDING AND INFORMATION REPORTING REQUIREMENTSFATCA
The Foreign Account Tax Compliance Act, or FATCA, will impose a U.S. federal withholding tax at a rate of 30% on payments of dividends on, or gross proceeds from the sale or other disposition of, our common stock paid to a foreign entity unless (i) if the foreign entity is a foreign financial institution, such foreign entity undertakes certain due diligence, reporting, withholding, and certification obligations, (ii) if the foreign entity is not a foreign financial institution, such foreign entity identifies certain of its U.S. investors, if any, or (iii) the foreign entity is otherwise exempt under FATCA. Although this legislation is effective with respect to amounts paid after December 31, 2012, under final regulations issued by the U.S. Department of Treasury on January 17, 2013 and IRS Notice 2013-43 released on July 12, 2013, withholding under FATCA will only apply (1) to payments of dividends on our common stock made after June 30, 2014, and (2) to payments of gross proceeds from a sale or other disposition of our common stock made 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 and the entities through which they hold our common stock, including, without limitation, the process and deadlines for meeting the applicable requirements to prevent the imposition of the 30% withholding tax under FATCA.
170
We are offering the shares of our common stock described in this prospectus through the underwriters named below. UBS Securities LLC and Wells Fargo Securities, LLC are acting as joint book-running managers of this offering and as representatives of the underwriters. We have entered into an underwriting agreement with the representatives acting on behalf of themselves and the other underwriters named below. Subject to the terms and conditions of the underwriting agreement, each of the underwriters has severally agreed to purchase, and we have agreed to sell to the underwriters, the number of shares of common stock listed next to its name in the following table.
Underwriters |
Number of
Shares |
|
UBS Securities LLC |
||
Wells Fargo Securities, LLC |
||
JMP Securities LLC |
||
Roth Capital Partners, LLC |
||
|
||
Total |
||
|
The underwriting agreement provides that the underwriters must buy all of the shares of common stock if they buy any of them. However, the underwriters are not required to pay for the shares covered by the underwriters over-allotment option as described below.
Our common stock is offered subject to a number of conditions, including:
Ø |
receipt and acceptance of our common stock by the underwriters; and |
Ø |
the underwriters right to reject orders in whole or in part. |
We have been advised by the representatives that the underwriters intend to make a market in our common stock but that they are not obligated to do so and may discontinue making a market at any time without notice.
In connection with this offering, certain of the underwriters or securities dealers may distribute prospectuses electronically.
OVER-ALLOTMENT OPTION
We have granted the underwriters an option to buy up to an aggregate of additional shares of our common stock. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with this offering. The underwriters have 30 days from the date of this prospectus to exercise this option. If the underwriters exercise this option, they will each purchase additional shares of common stock approximately in proportion to the amounts specified in the table above.
UNDERWRITING DISCOUNT
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Sales of shares made outside of the United States may be made by affiliates of the underwriters. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms. Upon execution of the underwriting agreement, the underwriters will be obligated to purchase the shares at the prices and upon the terms stated therein.
171
Underwriting
The following table shows the per share and total underwriting discount we will pay to the underwriters assuming both no exercise and full exercise of the underwriters over-allotment option to purchase up to additional shares of our common stock.
No Exercise | Full Exercise | |||||||
Per share |
$ | $ | ||||||
Total |
$ | $ | ||||||
|
|
|
|
We estimate that the total expenses of the offering payable by us, not including the underwriting discount, will be approximately $ million.
NO SALES OF SIMILAR SECURITIES
We, our executive officers and directors, and holders of substantially all of our common stock have entered into lock-up agreements with the underwriters. Under the lock-up agreements, subject to certain exceptions and subject to extension in certain limited circumstances, we and each of these persons may not, without the prior written approval of UBS Securities LLC and Wells Fargo Securities, LLC, sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, our common stock or securities convertible into or exchangeable or exercisable for our common stock. These restrictions will be in effect for a period of 180 days after the date of this prospectus.
UBS Securities LLC and Wells Fargo Securities, LLC may, at any time and in their sole discretion, release some or all the securities from these lock-up agreements. If the restrictions under the lock-up agreements are waived, shares of our common stock may become available for resale into the market, subject to applicable law, which could reduce the market price of our common stock.
INDEMNIFICATION
We have agreed to indemnify the several underwriters against certain liabilities, including certain liabilities under the Securities Act. If we are unable to provide this indemnification, we have agreed to contribute to payments the underwriters may be required to make in respect of those liabilities.
NASDAQ GLOBAL MARKET LISTING
We have applied to have our common stock listed on The NASDAQ Global Market under the symbol CNCE.
PRICE STABILIZATION, SHORT POSITIONS
In connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock during and after this offering, including:
Ø |
stabilizing transactions; |
Ø |
short sales; |
Ø |
purchases to cover positions created by short sales; |
Ø |
imposition of penalty bids; and |
Ø |
syndicate covering transactions. |
Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common stock while this offering is in progress. Stabilization transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed
172
Underwriting
a specified maximum. These transactions may also include making short sales of our common stock, which involve the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering and purchasing shares of common stock on the open market to cover short positions created by short sales. Short sales may be covered short sales, which are short positions in an amount not greater than the underwriters over-allotment option referred to above, or may be naked short sales, which are short positions in excess of that amount.
The underwriters may close out any covered short position by either exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, 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 the over-allotment option.
Naked short sales are short sales made in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchased in this offering.
The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of that underwriter in stabilizing or short covering transactions.
These stabilizing transactions, short sales, purchases to cover positions created by short sales, the imposition of penalty bids and syndicate covering transactions 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 our common stock. As a result of these activities, the price of our common stock may be higher than the price that otherwise might exist in the open market. The underwriters may carry out these transactions on The NASDAQ Global Market, in the over-the- counter market or otherwise. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the shares. Neither we, nor any of the underwriters make any representation that the underwriters will engage in these stabilization transactions or that any transaction, once commenced, will not be discontinued without notice.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there was no public market for our common stock. The initial public offering price will be determined by negotiation among us and the representatives of the underwriters. The principal factors to be considered in determining the initial public offering price include:
Ø |
the information set forth in this prospectus and otherwise available to the representatives; |
Ø |
our history and prospects and the history and prospects for the industry in which we compete; |
Ø |
our past and present financial performance; |
Ø |
our prospects for future earnings and the present state of our development; |
Ø |
the general condition of the securities markets at the time of this offering; |
Ø |
the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and |
Ø |
other factors deemed relevant by the underwriters and us. |
173
Underwriting
The estimated public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors. Neither we nor the underwriters can assure investors that an active trading market will develop for our common stock or that the common stock will trade in the public market at or above the initial public offering price.
AFFILIATIONS
The underwriters and their respective 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 their affiliates may from time to time in the future engage with us and perform services for us or in the ordinary course of their business for which they will receive customary fees and expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities or instruments of us. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of these securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in these securities and instruments.
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 participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter, 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 underwriters on the same basis as other allocations. Other than the prospectus in electronic format, the information on any underwriters website and any information contained in any other website maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter and should not be relied upon by investors.
NOTICE TO PROSPECTIVE INVESTORS
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 shares which are the subject of the offering contemplated by this prospectus (the Shares) may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
(a) | to any legal entity which is a qualified investor as defined under the Prospectus Directive; |
(b) | 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) subject to obtaining the prior consent of the representatives of the underwriters for any such offer; or |
(c) | in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
174
Underwriting
provided that no such offer of Shares shall result in a requirement 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.
For the purposes of this provision, the expression an offer to the public in relation to any Shares 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 Shares to be offered so as to enable an investor to decide to purchase any Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that 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.
The EEA selling restriction is in addition to any other selling restrictions set out in this prospectus.
United Kingdom
This prospectus is only being distributed to and is only directed at: (1) persons who are outside the United Kingdom; (2) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order); or (3) high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons falling within (1)-(3) together being referred to as relevant persons). The shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such shares will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this prospectus or any of its contents.
Australia
This prospectus is not a formal disclosure document and has not been, nor will be, lodged with the Australian Securities and Investments Commission. It does not purport to contain all information that an investor or their professional advisers would expect to find in a prospectus or other disclosure document (as defined in the Corporations Act 2001 (Australia)) for the purposes of Part 6D.2 of the Corporations Act 2001 (Australia) or in a product disclosure statement for the purposes of Part 7.9 of the Corporations Act 2001 (Australia), in either case, in relation to the securities.
The securities are not being offered in Australia to retail clients as defined in sections 761G and 761GA of the Corporations Act 2001 (Australia). This offering is being made in Australia solely to wholesale clients for the purposes of section 761G of the Corporations Act 2001 (Australia) and, as such, no prospectus, product disclosure statement or other disclosure document in relation to the securities has been, or will be, prepared.
This prospectus does not constitute an offer in Australia other than to persons who do not require disclosure under Part 6D.2 of the Corporations Act 2001 (Australia) and who are wholesale clients for the purposes of section 761G of the Corporations Act 2001 (Australia). By submitting an application for our securities, you represent and warrant to us that you are a person who does not require disclosure under Part 6D.2 and who is a wholesale client for the purposes of section 761G of the Corporations Act 2001 (Australia). If any recipient of this prospectus is not a wholesale client, no offer of, or invitation to apply for, our securities shall be deemed to be made to such recipient and no applications for our securities will be accepted from such recipient. Any offer to a recipient in Australia, and any agreement arising from acceptance of such offer, is personal and may only be accepted by the recipient. In addition, by applying for our securities you undertake to us that, for a period of 12 months from the date of issue of the securities, you will not transfer any interest in the securities to any person in Australia other than to a person who does not require disclosure under Part 6D.2 and who is a wholesale client.
175
Underwriting
Hong Kong
The contents of this prospectus have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice. Please note that (i) our securities may not be offered or sold in Hong Kong, by means of this prospectus or any document other than to professional investors within the meaning of Part I of Schedule 1 of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) (SFO) and any rules made thereunder, or 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) (CO) or which do not constitute an offer or invitation to the public for the purpose of the CO or the SFO, and (ii) no advertisement, invitation or document relating to our securities 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 securities laws of Hong Kong) other than with respect to the securities 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 SFO and any rules made thereunder.
Japan
Our 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 our securities will not be offered or sold, directly or indirectly, in Japan, or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, 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.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of our securities may not be circulated or distributed, nor may our securities 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 (SFA), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where our securities are subscribed or purchased under Section 275 by a relevant person which is:
(a) | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
(b) | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired our securities pursuant to an offer made under Section 275 except: |
(1) | to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
176
Underwriting
(2) | where no consideration is or will be given for the transfer; |
(3) | where the transfer is by operation of law; or |
(4) | as specified in Section 276(7) of the SFA. |
Switzerland
This Prospectus does not constitute an issue prospectus pursuant to Article 652a or Article 1156 of the Swiss Code of Obligations (CO) and the shares will not be listed on the SIX Swiss Exchange. Therefore, the Prospectus may not comply with the disclosure standards of the CO and/or the listing rules (including any prospectus schemes) of the SIX Swiss Exchange. Accordingly, the shares may not be offered to the public in or from Switzerland, but only to a selected and limited circle of investors, which do not subscribe to the shares with a view to distribution.
Greece
The securities have not been approved by the Hellenic Capital Markets Commission for distribution and marketing in Greece. This document and the information contained therein do not and shall not be deemed to constitute an invitation to the public in Greece to purchase the securities. The securities may not be advertised, distributed, offered or in any way sold in Greece except as permitted by Greek law.
Dubai International Finance Centre
This prospectus relates to an Exempt Offer in accordance with the Markets Rules of the Dubai Financial Services Authority. This prospectus is intended for distribution only to Professional Clients who are not natural persons. It must not be delivered to, or relied on by, any other person. The Dubai Financial Services Authority has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The Dubai Financial Services Authority has not approved this document nor taken steps to verify the information set out in it, and has no responsibility for it. The securities to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this document you should consult an authorized financial adviser.
177
The validity of the shares of 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 Gibson, Dunn & Crutcher LLP, New York, New York, in connection with certain legal matters related to this offering.
The consolidated financial statements of Concert Pharmaceuticals, Inc. at December 31, 2011 and December 31, 2012 and for the years then ended, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
Where you can find more information
We have filed with the SEC a registration statement on Form S-1 under the Securities Act 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. Statements contained in this prospectus about the contents of any contract or any other document filed as an exhibit are not necessarily complete, 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 be subject to the 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.concertpharma.com. Our website is not a part of this prospectus.
178
F-2 | ||||
F-3 | ||||
Consolidated statements of operations and comprehensive loss |
F-4 | |||
Consolidated statements of redeemable convertible preferred stock and stockholders
|
F-5 | |||
F-6 | ||||
F-7 |
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Concert Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Concert Pharmaceuticals, Inc. (the Company) as of December 31, 2011 and 2012, and the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders (deficit) equity and cash flows for each of 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 audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the 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 Concert Pharmaceuticals, Inc. at December 31, 2011 and 2012 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
November 5, 2013
F-2
Concert Pharmaceuticals, Inc.
December 31, | September 30, 2013 | |||||||||||||||
2011 | 2012 | Actual | Pro forma | |||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||
Assets |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 22,949 | $ | 7,490 | $ | 18,612 | $ | 18,612 | ||||||||
Short-term investments, available for sale |
19,705 | 20,067 | 22,705 | 22,705 | ||||||||||||
Interest receivable |
128 | 102 | 115 | 115 | ||||||||||||
Accounts receivable |
500 | 13 | 164 | 164 | ||||||||||||
Prepaid expenses and other current assets |
853 | 1,178 | 1,305 | 1,305 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
44,135 | 28,850 | 42,901 | 42,901 | ||||||||||||
Property and equipment, net |
4,438 | 3,454 | 2,591 | 2,591 | ||||||||||||
Long-term investment |
| | 1,256 | 1,256 | ||||||||||||
Restricted cash |
706 | 706 | 706 | 706 | ||||||||||||
Other assets |
124 | 119 | 1,515 | 1,515 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 49,403 | $ | 33,129 | $ | 48,969 | $ | 48,969 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities, redeemable convertible preferred stock and stockholders (deficit) equity | ||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable |
$ | 1,576 | $ | 813 | 953 | 953 | ||||||||||
Accrued expenses and other liabilities |
1,472 | 1,953 | 2,918 | 2,918 | ||||||||||||
Deferred revenue, current portion |
6,894 | | 3,997 | 3,997 | ||||||||||||
Leasehold improvement loan, current portion |
332 | 332 | 332 | 332 | ||||||||||||
Loans payable, net of discount |
| 4,812 | 7,651 | 7,651 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current liabilities |
10,274 | 7,910 | 15,851 | 15,851 | ||||||||||||
Deferred revenue, net of current portion |
4,128 | 2,750 | 16,551 | 16,551 | ||||||||||||
Leasehold improvement loan, net of current portion |
913 | 581 | 332 | 332 | ||||||||||||
Deferred lease incentive, net of current portion |
1,411 | 898 | 513 | 513 | ||||||||||||
Deferred rent, net of current portion |
632 | 451 | 277 | 277 | ||||||||||||
Warrant to purchase redeemable securities |
168 | 459 | 489 | | ||||||||||||
Loan payable, net of current portion and discount |
7,135 | 14,919 | 9,120 | 9,120 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
24,661 | 27,968 | 43,133 | 42,644 | ||||||||||||
Commitments (Note 9) |
||||||||||||||||
Redeemable convertible preferred stock (Series A, B, C and D), $0.001 par value per share; 62,916,667 shares authorized; 56,047,067 shares issued and outstanding at December 31, 2011 and 2012 and September 30, 2013 (unaudited); aggregate liquidation preference of $112,993 at December 31, 2011 and 2012 and September 30, 2013 (unaudited); no shares issued and outstanding pro forma |
111,460 | 111,848 | 112,144 | | ||||||||||||
Stockholders (deficit) equity (unaudited): |
||||||||||||||||
Common stock, $0.001 par value per share; 83,716,667 shares authorized; 7,289,956 shares issued and outstanding at December 31, 2011 and 2012 and 7,317,956 shares issued and outstanding at September 30, 2013 (unaudited); 63,365,023 shares issued and outstanding pro forma (unaudited) |
7 | 7 | 7 | 63 | ||||||||||||
Additional paid-in capital |
403 | 883 | 1,400 | 113,977 | ||||||||||||
Accumulated other comprehensive income |
9 | 4 | 7 | 7 | ||||||||||||
Accumulated deficit |
(87,137 | ) | (107,581 | ) | (107,722 | ) | (107,722 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stockholders (deficit) equity |
(86,718 | ) | (106,687 | ) | (106,308 | ) | 6,325 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities, redeemable convertible preferred stock and stockholders (deficit) equity |
$ | 49,403 | $ | 33,129 | $ | 48,969 | $ | 48,969 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
Concert Pharmaceuticals, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Year ended
December 31, |
Nine months
ended September 30, |
|||||||||||||||
2011 | 2012 | 2012 | 2013 | |||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Revenue: |
||||||||||||||||
License and research and development revenue |
$ | 13,967 | $ | 11,349 | $ | 11,126 | $ | 21,995 | ||||||||
Milestone revenue |
5,500 | 1,500 | 1,500 | 2,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
19,467 | 12,849 | 12,626 | 23,995 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses: |
||||||||||||||||
Research and development |
23,436 | 24,193 | 18,384 | 16,460 | ||||||||||||
General and administrative |
7,377 | 7,266 | 5,620 | 6,366 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
30,813 | 31,459 | 24,004 | 22,826 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
(Loss) income from operations |
(11,346 | ) | (18,610 | ) | (11,378 | ) | 1,169 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Investment income |
44 | 22 | 17 | 17 | ||||||||||||
Interest and other expense |
(18 | ) | (1,856 | ) | (1,324 | ) | (1,327 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (11,320 | ) | $ | (20,444 | ) | $ | (12,685 | ) | $ | (141 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive (loss) income: |
||||||||||||||||
Unrealized gain (loss) on investments |
16 | (5 | ) | (6 | ) | 3 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive loss |
$ | (11,304 | ) | $ | (20,449 | ) | $ | (12,691 | ) | $ | (138 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Reconciliation of net loss to net loss applicable to common stockholders: |
||||||||||||||||
Net loss |
$ | (11,320 | ) | $ | (20,444 | ) | $ | (12,685 | ) | $ | (141 | ) | ||||
Accretion on redeemable convertible preferred stock |
(1,069 | ) | (388 | ) | (290 | ) | (296 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss applicable to common stockholdersbasic and diluted |
$ | (12,389 | ) | $ | (20,832 | ) | $ | (12,975 | ) | $ | (437 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share applicable to common stockholdersbasic and diluted |
$ | (1.71 | ) | $ | (2.86 | ) | $ | (1.78 | ) | $ | (0.06 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average number of common shares used in net loss per share applicable to common stockholdersbasic |
7,251 | 7,290 | 7,290 | 7,295 | ||||||||||||
Weighted-average number of common shares used in net loss per share applicable to common stockholdersdiluted |
7,251 | 7,290 | 7,290 | 7,295 | ||||||||||||
Pro forma net loss per share applicable to common stockholders (unaudited): |
||||||||||||||||
Basic: |
$ | (0.32 | ) | $ | (0.00 | ) | ||||||||||
|
|
|
|
|||||||||||||
Diluted: |
$ | (0.32 | ) | $ | (0.00 | ) | ||||||||||
|
|
|
|
|||||||||||||
Pro forma weighted average number of common shares outstanding (unaudited): |
||||||||||||||||
Basic: |
63,337 | 63,342 | ||||||||||||||
Diluted: |
63,337 | 63,342 |
See accompanying notes.
F-4
Concert Pharmaceuticals, Inc.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS (DEFICIT) EQUITY
Redeemable convertible
preferred stock |
Common stock |
Additional paid-in capital |
Accumulated
comprehensive income |
Accumulated deficit |
Total stockholders (deficit) equity |
|||||||||||||||||||||||||||||
Shares |
Carrying value |
|||||||||||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2010 |
56,047,067 | $ | 110,391 | 7,216,705 | $ | 7 | $ | 554 | $ | (7 | ) | $ | (75,817 | ) | $ | (75,263 | ) | |||||||||||||||||
Accretion of redeemable convertible preferred stock to redemption value |
| 1,069 | | | (1,069 | ) | | | (1,069 | ) | ||||||||||||||||||||||||
Exercise of stock options |
| | 73,251 | 0 | 15 | | | 15 | ||||||||||||||||||||||||||
Unrealized gain on short-term investments |
| | | | | 16 | | 16 | ||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 903 | | | 903 | ||||||||||||||||||||||||||
Net loss |
| | | | | | (11,320 | ) | (11,320 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at December 31, 2011 |
56,047,067 | 111,460 | 7,289,956 | 7 | 403 | 9 | (87,137 | ) | (86,718 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Accretion of redeemable convertible preferred stock to redemption value |
388 | | | (388 | ) | | | (388 | ) | |||||||||||||||||||||||||
Unrealized gain on short-term investments |
| | | | | (5 | ) | | (5 | ) | ||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 868 | | | 868 | ||||||||||||||||||||||||||
Net loss |
| | | | | | (20,444 | ) | (20,444 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at December 31, 2012 |
56,047,067 | 111,848 | 7,289,956 | 7 | 883 | 4 | (107,581 | ) | (106,687 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Accretion of redeemable convertible preferred stock to redemption value (unaudited) |
| 296 | | | (296 | ) | | | (296 | ) | ||||||||||||||||||||||||
Exercise of stock option |
| | 28,000 | | 20 | | | 20 | ||||||||||||||||||||||||||
Unrealized gain on short-term investments (unaudited) |
| | | | | 3 | | 3 | ||||||||||||||||||||||||||
Stock-based compensation expense (unaudited) |
| | | | 793 | | | 793 | ||||||||||||||||||||||||||
Net loss (unaudited) |
| | | | | | (141 | ) | (141 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at September 30, 2013 (unaudited) |
56,047,067 | 112,144 | 7,317,956 | 7 | 1,400 | 7 | (107,722 | ) | (106,308 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Conversion of preferred stock into common stock (unaudited) |
(56,047,067 | ) | (112,144 | ) | 56,047,067 | 56 | 112,088 | | | 112,144 | ||||||||||||||||||||||||
Reclassification of warrant to purchase preferred stock to stockholders equity (unaudited) |
| | | | 489 | | | 489 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Pro forma balance at September 30, 2013 (unaudited) |
| $ | | 63,365,023 | $ | 63 | $ | 113,977 | $ | 7 | $ | (107,722 | ) | $ | 6,325 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
Concert Pharmaceuticals, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
December 31, |
Nine months ended
September 30, |
|||||||||||||||
2011 | 2012 | 2012 | 2013 | |||||||||||||
(unaudited) | ||||||||||||||||
(In thousands) | ||||||||||||||||
Operating activities | ||||||||||||||||
Net loss |
$ | (11,320 | ) | $ | (20,444 | ) | $ | (12,685 | ) | $ | (141 | ) | ||||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
||||||||||||||||
Depreciation and amortization |
1,619 | 1,452 | 1,113 | 1,006 | ||||||||||||
Stock-based compensation expense |
903 | 868 | 648 | 793 | ||||||||||||
Accretion of premiums and discounts on short-term investments |
774 | 365 | 288 | 223 | ||||||||||||
Amortization of discount on loan payable |
| 96 | 72 | 73 | ||||||||||||
Amortization of deferred financing costs |
| 39 | 30 | 28 | ||||||||||||
Re-measurement of warrant to purchase redeemable securities |
| 291 | 218 | 30 | ||||||||||||
Amortization of deferred lease incentive |
(513 | ) | (513 | ) | (385 | ) | (385 | ) | ||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable |
1,000 | 487 | 497 | (151 | ) | |||||||||||
Interest receivable |
114 | 26 | | (12 | ) | |||||||||||
Prepaid expenses and other current assets |
(29 | ) | (364 | ) | (795 | ) | (156 | ) | ||||||||
Other assets |
(70 | ) | 5 | 32 | (1,103 | ) | ||||||||||
Accounts payable |
403 | (764 | ) | (508 | ) | 130 | ||||||||||
Accrued expenses and other liabilities |
274 | 432 | 749 | 631 | ||||||||||||
Deferred rent |
(62 | ) | (131 | ) | (90 | ) | (123 | ) | ||||||||
Deferred revenue |
(11,178 | ) | (8,272 | ) | (8,271 | ) | 17,797 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash (used in) provided by operating activities |
(18,085 | ) | (26,427 | ) | (19,088 | ) | 18,640 | |||||||||
Investing activities |
||||||||||||||||
Purchases of property and equipment |
(290 | ) | (468 | ) | (280 | ) | (143 | ) | ||||||||
Purchases of short-term investments |
(40,879 | ) | (38,398 | ) | (34,122 | ) | (27,397 | ) | ||||||||
Purchases of long-term investments |
| | | (1,256 | ) | |||||||||||
Maturities of short-term investments |
64,070 | 37,666 | 25,551 | 24,540 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) investing activities |
22,901 | (1,200 | ) | (8,851 | ) | (4,256 | ) | |||||||||
Financing activities |
||||||||||||||||
Proceeds from issuance of loan payable, net of issuance costs |
7,302 | 12,500 | 12,500 | | ||||||||||||
Principal payments on loan payable |
| | | (3,033 | ) | |||||||||||
Repayment of leasehold improvement loan |
(332 | ) | (332 | ) | (249 | ) | (249 | ) | ||||||||
Proceeds from issuance of common stock |
15 | | | 20 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) financing activities |
6,985 | 12,168 | 12,251 | (3,262 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in cash and cash equivalents |
11,801 | (15,459 | ) | (15,688 | ) | 11,122 | ||||||||||
Cash and cash equivalents at beginning of period |
11,148 | 22,949 | 22,949 | 7,490 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash and cash equivalents at end of period |
$ | 22,949 | $ | 7,490 | $ | 7,261 | $ | 18,612 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Supplemental cash flow information: |
||||||||||||||||
Cash paid for interest |
$ | | $ | 1,339 | $ | 910 | $ | 1,250 | ||||||||
Initial public offering costs incurred but unpaid at period end |
$ | | $ | | $ | | $ | 293 |
See accompanying notes.
F-6
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
1. Nature of business
Concert Pharmaceuticals, Inc. (Concert or the Company) was incorporated on April 12, 2006 (inception) as a Delaware corporation, with operations based in Lexington, Massachusetts. The Company is a clinical stage biopharmaceutical company that applies its extensive knowledge of deuterium chemistry to discover and develop novel small molecule drugs. The Companys approach starts with approved drugs, advanced clinical candidates or previously studied compounds that the Company believes can be improved with deuterium substitution to provide better pharmacokinetic or metabolic properties and thereby enhance clinical safety, tolerability or efficacy. The Company believes this approach may enable drug discovery and clinical development that is more efficient and less expensive than conventional small molecule drug development.
The Company has generated an accumulated deficit of $107.7 million since inception through September 30, 2013 and will require substantial additional capital to fund its research and development. It is subject to risks common to companies in the biotechnology industry, including, but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for its product candidates, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations and ability to transition from pilot-scale manufacturing to large-scale production of products.
The Company believes that its cash and cash equivalents and investments of $42.6 million at September 30, 2013 will be sufficient to allow the Company to fund its current operating plan for at least the next 12 months. Management expects the Company to continue to incur losses for the full year ending December 31, 2013 and for the foreseeable future. The Companys ability to achieve profitability in the future is dependent upon the successful development, approval, and commercialization of its product candidates and achieving a level of revenues adequate to support the Companys cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital. Management intends to fund future operations through additional private or public debt or equity offerings, and may seek additional capital through arrangements with collaborators or from other sources. There can be no assurances, however, that additional funding will be available on terms acceptable to the Company, or at all.
Unless otherwise indicated, all amounts are in thousands except per share amounts.
2. Summary of significant accounting policies
The accompanying financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying financial statements and notes.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of Concert Pharmaceuticals, Inc. and its wholly owned subsidiary, Concert Pharmaceuticals Securities Corporation, which is a Massachusetts subsidiary created to buy, sell and hold securities. All intercompany transactions and balances have been eliminated.
F-7
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and in developing the estimates and assumptions that are used in the preparation of the financial statements. Management must apply significant judgment in this process. Managements estimation process often may yield a range of potentially reasonable estimates and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: revenue recognition for multiple-element revenue arrangements; stock-based compensation expense, including estimating the fair value of the Companys common stock; the valuation of liability-classified warrants; accrued expenses; and income taxes.
Unaudited interim financial information
The accompanying consolidated balance sheet as of September 30, 2013, the consolidated statements of operations and comprehensive loss and consolidated statements of cash flows for the nine months ended September 30, 2012 and 2013, and the consolidated statement of redeemable convertible preferred stock and stockholders (deficit) equity for the nine months ended September 30, 2013 are unaudited. The interim unaudited financial statements have been prepared on the same basis as the annual audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Companys consolidated financial position as of September 30, 2013, and the consolidated results of its operations and its cash flows for the nine months ended September 30, 2012 and 2013. The financial data and other information disclosed in these notes as of and for the nine months ended September 30, 2012 and 2013 are unaudited. The results for the nine months ended September 30, 2013 are not necessarily indicative of results to be expected for the year ending December 31, 2013, any other interim periods, or any future year or period.
Unaudited pro forma information
On November 1, 2013, the Companys board of directors authorized management to confidentially submit a draft registration statement to the Securities and Exchange Commission (SEC) for the Company to sell shares of its common stock to the public. Upon the closing of a qualified public offering or the consent of holders of at least 60% of the Series B redeemable convertible preferred stock (Series B Preferred Stock) and holders of at least 50% of the Series C redeemable convertible preferred stock (Series C Preferred Stock), all outstanding shares of our redeemable convertible preferred stock will convert into shares of common stock. The unaudited pro forma balance sheet as of September 30, 2013, assumes the automatic conversion of all the outstanding redeemable convertible preferred stock into shares of common stock, the automatic conversion of a warrant to purchase redeemable convertible preferred stock into a warrant to purchase common stock, and the reclassification of the Companys outstanding warrant from a liability to stockholders equity upon the completion of this proposed offering.
Unaudited pro forma net loss per share applicable to common stockholders is computed using the weighted-average number of common shares outstanding after giving effect to the conversion of all the outstanding redeemable convertible preferred stock into shares of common stock as if such conversion had occurred at the beginning of the period presented and, accordingly, excludes the accretion of redeemable convertible preferred stock to redemption value. Additionally, the losses associated with the
F-8
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
changes in the fair value of the warrant to purchase redeemable convertible preferred stock have been excluded from the determination of unaudited pro forma net loss as those re-measurements would not be required when the warrant to purchase redeemable convertible preferred stock becomes a warrant to purchase common stock.
Segment information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business in one operating segment. All material long-lived assets of the Company reside in the United States.
Cash, cash equivalents and investments
Cash equivalents include all highly liquid investments maturing within 90 days from the date of purchase. Investments consist of securities with original maturities greater than 90 days when purchased. The Company classifies these investments as available-for-sale and records them at fair value in the accompanying consolidated balance sheets. Unrealized gains or losses are included in accumulated other comprehensive loss. Premiums or discounts from par value are amortized to investment income over the life of the underlying investment.
Cash, cash equivalents and investments included the following at December 31, 2011 and 2012 and September 30, 2013 (in thousands):
Average
maturity |
Amortized cost |
Unrealized
gains |
Unrealized
losses |
Fair value |
||||||||||||||||
December 31, 2011 |
||||||||||||||||||||
Cash |
$ | 2,522 | $ | | $ | | $ | 2,522 | ||||||||||||
Money market funds |
20,427 | | | 20,427 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents |
$ | 22,949 | $ | | $ | | $ | 22,949 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
U.S. Treasury obligations |
357 days | $ | 6,039 | $ | 3 | $ | | $ | 6,042 | |||||||||||
Government agency securities |
348 days | 13,657 | 6 | | 13,663 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Short-term investments |
$ | 19,696 | $ | 9 | $ | | $ | 19,705 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Average
maturity |
Amortized
cost |
Unrealized
gains |
Unrealized
losses |
Fair
value |
||||||||||||||||
December 31, 2012 |
||||||||||||||||||||
Cash |
$ | 593 | $ | | $ | | $ | 593 | ||||||||||||
Money market funds |
6,897 | | | 6,897 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents |
$ | 7,490 | $ | | $ | | $ | 7,490 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
U.S. Treasury obligations |
230 days | $ | 1,504 | $ | | $ | | $ | 1,504 | |||||||||||
Government agency securities |
279 days | 18,559 | 4 | | 18,563 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Short-term investments |
$ | 20,063 | $ | 4 | $ | | $ | 20,067 | ||||||||||||
|
|
|
|
|
|
|
|
F-9
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
Average
maturity |
Amortized cost |
Unrealized
gains |
Unrealized
losses |
Fair value |
||||||||||||||||
September 30, 2013 (unaudited) |
||||||||||||||||||||
Cash |
$ | 3,107 | $ | | $ | | $ | 3,107 | ||||||||||||
Money market funds |
15,505 | | | 15,505 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents |
$ | 18,612 | $ | | $ | | $ | 18,612 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
U.S. Treasury obligation |
301 days | $ | 500 | $ | | $ | | $ | 500 | |||||||||||
Government agency securities |
290 days | 22,198 | 7 | | 22,205 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Short-term investments |
$ | 22,698 | $ | 7 | $ | | $ | 22,705 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Government agency security |
421 days | $ | 1,256 |
$ |
|
|
$ | | $ | 1,256 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Long-term investment |
$ | 1,256 | $ | | $ | | $ | 1,256 | ||||||||||||
|
|
|
|
|
|
|
|
Although available to be sold to meet operating needs or otherwise, securities are generally held through maturity. The cost of securities sold is determined based on the specific identification method for purposes of recording realized gains and losses. During 2011, 2012 and the nine months ended September 30, 2013 (unaudited), there were no realized gains or losses on sales of investments, and no investments were adjusted for other than temporary declines in fair value.
Concentrations of credit risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of money market funds and investments. The Company has not experienced any credit losses in these accounts and does not believe it is exposed to any significant credit risk on these funds. The Company has no foreign exchange contracts, option contracts or other foreign exchange hedging arrangements. At December 31, 2012 and September 30, 2013, substantially all of the Companys cash was deposited in accounts at two highly rated financial institutions, thus limiting the amount of credit exposure to any one financial institution. These amounts at times may exceed federally insured limits.
Deferred issuance costs
Deferred issuance costs, which primarily consist of direct and incremental legal and accounting fees relating to the Companys proposed initial public offering of common stock, are capitalized as incurred. Deferred issuance costs related to the Companys proposed initial public offering will be offset against initial public offering proceeds upon the consummation of the offering and are included as a component of other assets in the accompanying consolidated balance sheets. In the event the offering is terminated, the related deferred issuance costs will be expensed. No amounts were deferred related to the Companys proposed initial public offering as of December 31, 2011 or December 31, 2012, and $1.5 million was deferred as of September 30, 2013.
Fair value of financial measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis (principally cash equivalents, short-term and long-term investments, and the preferred stock warrant liability) that have been classified as Level 1, 2 or 3 within the fair value hierarchy as described below. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates, and yield curves. Fair values
F-10
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
determined by Level 3 inputs utilize unobservable data points for the asset or liability. The Companys investments in money market funds, U.S. treasury obligations, and government agency securities have been classified as Level 1 because their fair values are based on quoted market prices. The preferred stock warrant liability is classified as Level 3 because certain inputs to the valuation of the warrant are based on unobservable inputs. The assumptions used to value the warrant are more fully described in Note 12.
The carrying amount of financial instruments not carried at fair value, including accounts receivable, accounts payable, loan payable and leasehold improvement loan approximate fair value due to either their short-term maturities or interest rates which approximate market rates.
Property and equipment
Property and equipment are recognized at cost and depreciated over their estimated useful lives using the straight-line method. Repair and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment. Potential impairment is assessed when there is evidence that events or circumstances indicate that the carrying amount of an asset may not be recovered. The Company has not recognized any impairments during 2011, 2012 or the nine months ended September 30, 2013 (unaudited).
Revenue recognition
The Company has primarily generated revenue through arrangements with collaborators and nonprofit organizations for the development and commercialization of product candidates.
The Company recognizes revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (ASC 605). Accordingly, revenue is recognized when all of the following criteria are met:
Ø |
Persuasive evidence of an arrangement exists; |
Ø |
Delivery has occurred or services have been rendered; |
Ø |
The sellers price to the buyer is fixed or determinable; and |
Ø |
Collectability is reasonably assured. |
Amounts received prior to satisfying the revenue recognition criteria are recognized as deferred revenue in the Companys consolidated balance sheets. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, current portion. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
The Companys revenue is currently generated through collaborative research and development and licensing agreements. The terms of these agreements typically contain multiple elements, or deliverables, which may include licenses, or options to obtain licenses, to product candidates, referred to as exclusive licenses, as well as research and development activities to be performed by us on behalf of the collaboration partner related to the licensed product candidates. The terms of these agreements may include payments to the Company of one or more of the following: a nonrefundable, upfront payment; milestone payments; payment of license exercise or option fees with respect to product candidates; fees for research and development services rendered; and royalties on commercial sales of licensed product candidates, if any. To date, the Company has received upfront payments, several milestone payments and certain research and development service payments but has not received any license exercise or option fees or earned royalty revenue as a result of product sales.
F-11
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
When evaluating multiple element arrangements, the Company considers whether the deliverables under the arrangement represent separate units of accounting. This evaluation requires subjective determinations and requires management to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. In determining the units of accounting, management evaluates certain criteria, including whether the deliverables have standalone value, based on the consideration of the relevant facts and circumstances for each arrangement. The consideration received is allocated among the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria are applied to each of the separate units.
The Company determines the estimated selling price for deliverables within each agreement using vendor-specific objective evidence (VSOE) of selling price, if available, third-party evidence (TPE) of selling price if VSOE is not available, or best estimate of selling price (BESP) if neither VSOE nor TPE is available. Determining the BESP for a deliverable requires significant judgment. The Company has used its BESP to estimate the selling price for licenses to the Companys proprietary technology, since the Company does not have VSOE or TPE of selling price for these deliverables. In those circumstances where the Company utilizes BESP to determine the estimated selling price of a license to the Companys proprietary technology, the Company considers market conditions as well as entity-specific factors, including those factors contemplated in negotiating the agreement, estimated development costs, and the probability of success and the time needed to commercialize a product candidate pursuant to the license. In validating the Companys BESP, the Company evaluates whether changes in the key assumptions used to determine the BESP will have a significant effect on the allocation of arrangement consideration between multiple deliverables.
The Companys multiple-element revenue arrangements may include the following:
Exclusive Licenses . The deliverables under the Companys collaboration agreements generally include exclusive licenses to develop, manufacture and commercialize one or more deuterated compounds. To account for this element of the arrangement, management evaluates whether the exclusive license has standalone value from the undelivered elements based on the consideration of the relevant facts and circumstances of each arrangement, including the research and development capabilities of the collaboration partner. The Company may recognize the arrangement consideration allocated to licenses upon delivery of the license if facts and circumstances indicate that the license has standalone value from the undelivered elements, which generally include research and development services. The Company defers arrangement consideration allocated to licenses if facts and circumstances indicate that the delivered license does not have standalone value from the undelivered elements.
When management believes the license does not have stand-alone value from the other deliverables to be provided in the arrangement, the Company generally recognizes revenue attributed to the license on a straight-line basis over the Companys contractual or estimated performance period, which is typically the term of the Companys research and development obligations. If management cannot reasonably estimate when the Companys performance obligation ends, then revenue is deferred until management can reasonably estimate when the performance obligation ends. The periods over which revenue should be recognized are subject to estimates by management and may change over the course of the research and development and licensing agreement. Such a change could have a material impact on the amount of revenue the Company records in future periods.
Research and Development Services . The deliverables under the Companys collaboration and license agreements may include deliverables related to research and development services to be performed by the
F-12
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
Company on behalf of the collaboration partner. As the Company is principally responsible for the performance of these services under the agreements, the Company recognizes revenue on a gross basis for research and development services as those services are performed.
Payments or reimbursements resulting from the Companys research and development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts, so long as there is persuasive evidence of an arrangement, the fee is fixed or determinable, and collection of the related amount is reasonably assured.
Option Agreements . The Companys arrangements may provide a collaborator with the right to select a deuterated compound for licensing within an initial pre-defined selection period. Under these agreements, a fee would be due to the Company upon the exercise of an option to acquire a license. The accounting for option arrangements is dependent on the nature of the option granted to the collaboration partner. An option is considered substantive if, at the inception of the arrangement, the Company is at risk as to whether the collaboration partner will choose to exercise the option to secure exclusive licenses. Factors that the Company considers in evaluating whether an option is substantive include the overall objective of the arrangement, the benefit the collaborator might obtain from the arrangement without exercising the option, the cost to exercise the option relative to the total upfront consideration and the additional financial commitments or economic penalties imposed on the collaborator as a result of exercising the option. For arrangements under which an option to secure a license is considered substantive, the Company does not consider the license underlying the option to be a deliverable at the inception of the arrangement. For arrangements under which the option to secure a license is not considered substantive, the Company considers the license underlying the option to be a deliverable at the inception of the arrangement and, upon delivery of the license, would apply the multiple-element revenue arrangement criteria to the license and any other deliverables to determine the appropriate revenue recognition. A significant and incremental discount included in an otherwise substantive option is considered to be a separate deliverable at the inception of the arrangement.
Milestone Revenue . The Companys collaboration agreements generally include contingent milestone payments related to specified development milestones, regulatory milestones and sales-based milestones. Development milestones are typically payable when a product candidate initiates or advances in clinical trial phases or achieves defined clinical events such as proof-of-concept. Regulatory milestones are typically payable upon submission for marketing approval with regulatory authorities or upon receipt of actual marketing approvals for a compound, approvals for additional indications, upon commercial launch or upon the first commercial sale. Sales-based milestones are typically payable when annual sales reach specified levels.
At the inception of each arrangement that includes milestone payments, the Company evaluates whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether (a) the consideration is commensurate with either (i) the entitys performance to achieve the milestone or (ii) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entitys performance to achieve the milestone; (b) the consideration relates solely to past performance; and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. The Company evaluates factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment. Milestones that are not considered substantive are accounted for as license payments and recognized on a straight-line basis over the remaining period of performance.
F-13
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
Research and development costs
Costs incurred in the research and development of the Companys products are expensed as incurred. Research and development expenses are comprised of costs incurred in providing research and development activities, including salaries and benefits, facilities costs, overhead costs, contract research and development services, and other outside costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Accounting for stock-based compensation
The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, CompensationStock Compensation (ASC 718) . ASC 718 requires all stock-based payments to employees, including grants of employee stock options and restricted stock and modifications to existing stock options, to be recognized in the consolidated statements of operations and comprehensive loss based on their fair values. The Company uses the Black-Scholes option pricing model to determine the fair value of options granted.
Compensation expense related to awards to employees is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Awards to non-employees are adjusted through share-based compensation expense as the award vests to reflect the current fair value of such awards and expensed using an accelerated attribution model.
The Company utilized various valuation methodologies in accordance with the framework of the 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 managements judgment. These estimates and assumptions include a number of objective and subjective factors, including external market conditions affecting the biotechnology industry, the prices at which the Company sold shares of redeemable convertible preferred stock, the superior rights and preferences of securities senior to the common stock, and the likelihood of achieving a liquidity event, such as an initial public offering or sale. Significant changes to the key assumptions used in the valuations could result in different fair values of common stock at each valuation date.
Income taxes
The Company provides deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the Companys financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax assets to the amount that will more likely than not be realized.
The Company evaluates tax positions taken, or expected to be taken, in the course of preparing its tax returns to determine whether the tax positions are more likely than not of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recognized as a tax expense.
Guarantees
As permitted under Delaware law, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Companys request in such capacity.
F-14
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
The term of the indemnification is for the officers or directors lifetime. The maximum potential amount of future payments the Company could be required to make is unlimited; however, the Company has directors and officers insurance coverage that limits its exposure and enables it to recover a portion of any future amounts paid.
The Company leases office space under a non-cancelable operating lease which is further described in Note 9. The Company has a standard indemnification arrangement under the lease that requires it to indemnify the landlord against all costs, expenses, fines, suits, claims, demands, liabilities, and actions directly resulting from any breach, violation, or non-performance of any covenant or condition of the Companys lease.
As of December 31, 2012 and September 30, 2013, the Company had not experienced any material losses related to these indemnification obligations, and no material claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.
Comprehensive loss
Comprehensive loss is comprised of net loss and other comprehensive income or loss. Other comprehensive income or loss consists of unrealized gains and losses on short-term investments.
Net income (loss) per share
Net income (loss) per share information is determined using the two-class method, which includes the weighted-average number of common shares outstanding during the period and other securities that participate in dividends (a participating security). The Companys redeemable convertible preferred stock are participating securities as defined by ASC 260-10, Earnings Per Share .
Under the two-class method, basic net income (loss) per share applicable to common stockholders is computed by dividing the net income (loss) applicable to common stockholders by the weighted-average number of common shares outstanding for the reporting period. Diluted net income (loss) per share is computed using the more dilutive of (1) the two-class method or (2) the if converted method. The Company allocates net income first to preferred stockholders based on dividend rights under the Companys articles of incorporation and then to preferred and common stockholders based on ownership interests. Net losses are not allocated to preferred stockholders as they do not have an obligation to share in the Companys net losses.
Diluted net income (loss) per share gives effect to all potentially dilutive securities, including redeemable convertible preferred stock, and shares issuable upon the exercise of outstanding warrants and stock options, using the treasury stock method. For the years ended December 31, 2011 and 2012 and the nine months ended September 30, 2012 and 2013, the Company has excluded the effects of all potentially dilutive shares, which include redeemable convertible preferred stock, a warrant to purchase redeemable convertible preferred stock and outstanding common stock options, from the weighted-average number of common shares outstanding as their inclusion in the computation for all periods would be anti-dilutive due to net losses.
F-15
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
The following common stock equivalents were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect (in thousands):
Year ended December 31, | Nine months ended September 30, | |||||||||||||||
2011 | 2012 | 2012 | 2013 | |||||||||||||
(unaudited) | ||||||||||||||||
Preferred stock |
56,047 | 56,047 | 56,047 | 56,047 | ||||||||||||
Warrant |
400 | 400 | 400 | 400 | ||||||||||||
Outstanding stock options |
11,032 | 11,075 | 10,917 | 11,351 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
67,479 | 67,522 | 67,364 | 67,798 | |||||||||||||
|
|
|
|
|
|
|
|
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. Refer to Note 16, Subsequent Events.
Application of new or revised accounting standards
On April 5, 2012, the Jump-Start Our Business Startups Act (the JOBS Act) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an emerging growth company. As an emerging growth company the Company has elected to not take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and as a result, will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.
Recently adopted accounting pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material effect on its financial position or results of operations upon adoption.
3. Restricted cash
At December 31, 2011 and 2012 and September 30, 2013 (unaudited), $0.7 million of the Companys cash is restricted by a bank as collateral for a stand-by letter of credit issued by the Company to its landlord in connection with the lease of the Companys corporate headquarters.
F-16
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
4. Property and equipment
Property and equipment consists of the following at December 31, 2011 and 2012 and September 30, 2013 (in thousands):
Estimated useful life (in years) |
December 31,
2011 |
December 31,
2012 |
September 30, 2013 |
|||||||||||
(unaudited) | ||||||||||||||
Laboratory equipment |
5 | $ | 3,435 | $ | 2,383 | $ | 2,446 | |||||||
Computer and telephone equipment |
3 | 296 | 278 | 318 | ||||||||||
Software |
3 | 106 | 141 | 156 | ||||||||||
Furniture |
3 | 167 | 167 | 167 | ||||||||||
Leasehold improvements |
Lesser of useful life or lease term (7 years) | 5,863 | 5,863 | 5,880 | ||||||||||
|
|
|
|
|
|
|||||||||
9,867 | 8,832 | 8,967 | ||||||||||||
Less accumulated depreciation and amortization |
(5,429 | ) | (5,378 | ) | (6,376 | ) | ||||||||
|
|
|
|
|
|
|||||||||
$ | 4,438 | $ | 3,454 | $ | 2,591 | |||||||||
|
|
|
|
|
|
Depreciation and amortization expense was charged to operations in the amounts of $1.6 million for the year ended December 31, 2011, $1.5 million for the year ended December 31, 2012, $1.1 million for the nine months ended September 30, 2012 (unaudited) and $1.0 million for the nine months ended September 30, 2013 (unaudited).
5. Accrued expenses and other liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
December 31, |
September 30,
2013 |
|||||||||||
2011 | 2012 | |||||||||||
(unaudited) | ||||||||||||
Accrued professional fees and other |
$ | 418 | $ | 393 | $ | 847 | ||||||
Employee compensation and benefits |
| | 760 | |||||||||
Research and development expenses |
410 | 866 | 566 | |||||||||
Deferred lease incentive, current portion |
513 | 513 | 513 | |||||||||
Deferred rent, current portion |
131 | 181 | 232 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,472 | $ | 1,953 | $ | 2,918 | |||||||
|
|
|
|
|
|
6. Redeemable convertible preferred stock
The Company has issued Series A, Series B, Series C and Series D redeemable convertible preferred stock (collectively, the Preferred Stock). The Company classifies the Preferred Stock outside of stockholders deficit because the shares contain contingent redemption features that are not solely within the Companys control.
F-17
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
Preferred Stock consisted of the following as of December 31, 2011 (in thousands):
Preferred
authorized |
Preferred
issued
and
|
Redemption
value / liquidation preference |
Carrying
value |
Common
issuable
conversion |
||||||||||||||||
Series A |
10,000 | 10,000 | $ | 10,000 | $ | 9,986 | 10,000 | |||||||||||||
Series B |
24,250 | 24,250 | 48,500 | 48,476 | 24,250 | |||||||||||||||
Series C |
22,000 | 15,130 | 37,826 | 37,790 | 15,130 | |||||||||||||||
Series D |
6,667 | 6,667 | 16,667 | 15,208 | 6,667 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
62,917 | 56,047 | $ | 112,993 | $ | 111,460 | $ | 56,047 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
Preferred Stock consisted of the following as of December 31, 2012 (in thousands):
Preferred
authorized |
Preferred
issued
and
|
Redemption
value / liquidation preference |
Carrying
value |
Common
issuable
conversion |
||||||||||||||||
Series A |
10,000 | 10,000 | $ | 10,000 | $ | 9,990 | 10,000 | |||||||||||||
Series B |
24,250 | 24,250 | 48,500 | 48,482 | 24,250 | |||||||||||||||
Series C |
22,000 | 15,130 | 37,826 | 37,799 | 15,130 | |||||||||||||||
Series D |
6,667 | 6,667 | 16,667 | 15,577 | 6,667 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
62,917 | 56,047 | $ | 112,993 | $ | 111,848 | $ | 56,047 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
Preferred Stock consisted of the following as of September 30, 2013 (in thousands) (unaudited):
Preferred shares authorized |
Preferred
issued
and
|
Redemption
value / liquidation preference |
Carrying
value |
Common
issuable
conversion |
||||||||||||||||
Series A |
10,000 | 10,000 | $ | 10,000 | $ | 9,993 | 10,000 | |||||||||||||
Series B |
24,250 | 24,250 | 48,500 | 48,487 | 24,250 | |||||||||||||||
Series C |
22,000 | 15,130 | 37,826 | 37,806 | 15,130 | |||||||||||||||
Series D |
6,667 | 6,667 | 16,667 | 15,858 | 6,667 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
62,917 | 56,047 | $ | 112,993 | $ | 112,144 | 56,047 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
The Preferred Stock have the following rights and preferences:
Voting. The holders of the Preferred Stock are entitled to vote, together with the holders of common stock, on all matters submitted to stockholders for a vote, except with respect to matters on which Delaware General Corporation Law requires that a vote will be by a separate class. Each preferred stockholder is entitled to the number of votes equal to the number of shares of common stock into which each preferred share is convertible at the time of such vote. The holders of at least 60% of the outstanding Series A Preferred Stock voting together as a single class are entitled to elect two directors to the Companys Board of Directors. The holders of at least 60% of the outstanding Series B Preferred Stock voting together as a single class are entitled to elect two directors to the Companys board of directors. The holders of Preferred Stock and the holders of common stock, voting together as a single class on an as-converted to common stock basis, are entitled to elect the remaining directors.
F-18
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
Dividends. The holders of Preferred Stock are entitled to receive dividends when and if declared by the board of directors. No dividends may be paid on shares of common stock until the Company has first paid to the holders of Preferred Stock a dividend equal to 6% per annum of the aggregate conversion prices for the Preferred Stock accruing from the original issue dates of the Preferred Stock. As of December 31, 2012 and September 30, 2013, no dividends have been declared.
Liquidation preference. In the event of any liquidation, dissolution or winding up of the affairs of the Company, the holders of the then-outstanding Preferred Stock shall receive the greater of (1) $1.00 per share for Series A Preferred Stock, $2.00 per share for Series B Preferred Stock, $2.50 per share for Series C Preferred Stock, and $2.50 per share for Series D Preferred Stock, plus all declared but unpaid dividends, or (2) such amount per share of Preferred Stock payable as converted into common stock. Any remaining assets of the Company shall be distributed ratably among the holders of common stock. If the assets or surplus funds to be distributed to the holders of the Preferred Stock are insufficient to permit the payment to such holders of their full preferential amount, the assets and surplus funds legally available for distribution shall be distributed ratably among the holders of the Preferred Stock in proportion to the full preferential amount that each holder is otherwise entitled to receive.
Conversion. Each share of Preferred Stock, at the option of the holder, is convertible into a number of fully paid shares of common stock as determined by dividing $1.00 for Series A Preferred Stock, $2.00 for Series B Preferred Stock, $2.50 for Series C Preferred Stock, and $2.50 for Series D Preferred Stock by the conversion price in effect at the time. The conversion price of Series A Preferred Stock is $1.00 per share, the conversion price of Series B Preferred Stock is $2.00 per share, the conversion price of Series C Preferred Stock is $2.50 per share and the conversion price of Series D Preferred Stock is $2.50 per share. These conversion prices are subject to adjustment in accordance with anti-dilution provisions contained in the Companys Certificate of Incorporation. Conversion is automatic immediately upon the closing of a firm commitment underwritten public offering in which the public offering price equals or exceeds $4.00 per share and the gross proceeds are not less than $30 million, or upon the written election of the holders of at least 60% of the then-outstanding shares of Series B Preferred Stock and at least 50% of the then-outstanding shares of Series C Preferred Stock. As described in Note 16, Subsequent Events, on December 2, 2013 the Companys Board of Directors approved, subject to stockholder approval, a change to the definition of a qualified public offering.
Redemption . Commencing 90 days prior to October 31, 2015, the holders of at least 60% of the-then outstanding shares of Series B Preferred Stock and at least 50% of the-then outstanding shares of Series C Preferred Stock may require the Company to redeem the Preferred Stock in three equal annual installments, the first occurring as of a date that is at least 90 days after the redemption election, at $1.00 per share for Series A Preferred Stock, $2.00 per share for Series B Preferred Stock, $2.50 per share for Series C Preferred Stock and $2.50 per share for Series D Preferred Stock plus any declared but unpaid dividends. The Company is accreting the shares to the redemption values over the period from issuance to October 31, 2015, such that the carrying amount of the securities will equal the redemption amounts of $1.00 for Series A Preferred Stock, $2.00 for Series B Preferred Stock, $2.50 for Series C Preferred Stock and $2.50 for Series D Preferred Stock. The difference between the redemption values and the carrying amount at December 31, 2012 and September 30, 2013 are the issuance costs associated with each offering and the unamortized premium on Series D Preferred Stock (see Note 10). The accretion amounts are recognized as an increase to the carrying value of the Preferred Stock with a corresponding charge to additional paid-in capital, and amounted to $1.1 million for the year ended December 31, 2011, $0.4 million for the year ended December 31, 2012, $0.3 million for the nine months ended September 30, 2012 and $0.3 million for the nine months ended September 30, 2013. The annual
F-19
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
accretion is expected to be $0.4 million for the year ended December 31, 2013, $0.4 million for the year ended December 31, 2014 and $0.3 million for the year ended December 31, 2015.
The Company has evaluated the Preferred Stock and determined it should be considered an equity host and not a debt host as defined by ASC 815, Derivatives and Hedging . This evaluation is necessary in order to determine if any embedded features require bifurcation and, therefore, separate accounting 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 Preferred Stocks economic characteristics and 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 feature is not considered a derivative liability.
7. Stockholders deficit
Stock incentive plan
The Companys Amended and Restated 2006 Stock Option and Grant Plan (the 2006 Plan) provides for the issuance of a total of 12,500,000 shares of common stock in the form of incentive stock options, non-qualified stock options, awards of stock and direct stock purchase opportunities to directors, officers, employees and consultants of the Company.
Generally, the Companys stock options are granted with an exercise price equal to the estimated fair value of the underlying common stock on the date of grant as determined by the board of directors, expire no later than ten years from the date of grant, and vest over various periods not exceeding four years. At December 31, 2011, 998,069 shares were available for future grant under the 2006 Plan, at December 31, 2012, 955,288 shares were available for future grant under the 2006 Plan and at September 30, 2013 (unaudited), 651,007 shares were available for future grant under the 2006 Plan.
F-20
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
The following is a summary of option activity under the 2006 Plan:
Number of
(in thousands) |
Weighted-
average exercise price per share |
Weighted-
average remaining contractual term (in years) |
Aggregate
(in thousands) |
|||||||||||||
Outstanding at December 31, 2011 |
11,032 | $ | 0.56 | 7.4 | $ | 1,401 | ||||||||||
Granted |
218 | 0.53 | ||||||||||||||
Forfeited and expired |
(175 | ) | 0.64 | |||||||||||||
Exercised |
| | ||||||||||||||
|
|
|||||||||||||||
Outstanding at December 31, 2012 |
11,075 | $ | 0.56 | 6.6 | $ | 11,000 | ||||||||||
Granted |
458 | 0.66 | ||||||||||||||
Forfeited and expired |
(154 | ) | 0.70 | |||||||||||||
Exercised |
(28 | ) | 0.72 | |||||||||||||
|
|
|||||||||||||||
Outstanding at September 30, 2013 |
11,351 | $ | 0.56 | 5.4 | $ | 15,000 | ||||||||||
|
|
|||||||||||||||
Exercisable at December 31, 2012 |
8,029 | $ | 0.52 | 6.0 | $ | 8,275 | ||||||||||
|
|
|||||||||||||||
Unvested at December 31, 2012 |
3,046 | $ | 0.66 | 8.4 | ||||||||||||
|
|
|||||||||||||||
Vested and expected to vest at December 31, 2012 (1) |
10,943 | $ | 0.56 | 6.6 | $ | 10,879 | ||||||||||
|
|
|||||||||||||||
Exercisable at September 30, 2013 (unaudited) |
9,036 | $ | 0.54 | 5.0 | $ | 12,136 | ||||||||||
|
|
|||||||||||||||
Unvested at September 30, 2013 (unaudited) |
2,315 | $ | 0.64 | 7.6 | ||||||||||||
|
|
|||||||||||||||
Vested and expected to vest at September 30, 2013 (unaudited) (2) |
11,273 | $ | 0.56 | 5.4 | $ | 14,903 | ||||||||||
|
|
(1) | This represents the number of vested options as of December 31, 2012, plus the number of unvested options expected to vest as of December 31, 2012, based on the unvested options at December 31, 2012, adjusted for the estimated forfeiture rate of 5%. |
(2) | This represents the number of vested options as of September 30, 2013, plus the number of unvested options expected to vest as of September 30, 2013, based on the unvested options at September 30, 2013, adjusted for the estimated forfeiture rate of 5%. |
The intrinsic value of options exercised during the year ended December 31, 2011 was $32 thousand, during the year ended December 31, 2012 was $0, during the nine months ended September 30, 2012 was $0 (unaudited) and during the nine months ended September 30, 2013 was $84 thousand (unaudited).
The weighted-average fair values of options granted during the year ended December 31, 2011 was $0.40, during the year ended December 31, 2012 was $1.06, and during the nine months ended September 30, 2013 was $2.44.
The aggregate intrinsic values in the preceding table represent the total pre-tax intrinsic value (the difference between the Companys common stock price on the last day of each reporting period and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the stock option holders had all stock option holders exercised their stock options at the end of the reporting period. The amount of aggregate intrinsic value will change based on the fair value of the Companys common stock.
F-21
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
Stock-based compensation expense
The Company estimates the fair value of its stock-based awards using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of the expected term of the award, (c) the risk-free interest rate, (d) expected dividends and (e) the fair value of the Companys common stock on the date of grant.
Due to the lack of a public market for the trading of the Companys common stock and a lack of company specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. When selecting these public companies on which it has based its expected stock price volatility, the Company selected companies with comparable characteristics to it, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected term of the stock-based awards. The Company computes historical volatility data using the daily closing prices for the selected companies shares during the equivalent period of the calculated expected term of the stock-based awards. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.
The expected term was determined using the simplified method, which is the mid-point between the vesting date and the end of the contractual term.
The Company is required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company has applied an annual forfeiture rate of 5% to employee options granted as of December 31, 2011 and 2012 and September 30, 2013. The annual forfeiture rate was estimated based upon actual historical forfeitures.
The risk-free rate is determined by reference to U.S. Treasury zero-coupon issues with remaining maturities similar to the expected term of the options.
The Company has not paid, and does not anticipate paying, cash dividends on shares of common stock; therefore, the expected dividend yield is assumed to be zero.
The fair values of options granted during the years ended December 31, 2011 and 2012 and the nine months ended September 30, 2013 were calculated using the following estimated weighted-average assumptions:
December 31, |
September
30,
2013 |
|||||||||||
2011 | 2012 | |||||||||||
(unaudited) | ||||||||||||
Expected volatility |
78.1 | % | 72.8 | % | 70.3 | % | ||||||
Expected term (in years) |
6.0 | 6.0 | 6.0 | |||||||||
Risk-free interest rate |
1.09 | % | 0.95 | % | 1.69 | % | ||||||
Expected dividend yield |
| % | | % | | % |
F-22
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
The Company recognized stock-based compensation from grants of stock options to employees and non-employees of $0.9 million for the year ended December 31, 2011, $0.9 million for the year ended December 31, 2012, $0.6 million for the nine months ended September 30, 2012 (unaudited) and $0.8 million for the nine months ended September 30, 2013 (unaudited). Total compensation cost recognized for all stock-based compensation awards in the consolidated statements of operations and comprehensive loss is as follows (in thousands):
Year ended
December 31, |
Nine months
ended September 30, |
|||||||||||||||
2011 | 2012 | 2012 | 2013 | |||||||||||||
(unaudited) | ||||||||||||||||
Research and development |
$ | 572 | $ | 564 | $ | 419 | $ | 452 | ||||||||
General and administrative |
331 | 304 | 229 | 341 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stock-based compensation expense |
$ | 903 | $ | 868 | $ | 648 | $ | 793 | ||||||||
|
|
|
|
|
|
|
|
As of September 30, 2013 there was $1.8 million of total unrecognized compensation cost related to unvested options. Total unrecognized compensation cost will be adjusted for future changes in forfeitures. The Company expects to recognize that cost over a weighted-average period of 1.9 years.
Reserved shares
The Company has reserved the following shares of common stock as of December 31, 2012 for the potential conversion of outstanding Preferred Stock and warrants and the exercise of stock options (in thousands):
December 31,
2012 |
||||
Series A Preferred Stock |
10,000 | |||
Series B Preferred Stock |
24,250 | |||
Series C Preferred Stock (including warrant) |
15,530 | |||
Series D Preferred Stock |
6,667 | |||
Common stock options |
12,030 | |||
|
|
|||
68,477 | ||||
|
|
8. Income taxes
During 2011 and 2012, the Company did not record a benefit for income taxes related to its operating losses. The Company has provided a full valuation allowance against its net deferred tax assets, as the Company believes that it is more likely than not that the deferred tax assets will not be realized. The Company did not record a federal or state income tax provision or benefit for the nine months ended September 30, 2013 because management expects the Companys results of operations to reflect a net loss for the year ended December 31, 2013, as well as the Companys continued maintenance of a full valuation allowance against its net deferred tax assets.
F-23
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
A reconciliation of the federal statutory income tax rate and the Companys effective income tax rate is as follows:
Year ended December 31, | ||||||||
2011 | 2012 | |||||||
Federal statutory income tax rate |
34.0 | % | 34.0 | % | ||||
State income taxes |
5.3 | 5.3 | ||||||
Change in valuation allowance |
(44.5 | ) | (34.9 | ) | ||||
Credits |
9.3 | 1.2 | ||||||
Permanent items |
(2.5 | ) | (1.8 | ) | ||||
Expiring state net operating loss carryforward |
(1.6 | ) | (3.8 | ) | ||||
|
|
|
|
|||||
Effective income tax rate |
0.0 | % | 0.0 | % | ||||
|
|
|
|
The significant components of the Companys net deferred tax assets consist of the following (in thousands):
December 31, | ||||||||
2011 | 2012 | |||||||
Net operating loss carryforwards |
$ | 30,660 | $ | 38,059 | ||||
Deferred revenue |
1,731 | 1,081 | ||||||
Research and development credit carryforwards |
4,109 | 4,335 | ||||||
Depreciation |
729 | 1,032 | ||||||
Start-up costs |
24 | 22 | ||||||
Other |
(28 | ) | (166 | ) | ||||
|
|
|
|
|||||
37,225 | 44,363 | |||||||
Valuation allowance |
(37,225 | ) | (44,363 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
$ | | $ | | ||||
|
|
|
|
At December 31, 2012, the Company had federal net operating loss carryforwards of $98.8 million and state net operating loss carryforwards of $84.8 million available to reduce future taxable income, which expire at various dates beginning in 2012 through 2032. The Company also had federal and state research and development tax credit carryforwards of $3.2 million and $1.7 million, respectively, available to reduce future tax liabilities, and which expire at various dates through 2032.
Realization of the future tax benefits is dependent on many factors, including the Companys ability to generate taxable income within the net operating loss carryforward period. The use of these loss and credit carryforwards may also be limited due to ownership change limitations under Section 382 of the Internal Revenue Code.
At December 31, 2012, the Company had no unrecognized tax benefits. The Company has not conducted a study of its research and development credit carryforwards. A study may result in an adjustment to the Companys research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts will be presented as an uncertain tax position. A full valuation allowance has been provided against the Companys research and development credit carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated balance sheet or statement of operations if an adjustment were required. Interest and penalty charges, if any, related to unrecognized
F-24
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
tax benefits would be classified as income tax expense in the accompanying statement of operations. As of December 31, 2012, the Company had no accrued interest related to uncertain tax positions. In many cases, the Companys uncertain tax positions are related to years that remain subject to examination by relevant tax authorities. 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.
9. Commitments
In February 2008, the Company entered into a seven-year, non-cancelable operating lease for approximately 45,000 square feet of office and laboratory space (the 2008 Lease Agreement) in Lexington, Massachusetts, which serves as the Companys headquarters.
The 2008 Lease Agreement provides for escalating rent payments over the seven-year lease term. The Company is accounting for the corresponding rent differential as deferred rent, and is recognizing rental expense on a straight-line basis, beginning in February 2008.
The 2008 Lease Agreement included certain lease incentives in the form of two tenant improvement allowances. The first tenant improvement allowance of $3.7 million was for general improvements to the facilitys office space and HVAC systems. The Company was required to manage the improvements including making payment for them up front, and then submitting requests to the landlord for reimbursement. Once approved, the landlord reimbursed the Company. The Company was not required to repay the landlord for any of this allowance. The Company has capitalized the improvements made with the first tenant improvement allowance into fixed assets, and has established a liability in the accompanying balance sheet under the caption deferred lease incentive. The Company is amortizing the deferred lease incentive and amortizing the related fixed assets over the lease term.
The second tenant improvement allowance of $2.3 million was for improvements to be made to build laboratory space to the Companys specifications. The second tenant improvement allowance is similar to the first, except that the Company must repay the reimbursements to the landlord monthly over the lease term, plus interest at a 10% annual rate. The amount to be repaid to the landlord, exclusive of interest, is reflected in the accompanying balance sheet and table below as leasehold improvement loan. The Company has capitalized the improvements made with the second tenant improvement allowance into fixed assets, and is amortizing them over the lease term.
F-25
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
The future minimum lease payments (including base rent obligations and repayment of the leasehold improvement loan, including interest accrued at 10% per annum) under the 2008 Lease Agreement is as follows (in thousands):
Base rent
obligations |
Repayment of
leasehold improvement loan (1) |
Total
obligations |
||||||||||
At September 30, 2013 (unaudited): |
||||||||||||
2013 |
$ | 337 | $ | 116 | $ | 453 | ||||||
2014 |
1,361 | 463 | 1,824 | |||||||||
2015 |
1,045 | 347 | 1,392 | |||||||||
|
|
|
|
|
|
|||||||
$ | 2,743 | 926 | $ | 3,669 | ||||||||
|
|
|
|
|||||||||
Less amounts representing interest |
(262 | ) | ||||||||||
Less leasehold improvement loan, current portion |
(332 | ) | ||||||||||
|
|
|||||||||||
Leasehold improvement loan, net of current portion |
$ | 332 | ||||||||||
|
|
(1) | Includes interest accrued at 10% per annum. |
Rent expense was $0.7 million for the year ended December 31, 2011, $0.7 million for the year ended December 31, 2012, $0.6 million for the nine months ended September 30, 2012 and $0.6 million for the nine months ended September 30, 2013.
Employment agreements
Five of the Companys employees are covered by employment agreements, covering salary, certain benefits and incentive compensation. Under these agreements, the executives could be entitled to severance pay up to 12 months of base salary, benefits continuation for 12 months, acceleration of stock option vesting and additional payments to cover tax liabilities in certain circumstances.
10. Collaboration agreements
Celgene
In April 2013, the Company entered into a master development and license agreement (the Celgene Agreement) with Celgene Corporation and Celgene International Sàrl (Celgene), which is primarily focused on the research, development and commercialization of deuterated compounds that are deuterated analogs of certain non-deuterated compounds targeting cancer or inflammation. The collaboration will initially focus on one program, but has the potential to encompass up to four programs.
For the initial program, the Company granted Celgene an exclusive worldwide license to develop, manufacture and commercialize products that contain deuterated analogs of a selected non-deuterated compound and several close chemical derivatives thereof. The Company further granted Celgene licenses with respect to two additional programs and an option with respect to a third additional program. The Company and Celgene have agreed on the non-deuterated compounds for each of the two additional license programs. For the option program, Celgene may select the non-deuterated compound at a later time, which, unless otherwise agreed by the Company, will be limited to a compound for which Celgene possesses exclusive rights. With respect to the two additional license programs, on the effective date of the Celgene
F-26
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
Agreement the Company granted Celgene an exclusive worldwide license to develop, manufacture and commercialize products that contain deuterated analogs of the agreed upon non-deuterated compounds. Celgene is restricted from utilizing their research, development and commercialization rights under each of the upfront licenses unless, within seven years of the effective date of the Celgene Agreement, Celgene pays the Company a license exercise fee. If Celgene does not elect to pay the license exercise fee during the seven year period, the license will expire. With respect to the option program, once a compound is selected, Celgene may exercise its option by paying the Company an option exercise fee within seven years of the effective date of the Celgene Agreement, and upon Celgenes exercise of the option the Company will grant to Celgene an exclusive worldwide license to develop, manufacture and commercialize deuterated products that contain deuterated analogs of the selected non-deuterated compound.
The Company is responsible, at its own expense, for conducting research and early development activities for the initial program pursuant to agreed upon development plans. This includes the completion of single and multiple ascending dose Phase 1 clinical trials and any mutually agreed upon additional Phase 1 clinical trials, as set forth in the development plan and approved by the joint steering committee (JSC) for the collaboration.
The Company does not have any obligation to conduct any research or development activities for any of the additional programs unless and until Celgene exercises its rights with respect to such program and pays us the applicable exercise fee. If Celgene exercises its rights with respect to any additional program and pays the Company the applicable exercise fee, the Company is responsible, at its own expense, for conducting research and development activities for such program pursuant to agreed upon development plans until the completion of Phase 1 clinical trial, which will be defined in each development plan on a program-by-program basis. In addition, if Celgene exercises its rights with respect to the option program and pays the Company the applicable option exercise fee, the Company is responsible for seeking to generate a deuterated compound for clinical development in the selected option program. Oversight of the development program for each program under the Celgene Agreement is guided by separate JSCs.
Celgene is solely responsible for all research, development and commercialization costs with respect to the initial program beyond the Phase 1 clinical trials that the Company conducts. If Celgene exercises its rights with respect to any additional program, Celgene will be solely responsible for all research, development and commercialization costs for such program following the completion of the first Phase 1 clinical trial for such program.
Following its assumption of responsibility for development costs of a product candidate, Celgene is required to use commercially reasonable efforts to develop, obtain regulatory approval for and commercialize the product candidate until such time, if any, as Celgene determines in its reasonable discretion based on comparative metrics that the product candidate does not represent a substantial improvement over the corresponding non-deuterated compound.
Under the terms of the Celgene Agreement, the Company received a $35.0 million non-refundable upfront payment from Celgene. In addition, the Company is eligible to earn up to $23.0 million in development milestone payments, up to $247.5 million in regulatory milestone payments and up to $50.0 million in sales-based milestone payments related to products within the initial program. The next milestone payment the Company might be entitled to receive under the initial program is $8.0 million related to the completion of a Phase 1 clinical trial. If Celgene exercises its rights with respect to either of the two additional license programs, the Company will receive a license exercise fee of $30.0 million and will also be eligible to receive up to $23.0 million in development milestone payments and up to $247.5
F-27
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
million in regulatory milestone payments for such program. With respect to one of the additional license programs, the Company is eligible to receive up to $100.0 million in sales-based milestone payments based on net sales of products, and with respect to the other additional license program, the Company is eligible to receive up to $50.0 million in sales-based milestone payments based on net sales of products. If Celgene exercises its option with respect to the option program, the Company will receive an option exercise fee of $10.0 million and will be eligible to earn up to $23.0 million in development milestone payments and up to $247.5 million in regulatory milestone payments.
In addition, with respect to each program, Celgene is required to pay the Company royalties on net sales of each licensed product at defined percentages ranging from the mid-single digits to low double digits below 20%, on worldwide net product sales of licensed products. The royalty term for each licensed product in each country is the period commencing with first commercial sale of the applicable licensed product in the applicable country and ending on the latest of expiration of specified patent coverage, expiration of regulatory exclusivity or 10 years following commercial launch. The royalty rate is reduced on a country-by-country basis during any period within the royalty term when there is no patent claim or regulatory exclusivity covering the licensed product in the particular country.
During the term of the Celgene Agreement, the Company may not research, develop or commercialize, or grant or offer to grant a third party a license to research, develop or commercialize, any licensed product, and with respect to the option program, certain products that Celgene has the right to select as an option product, other than pursuant to the Celgene Agreement.
The Celgene Agreement will expire upon the later of the seventh anniversary of the effective date of the Celgene Agreement and the expiration of all royalty terms with respect to each licensed product in each country. Celgene has the right to terminate the Celgene Agreement, in whole or only with respect to a particular licensed product, upon 60 days prior written notice to the Company. The Celgene Agreement may also be terminated by the Company in the event of an uncured material breach by Celgene. If the Celgene Agreement is terminated for any reason, the licenses granted by the Company to Celgene will terminate and specified rights to licensed products will revert to the Company. There are no cancellation, termination or refund provisions in this arrangement that contain material financial consequences to the Company.
The Companys arrangement with Celgene contains the following deliverables: (i) an exclusive worldwide license to develop, manufacture and commercialize deuterated analogs of a selected compound related to the initial program (the License Deliverable), (ii) obligations to perform research and development services associated with the initial program (the R&D Services Deliverable), (iii) obligation to supply preclinical and clinical trial material related to the initial program (the Supply Deliverable), (iv) participation on the JSC during the term of the initial program (the JSC Deliverable), (v) significant and incremental discount related to the first additional license program for which the non-deuterated compound has been selected (the First Discount Deliverable) and (vi) significant and incremental discount related to the second additional license program for which the non-deuterated compound has been selected (the Second Discount Deliverable).
As a result of the restrictions placed on the two additional license programs that preclude Celgene from exercising its rights under the respective licenses without the payment of a significant license exercise fee, for accounting purposes the Company concluded that it had effectively provided Celgene an option to obtain licenses to those programs. The Company has determined that the rights with respect to the three additional programs are substantive options. Celgene is not contractually obligated to exercise its rights and there is a significant fee that is due upon exercise of the rights. Therefore, it is uncertain as to
F-28
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
whether Celgene will decide to exercise its rights for any of the three additional programs. Consequently, the Company is at risk with regard to whether Celgene will exercise its rights. Accordingly, none of the licenses with respect to the three additional programs are considered deliverables at the inception of the arrangement and the associated license right or option fees are not included in the allocable arrangement consideration. Similarly, the Company has determined that for each additional program the potential obligations to perform research and development services, supply preclinical and clinical trial material and participate on the respective JSC are contingent upon Celgene exercising its rights with respect to such programs. Therefore, consistent with the treatment of the associated license right or option, the Companys related potential obligations are also not considered deliverables at the outset of the arrangement.
As it relates solely to the option program for which the non-deuterated compound has not yet been selected, the Company has determined that such option is not priced at a significant and incremental discount as the option fee approximates the best estimate of selling price of the underlying license. As it relates to the two additional programs for which the non-deuterated compound has been selected, the Company concluded the respective license exercise fee was less than the aggregate BESP for the respective license and related obligations to perform research and development services, supply preclinical and clinical trial materials and participate on the JSC. Accordingly, pursuant to the provisions of ASC 605-25, the Company concluded that the license exercise fees were priced at a significant and incremental discount. As a result, the Company has concluded for accounting purposes that the discounts for these two additional programs represent separate elements in the arrangement at inception.
The Company has concluded that the License Deliverable has standalone value because Celgene can fully utilize the underlying license for its intended purpose without receipt of the remaining deliverables in the arrangement. This conclusion considered Celgenes internal product development expertise and commercialization capabilities that enable it to use the License Deliverable for its intended purpose without the involvement of the Company. Moreover, the rights conveyed by the Company to Celgene in connection with the License Deliverable include the contractual right to sublicense. Similarly, all of the remaining deliverables were deemed to have standalone value upon delivery. Factors considered in this determination included, among other things, whether any other vendors sell the items separately and if the customer could use the item for its intended purpose without the receipt of the remaining deliverables. Additionally, there are no refund provisions in the Celgene Agreement. Accordingly, each deliverable included in the Celgene arrangement qualifies as a separate unit of accounting.
The Company determined that neither VSOE of selling price nor TPE of selling price was available for any of the units of accounting identified at the inception of the arrangement with Celgene. Accordingly, the selling price of each unit of accounting was determined based on managements BESP. The Company developed BESP for the License Deliverable in reference to its other licensing transactions, applicable market conditions, relevant entity-specific factors, and those factors contemplated in negotiating the agreement, including territories covered by the license, the stage of development and market potential of the product candidate, estimated development costs, probability of success and the time needed to commercialize a product candidate pursuant to the license and the Companys pricing practices and pricing objectives. The Company developed BESP for the R&D Services Deliverable, the Supply Deliverable and the JSC Deliverable based on the nature of the services to be performed and estimates of the associated effort and cost of the services adjusted for a reasonable profit margin such that they represented estimated market rates for similar services sold on a standalone basis. The Company developed BESP for the First Discount Deliverable and the Second Discount Deliverable based on the estimated value of the associated in-the-money license right. In developing such estimate, the Company
F-29
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
considered the period to exercise the license right, an appropriate discount rate and the likelihood that a market participant who was entitled to the discount would exercise the license right.
Allocable arrangement consideration at inception is limited to the $35.0 million non-refundable upfront payment. Total allocable arrangement consideration was allocated among the separate units of accounting using the relative selling price method as follows: (i) $17.0 million to the License Deliverable; (ii) $8.7 million to the R&D Services Deliverable; (iii) $3.2 million to the Supply Deliverable; (iv) $0.1 million to the JSC Deliverable; (v) $3.0 million to the First Discount Deliverable; and (vi) $3.0 million to the Second Discount Deliverable.
The arrangement consideration allocated to the License Deliverable was recognized upon delivery. Amounts allocated to the R&D Services Deliverable and Supply Deliverable are recognized under the proportional performance method over the expected period of performance, or 39 months. The amount allocated to the JSC Deliverable is recognized ratably over the expected period of performance, or 39 months. Amounts allocated to the First Discount Deliverable and the Second Discount Deliverable are deferred and will be recognized at the earlier of when the associated license rights are exercised and licenses are delivered or upon lapsing of the underlying right, if the respective right expires unexercised. The Company reassesses the estimated periods of performance for each unit of accounting at the end of each reporting period. The Company will recognize royalty revenue in the period of sale of the related licensed product(s), based on the underlying contract terms, provided that the reported sales are reliably measurable assuming all other revenue recognition criteria are met.
In the event Celgene exercises its rights with respect to either of the two additional license programs, the license exercise fee would be considered a license fee and would be allocated among the license and the related R&D Services Deliverable, Supply Deliverable, and JSC Deliverable using the relative selling price method. The revenue recognition for the amounts allocated to the various deliverables would be consistent with the revenue recognition described in the previous paragraphs.
The Company has evaluated all of the milestones that may be received in connection with the Celgene arrangement. All development and regulatory milestones are considered substantive on the basis of the contingent nature of the milestone, specifically reviewing factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the milestone as well as the level of effort and investment required. Accordingly, such amounts will be recognized as revenue in full in the period in which the associated milestone is achieved, assuming all other revenue recognition criteria are met. All sales-based milestones will be accounted for in the same manner as royalties and recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive any milestone or royalty payments from Celgene.
During the nine months ended September 30, 2013, the Company recognized revenue of $17.0 million upon delivery of the license deliverable, $0.2 million for the R&D Services Deliverable and $0.2 million for the Supply Deliverable. The revenue is classified as license and research and development revenue in the accompanying consolidated statement of operations and comprehensive loss. As of September 30, 2013, there is $17.6 million of deferred revenue related to the Companys collaboration with Celgene, $3.9 million of which is classified as current and $13.7 million of which is classified as long-term, in the accompanying consolidated balance sheet.
F-30
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
Jazz Pharmaceuticals
In February 2013, the Company signed a development and license agreement with Jazz Pharmaceuticals, Inc. (Jazz Pharmaceuticals) that provides Jazz Pharmaceuticals worldwide rights to develop and commercialize the Companys deuterated sodium oxybate (D-SXB) compounds (the Jazz Pharmaceuticals Agreement). Jazz Pharmaceuticals has principal responsibility for ongoing development activities. Pursuant to the terms of the license agreement, Jazz Pharmaceuticals has the option to require the Company to provide development support services through a single Phase 1 clinical trial. If Jazz Pharmaceuticals exercises its option, the Company will receive payment for any development support services provided and will be reimbursed for all external costs related to the development support services including preclinical, manufacturing, regulatory and clinical costs.
Under the terms of the Jazz Pharmaceuticals Agreement, the Company received a $4.0 million non-refundable upfront payment. In addition, the Company is eligible to earn up to $8.0 million in development milestone payments, up to $35.0 million in regulatory milestone payments and up to $70.0 million in sales-based milestone payments. The next milestone payment that the Company might be entitled to receive under this agreement is $4.0 million related to the completion of a Phase 1 clinical trial.
In addition, Jazz Pharmaceuticals is required to pay the Company royalties at defined percentages ranging from the mid-single digits to low double digits below 20%, on a country-by-country and licensed product-by-licensed product basis, on worldwide net product sales of licensed products. The royalty term for each licensed product in each country is the period commencing with first commercial sale of the applicable licensed product in the applicable country and ending on the later of the expiration of specified patent coverage or 10 years following commercial launch. The royalty rate is lowered on a country-by-country basis, under certain circumstances as specified in the agreement.
The Jazz Pharmaceuticals Agreement will expire on a licensed product-by-licensed product and country-by-country basis on the date of the expiration of the applicable royalty term with respect to each licensed product in each country. Jazz Pharmaceuticals may terminate the agreement, on a country-by-country basis or in its entirety, upon 90 days prior written notice. The Company may terminate the agreement upon written notice to Jazz Pharmaceuticals if Jazz Pharmaceuticals decides to permanently cease development and commercialization of all licensed products. The Company may also terminate the agreement if Jazz Pharmaceuticals has abandoned development or commercialization activities for licensed products and following notice from the Company does not resume development or commercialization activities. The agreement may also be terminated by either party in the event of an uncured material breach by the other party. If the agreement is terminated for any reason, the licenses granted by the Company to Jazz Pharmaceuticals with respect to D-SXB products will terminate and specified rights to licensed products will revert to the Company. There are no cancellation, termination or refund provisions in this arrangement that contain material financial consequences to the Company.
The Company determined that there were three deliverables under the Jazz Pharmaceuticals Agreement: (i) an exclusive, royalty-bearing sub-licensable worldwide license to develop and commercialize D-SXB compounds (the License Deliverable), (ii) participation on a joint steering committee (the JSC Deliverable) and (iii) a deliverable to direct external patent activities and bear a portion of the external patent fees (the Patent Support Deliverable).
The development support services were evaluated at the inception of the arrangement and determined to be a substantive option as the Company is not obligated to deliver services unless and until such time as Jazz Pharmaceuticals elects to exercise the option and the consideration for the development support
F-31
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
services is not priced at a significant and incremental discount. The nature of the development support services is such that they are not essential to Jazz Pharmaceuticals use of the License Deliverable as Jazz Pharmaceuticals could perform the services themselves or obtain them from another service provider, if so desired. Therefore, the Company concluded that the License Deliverable had value to Jazz Pharmaceuticals on a standalone basis and was therefore separable from the option to procure development support services.
The Company has concluded that the License Deliverable has standalone value upon delivery because Jazz Pharmaceuticals can fully utilize the underlying license for its intended purpose without the receipt of other deliverables in the arrangement. This conclusion considered Jazz Pharmaceuticals internal product development expertise that enables it to use the License Deliverable for its intended purposes without the involvement of the Company or the receipt of the other deliverables. Moreover, the rights conveyed by the Company to Jazz Pharmaceuticals in connection with the License Deliverable include the contractual right to sublicense. Similarly, all of the remaining deliverables were deemed to have standalone value based on their nature. Factors considered in this determination included, among other things, whether any other vendors sell the items separately and if the customer could use the item for its intended purpose without the receipt of the remaining deliverables. Additionally, there are no refund provisions in the Jazz Pharmaceuticals Agreement. Accordingly, each deliverable included in the Jazz Pharmaceuticals Agreement qualifies as a separate unit of accounting.
The Company allocated the non-refundable upfront consideration of $4.0 million among the deliverables based on managements best estimate of selling price of each deliverable using the relative selling price method. The Company did not have VSOE or TPE of selling price for such deliverables. The Companys BESP for the License Deliverable considered the market opportunity for the development and commercialization of D-SXB compounds, the probability of successfully developing and commercializing such compounds, the remaining development costs to develop such compounds, and the estimated time to commercialization. The Companys analysis included the following market conditions and entity-specific factors: (a) the specific rights provided under the license deliverable, (b) the potential indications pursuant to the license, (c) the relevant territories for the license, (d) the development risk, (e) the market size, (f) the expected product life assuming commercialization and (g) the competitive environment. The Company developed BESP for the JSC Deliverable and Patent Support Deliverable based on the nature of the services to be performed and estimates of the associated effort and cost of the services adjusted for a reasonable profit margin such that they represented estimated market rates for similar services sold on a standalone basis.
The Company allocated arrangement consideration of $3.7 million to the License Deliverable, $0.1 million to the JSC Deliverable and $0.2 million to the Patent Support Deliverable. The Company recognized the arrangement consideration allocated to the License Deliverable upon delivery and will recognize revenue related to the JSC Deliverable and the Patent Support Deliverable over the respective periods of performance which is estimated to be 46 months.
The Company has evaluated all of the milestones that may be received in connection with the Jazz Pharmaceuticals Agreement. All development and regulatory milestones are considered substantive on the basis of the contingent nature of the milestone, specifically reviewing factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the milestone as well as the level of effort and investment required. Accordingly, such amounts will be recognized as revenue in full in the period in which the associated milestone is achieved, assuming all other revenue recognition criteria are met. All sales-based milestones will be accounted for in the same manner as royalties and
F-32
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met.
For the nine months ended September 30, 2013, the Company recognized revenue of $3.7 million upon delivery of the License Deliverable, approximately $12 thousand related to the JSC Deliverable and approximately $24 thousand related to the Patent Support Deliverable.
For the nine months ended September 30, 2013, the Company recognized revenue of $0.5 million related to the performance of development support services and revenue of approximately $0.1 million for reimbursements of travel and intellectual property expenses, the cost of which is recorded within general and administrative expenses.
Avanir
In February 2012, the Company signed a license agreement (the Avanir Agreement) with Avanir Pharmaceuticals, Inc. (Avanir) that provides Avanir worldwide rights to develop and commercialize Concerts deuterated dextromethorphan (D-DM). The agreement includes the rights to multiple D-DM compounds. Avanir will have overall responsibility for research, development and commercialization of D-DM. Avanir has the option to require the Company to provide manufacturing services through a first IND filing. If Avanir exercises its option, the Company will receive payment for any manufacturing services provided and will be reimbursed for all external costs related to the manufacturing services.
Under the terms of the Avanir Agreement, the Company received a $2.0 million non-refundable upfront payment. In the nine months ended September 30, 2013, the Company recognized as revenue a $2.0 million milestone payment received from Avanir based on positive data from Avanirs Phase 1 clinical trial of AVP-786. AVP-786 includes one of the D-DM analogs licensed to Avanir. In addition, the Company is eligible to earn up to $4.0 million in development milestone payments, up to $37.0 million in regulatory milestone payments and up to $125.0 million in sales-based milestone payments. The next potential milestone the Company might be entitled to receive under the Avanir Agreement is $2.0 million for initiation of dosing in a Phase 2 or Phase 3 clinical trial study for AVP-786.
Avanir also is required to pay the Company royalties at defined percentages ranging from the mid-single digits to low double digits below 20% on worldwide net product sales of licensed products. The royalty term for each licensed product in each country is the period commencing with first commercial sale of the applicable licensed product in the applicable country and ending on the later of expiration of specified patent coverage or 10 years following commercial launch. The royalty rate is reduced, on a country-by-country basis, during any period within the royalty term when there is no patent claim, covering the licensed product in the particular country.
The Agreement will expire on a licensed product-by-licensed product and country-by-country basis on the date of the expiration of the applicable royalty term with respect to each licensed product in each country. Following the earlier of the completion of a specified Phase 2 clinical trial milestone or the second anniversary of the effective date of the agreement, Avanir has the right to terminate the agreement upon 90 days prior written notice to us. We may terminate the agreement if Avanir ceases to develop or commercialize licensed products and does not recommence development or commercialization efforts following our notice to Avanir. The agreement may also be terminated by either Avanir or us in the event of an uncured material breach by the other party. If the agreement is terminated for any reason, the licenses granted by us to Avanir will terminate subject to certain specified conditions.
F-33
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
The Company determined that the deliverables under the Avanir Agreement were the exclusive, royalty-bearing sub-licensable license to D-DM delivered at the inception of the arrangement as well as participation on a joint steering committee through a first IND filing.
Pursuant to the terms of the agreement, the Company is only required to participate in the joint steering committee through a specified event. Accordingly, the Company estimated that its participation on the joint steering committee would not extend more than two years from the date the agreement was executed and therefore concluded the estimated selling price of this deliverable was insignificant.
The manufacturing services were evaluated and determined to be a substantive option as the Company is not obligated to deliver manufacturing services unless and until such time as Avanir elects to exercise the option and the consideration for the manufacturing services is not priced at a significant and incremental discount. The nature of the manufacturing services is such that they are not essential to the D-DM license and Avanir could perform the manufacturing services themselves or obtain them from another service provider, if so desired. Therefore, the Company concluded that the D-DM license had standalone value to Avanir and was separable from the option to procure manufacturing services as the D-DM license is sub licensable, there are no restrictions as to Avanirs use of the license and Avanir has the requisite scientific expertise in the central nervous system disorder field to utilize the D-DM license for its intended purpose without the involvement of the Company.
The Company has concluded that the license deliverable has standalone value upon delivery because Avanir can fully utilize the underlying license for its intended purpose without the receipt of the other deliverables in the arrangement. This conclusion considered Avanirs internal product development expertise that enables it to use the license deliverable for its intended purposes without the involvement of the Company or the receipt of the other deliverables. Moreover, the rights conveyed by the Company to Avanir in connection with the license deliverable include the contractual right to sublicense.
The Company allocated arrangement consideration of $2.0 million to the license and an insignificant amount to the Companys participation on the joint steering committee. Accordingly, the Company recognized the $2.0 million non-refundable upfront fee as revenue upon delivery of the D-DM license during the nine months ended September 30, 2012 (unaudited).
The Company has evaluated all of the milestones that may be received in connection with the Avanir license agreement. All development and regulatory milestones are considered substantive on the basis of the contingent nature of the milestone, specifically reviewing factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the milestone as well as the level of effort and investment required. Accordingly, such amounts will be recognized as revenue in full in the period in which the associated milestone is achieved, assuming all other revenue recognition criteria are met. All sales-based milestones will be accounted for in the same manner as royalties and recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met.
The Company recognized research and development revenue of $0.1 million for the performance of manufacturing services purchased at Avanirs option and $0.1 million for reimbursement of manufacturing materials during the nine months ended September 30, 2012 (unaudited). Since June 2012, Avanir has elected to conduct all research and development activities, including manufacturing activities; however, the Company has continued to receive intellectual property cost reimbursements. The Company recognized $0.2 million for the nine months ended September 30, 2012, $0.2 million for the year ended December 31, 2012 and $0.2 million for the nine months ended September 30, 2013 within license and research and development revenue for intellectual property cost reimbursements, the cost of which is recorded within general and administrative expense.
F-34
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
GSK
In May 2009, the Company entered into a Research and Development Collaboration and License Agreement (the GSK Agreement) with Glaxo Group Limited (GSK) for the development and commercialization of deuterium-containing medicines. The Company was responsible for the development of three programs through completion of proof of concept studies, two of which were identified, and for providing deuterated versions of three GSK pipeline compounds (to be selected by GSK) for GSK to develop.
Under the terms of the GSK Agreement, GSK paid the Company a non-refundable upfront cash payment of $18.3 million in June 2009. In addition, GSK purchased 6,666,667 shares of Series D Preferred Stock at a per share price of $2.50, resulting in gross proceeds to the Company of $16.7 million. The Company determined that the price of $2.50 per share included a premium of $0.58 per share over the fair value of the Series D Preferred Stock of $1.92 per share based on the results of a contemporaneous valuation. The Company concluded all of the deliverables at the inception of the arrangement should be accounted for as a single unit of accounting because neither VSOE or TPE of fair value existed for the undelivered elements. Accordingly, the entire premium paid of $3.9 million and the $18.3 million non-refundable upfront cash payment were included in deferred revenue until the third program was identified and the period of the Companys performance obligations could be determined.
In March 2011, the Company and GSK signed an amendment to the GSK Agreement. Under this amendment GSK paid the Company a $2.75 million payment and returned all rights in the second identified program to the Company. This $2.75 million amount is subject to repayment to GSK in the event that the Company commercializes CTP-499 or if, at any time during the seven year period from the date of the amendment, the Company re-licenses or otherwise transfers the rights to the Companys CTP-499 program to a third party at any time during the seven year period from the date of the amendment. The payment was classified as deferred revenue and will not be recognized as revenue until all repayment obligations lapse. This amendment also extended the deadlines for selection of (i) the third program for which the Company was responsible for development and (ii) deuterated versions of two GSK pipeline compounds for GSK to develop.
The Company determined that the amendment resulted in a material modification of the GSK Agreement pursuant to the provisions of ASU 2009-13, because the amendment changed the overall arrangement consideration, deliverables, and expected timing of performance by a material amount. As such, on the date of modification, the remaining activities under the GSK Agreement were evaluated under ASC 605-25 (as amended by ASU 2009-13) to determine if they represented a multiple element revenue arrangement. The Company determined that the GSK Agreement, as amended, included the following units of accounting that remained undelivered on the date of modification:
Ø |
A combined unit of accounting comprised of research and development services for CTP 298 (the CTP-298 Program) and an option to license CTP-298; |
Ø |
A combined unit of accounting comprised of an option to license a third program and related research and development services for that program (the Unselected Program); and |
Ø |
A deliverable to provide deuterated versions of two GSK pipeline compounds (to be selected by GSK) for GSK to develop (the Research Programs). |
The Company combined the delivered options and related research and development services into combined units of accounting because the delivered options were determined to not have standalone value apart from the related research and development services because only the Company was capable
F-35
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
of performing such services. The Company further determined that each unit of accounting had stand-alone value from the other units of accounting. Therefore, the Company allocated the non-refundable upfront consideration of $22.2 million among the units of accounting on the date of modification based on managements BESP of the deliverables included in each unit of accounting using the relative selling price method. The Company did not have VSOE or TPE of selling price for such deliverables. The Companys BESP considered the market opportunity for the development and commercialization of each program, the probability of GSK selecting a third program (the Unselected Program) and successfully developing and commercializing such program, the remaining development costs for each program, and the estimated time to clinical proof of concept for each program.
The Companys analysis included an assessment of comparable market transactions in which exclusive options were sold without related research and development services, an estimate of the internal and external costs and effort that would be required to complete proof of concept for the each program assuming market rates for full time employee services and external costs, and in the case of the Unselected Program and the Research Programs, an assessment of the probability that GSK would exercise its rights to select a compound for such deliverables and require the Company to perform the related research and development services.
The Company allocated arrangement consideration of $20.7 million to the CTP-298 Program, $1.5 million to the Unselected Program, and $37 thousand to the Research Programs. Revenue for the CTP-298 Program was to be recognized over the period of performance from the GSK Agreement effective date through the estimated delivery date of the CTP-298 option package in early 2013. Revenue for the Unselected Program and Research Program would be recognized upon selection by GSK or the lapsing of the deadline.
For the year ended December 31, 2011, the Company recognized $13.9 million of revenue related to the CTP-298 Program, including a cumulative catch up adjustment on the date of the amendment for services previously performed of $8.5 million. In addition during 2011, the Company recognized $37 thousand of revenue upon the lapsing of the Research Programs selection deadline. Also during the year ended December 31, 2011, the Company recognized milestone revenue of $4.0 million for achieving certain clinical criteria in the first-in-human clinical trial and $1.5 million for toxicology and regulatory achievements.
In first quarter of 2012, the Company received and recognized a $1.5 million milestone for opening an IND for CTP-298.
For the nine months ended September 30, 2012 (unaudited), the Company recognized the remaining deferred revenue of $6.8 million associated with the CTP-298 Program upon GSKs exercise of its opt out right in May 2012 with respect to this program and the remaining deferred revenue of $1.5 million upon the lapsing of the Unselected Program deadline.
Other than with respect to the Companys repayment obligation, the GSK Agreement is no longer in effect and, as a result, the Company does not expect to receive additional payments under the GSK Agreement.
11. Sponsored research agreement
In February 2012, the Company entered into a sponsored research agreement with Fast Forward LLC (Fast Forward), the National Multiple Sclerosis Societys subsidiary devoted to research and drug development. Under the research agreement, Fast Forward provided $0.8 million of funding for the preclinical advancement of CTP-354 (the Compound), a deuterated subtype-selective GABA A modulator
F-36
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
developed by Concert with the therapeutic potential of treating spasticity. Concert received the funding as it met certain preclinical milestones.
In certain circumstances, the Company is obligated to make milestone payments to Fast Forward not in excess of a low-single digit multiple of the funding amount. The Company will account for any milestone payments paid to Fast Forward as royalty expenses when it becomes probable that any royalties will be owed to Fast Forward. As of December 31, 2012 and September 30, 2013, it was not probable any royalties would be owed to Fast Forward.
During 2012, Concert received payments totaling $0.7 million from Fast Forward, which were recognized as revenue within license and research and development revenue in the accompanying statement of operations and comprehensive loss. The revenue recognized is commensurate with the services performed in 2012, and such payments are non-refundable as the Company has incurred costs in excess of the amounts funded.
During the nine months ended September 30, 2013 (unaudited), Concert received payments totaling $45 thousand from Fast Forward, which were recognized as revenue within license and research and development revenue in the accompanying statement of operations and comprehensive loss. The revenue recognized is commensurate with the services performed in the nine months ended September 30, 2013, and such payments are non-refundable as the Company has incurred costs in excess of the amounts funded.
12. Loan payable and warrant to purchase redeemable securities
On December 22, 2011, the Company entered into a Loan and Security Agreement (the Loan and Security Agreement) with Hercules Technology Growth Capital, Inc. (Hercules). The Loan and Security Agreement provides for aggregate advances of up to $20 million. The advances under the Loan and Security Agreement were to be made in two tranches: (i) $7.5 million funded at closing, and (ii) up to an additional $12.5 million through March 31, 2012. The maximum amount of principal outstanding allowable under the Loan and Security Agreement is $20 million. Under the first tranche of the Loan and Security Agreement, the Company obtained an advance on December 22, 2011 totaling $7.5 million (the December 2011 Advance). Under the second tranche of the Loan and Security Agreement, the Company obtained an advance on March 29, 2012 totaling $12.5 million (the March 2012 Advance). The Company incurred $0.2 million in loan issuance costs paid directly to the lenders, which have been offset against the loan proceeds as a loan discount.
Each advance made under the Loan and Security Agreement bears interest at a variable rate of the greater of 8.5% and an amount equal to 8.5% plus the prime rate of interest minus 5.25%, provided however, that the per annum interest rate shall not exceed 11%. At September 30, 2013 and December 31, 2012, the December 2011 Advance and the March 2012 Advance had an interest rate of 8.5%. Interest-only payments are due monthly on the first day of each month beginning the month after the date of the respective advance until April 30, 2013. Then, the aggregate principal balance outstanding is payable in 30 equal monthly installments of principal and interest beginning May 1, 2013 and continuing through the maturity date on October 1, 2015.
Additionally, the advances are to be repaid in full immediately upon an event of default, as defined. The Loan and Security Agreement defines events of default, including the occurrence of an event that results in a material adverse effect upon the Companys business operations, properties, assets or condition (financial or otherwise), its ability to perform its obligations under and in accordance with the terms of the new loan agreement, or upon the ability of the lenders to enforce any of their rights or remedies with
F-37
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
respect to such obligations, or upon the collateral under the Loan and Security Agreement or upon the liens of the lenders on such collateral or upon the priority of such liens. The Company does not believe that any events have occurred that could reasonably be deemed to have a material adverse effect. Substantially all assets of the Company are pledged as collateral, with the exception of intellectual property, which is the subject of a negative pledge under the Loan and Security Agreement. The lenders security interest in the collateral is a first priority security interest. There are no financial covenants associated with the Loan and Security Agreement.
As of September 30, 2013, the future minimum payments due under the Loan and Security Agreement are as follows (in thousands):
Year |
Minimum
Payments |
|||||||
2013 | $ | 2,227 | ||||||
2014 | 8,908 | |||||||
2015 | 7,463 | |||||||
|
|
|||||||
18,598 | ||||||||
Less amounts representing interest |
(1,631 | ) | ||||||
|
|
|||||||
Present value of minimum payments |
16,967 | |||||||
Less discount |
(196 | ) | ||||||
Less current portion |
(7,651 | ) | ||||||
|
|
|||||||
Loan payable net of current portion and unamortized discount |
$ | 9,120 | ||||||
|
|
In connection with the Loan and Security Agreement, the Company granted Hercules a warrant (the Warrant) to purchase up to 200,000 shares of Series C Preferred Stock at an exercise price of $2.50 per share which vested immediately upon the December 2011 Advance. Upon the draw of the March 2012 Advance, the warrant became exercisable for an additional 200,000 shares of Series C Preferred Stock at an exercise price of $2.50 per share.
Pursuant to ASC Topic 480, Distinguishing Liabilities from Equity , the Warrant is classified as a liability and is re-measured to the-then current value at each balance sheet date. The following table sets forth a summary of changes in the fair value of the Warrant which represents a recurring measurement that is classified within Level 3 of the fair value hierarchy wherein fair value is estimated using significant unobservable inputs (in thousands):
Year ended December 31, | Nine months ended September 30, | |||||||||||||||
2011 | 2012 | 2012 | 2013 | |||||||||||||
(unaudited) | ||||||||||||||||
Beginning balance |
$ | | $ | 168 | $ | 168 | $ | 459 | ||||||||
Change in fair value |
168 | 291 | 218 | 30 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 168 | $ | 459 | $ | 386 | $ | 489 | ||||||||
|
|
|
|
|
|
|
|
The Warrant expires on the earlier of: (i) ten years from the effective date of the Loan and Security Agreement or (ii) five years after the closing of an initial public offering of the Companys common stock.
The Company measured the fair value of the Warrant as of December 31, 2011 using the Black-Scholes option pricing method. The Company measured the fair value of the Warrant as of September 30, 2012, December 31, 2012 and September 30, 2013 using a hybrid method that is consistent with the manner in
F-38
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
which the Company estimated the fair value of its common stock on those dates. Using the hybrid method, the Company used the Black-Scholes option pricing method to value the Warrant based on the results of the initial public offering scenarios and the option pricing method to value the Warrant based on the results of the other assumed scenarios (sale or liquidation). The results of those valuations were then weighted consistent with the weightings used in the Companys common stock valuation to determine the warrant fair value. The significant assumptions used in estimating the fair value of the Warrant include the exercise price, volatility of the stock underlying the warrant, risk-free interest rate, estimated fair value of the preferred stock underlying the warrant, and the estimated life of the warrant.
Where the fair value of the Warrant was estimated using the Black-Scholes option pricing model, the Company used the following weighted-average assumptions:
Year ended December 31, | Nine months ended September 30, | |||||||||||||||
2011 | 2012 | 2012 | 2013 | |||||||||||||
(unaudited) | ||||||||||||||||
Fair value of underlying instrument |
$ | 0.73 | $ | 1.15 | $ | 1.15 | $ | 1.18 | ||||||||
Expected volatility |
70 | % | 70 | % | 70 | % | 70 | % | ||||||||
Expected term (in years) |
10.0 | 7.9 | 7.9 | 5.7 | ||||||||||||
Risk-free interest rate |
2.0 | % | 0.95 | % | 0.95 | % | 1.4 | % | ||||||||
Expected dividend yield |
| % | | % | | % | | % |
Fair value
The Company estimated the fair value of its shares of Series C Preferred Stock as of September 30, 2012 (unaudited), December 31, 2012 and September 30, 2013 (unaudited), using a hybrid approach based on a probability-weighted average expected return method and the option pricing method. The Company estimated the fair value of its shares of Series C Preferred Stock as of December 31, 2011 using the probability-weighted expected return method.
Expected volatility
The Company estimated the expected volatility based on actual historical volatility of the stock price of similar companies with publicly-traded equity securities. The Company calculated the historical volatility of the selected companies by using daily closing prices over a period of the expected term of the associated award. The companies were selected based on their enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected term of the associated award.
Expected term
The Company based the expected term on the actual remaining contractual term as of each respective measurement date.
Risk-free interest rate
The Company estimated the risk-free interest rate in reference to the yield on U.S. Treasury securities with a maturity date commensurate with the expected term of the Warrant.
F-39
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
Expected dividend yield
The Company estimated the expected dividend yield based on consideration of its historical dividend experience and future dividend expectations. The Company has not historically declared or paid dividends to stockholders. Moreover, it does not intend to pay dividends in the future, but instead expects to retain any earnings to invest in the continued growth of the business. Accordingly, the Company assumed an expected dividend yield of 0.0%.
13. Related-party transactions
For the year ended December 31, 2012, the Company paid a member of the board of directors $12 thousand in fees for service on the Companys Product Advisory Board. These fees were recognized as research and development expense.
14. 401(k) retirement plan
In January 2008, the Company established the Concert Pharmaceuticals 401(k) Retirement Plan (the 401(k) Plan) in which substantially all of its permanent employees are eligible to participate to contribute a percentage of base wages up to an amount not to exceed an annual statutory maximum. The Company is required to match 50% of the first 6% of an employees contributions subject to statutory limits.
The Company made matching contributions under the 401(k) Plan of $0.2 million for the year ended December 31, 2011, $0.2 million for the year ended December 31, 2012, $0.2 million for the nine months ended September 30, 2012 (unaudited) and $0.2 million for the nine months ended September 30, 2013 (unaudited).
15. Unaudited pro forma earnings per share
On November 1, 2013, the Companys board of directors authorized management to confidentially submit a draft registration statement to the SEC for the Company to sell shares of its common stock to the public. The unaudited pro forma basic and diluted loss per share applicable to common stockholders for the year ended December 31, 2012 and the nine months ended September 30, 2013 give effect to the automatic conversion of all shares of redeemable convertible preferred stock to common stock in the event of an initial public offering by treating all shares of redeemable convertible preferred stock as if they had been converted to common stock at the beginning of the period presented. Accordingly, the pro forma basic and diluted loss per share applicable to common stockholders does not include the effects of the accretion of redeemable convertible preferred stock to redemption value. Additionally, the gains (losses) associated with the changes in the fair value of the warrants to purchase redeemable convertible preferred stock have been excluded from the determination of net loss as these re-measurements would not be required when the warrants to purchase shares of preferred stock becomes a warrant to purchase common stock. Shares to be sold in the offering are excluded from the unaudited pro forma basic and diluted loss per share applicable to common stockholders calculations.
F-40
Concert Pharmaceuticals, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 is unaudited
Unaudited pro forma loss per share applicable to common stockholders are computed as follows (in thousands):
Year ended
December 31, 2012 |
Nine months
ended
|
|||||||
Net loss |
$ | (20,444) | $ | (141) | ||||
Add back: Re-measurement of warrant to purchase redeemable convertible preferred stock |
291 | 30 | ||||||
|
|
|
|
|||||
Net loss applicable to common stockholders- basic and diluted |
$ | (20,153) | $ | (111) | ||||
|
|
|
|
|||||
Pro forma weighted average common shares outstanding: |
||||||||
Weighted average common shares outstanding |
7,290 | 7,295 | ||||||
Adjustment for assumed conversion of redeemable convertible preferred stock |
56,047 | 56,047 | ||||||
|
|
|
|
|||||
Pro forma weighted average common shares outstanding- basic and diluted |
63,337 | 63,342 | ||||||
|
|
|
|
|||||
Pro forma basic and diluted loss per share applicable to common stockholders |
$ | (0.32) | $ | (0.00) | ||||
|
|
|
|
The following common stock equivalents were excluded from the calculation of pro forma diluted loss per share applicable to common stockholders because their inclusion would have been antidilutive.
Year ended December 31, 2012 |
Nine months ended September 30, 2013 |
|||||||
Stock options |
11,075 | 11,351 | ||||||
Warrant |
400 | 400 |
16. Subsequent events
The Company has completed an evaluation of all subsequent events after the audited balance sheet date of December 31, 2012 through November 5, 2013 and the unaudited balance sheet date of September 30, 2013 through December 10, 2013, the date the respective financial statements were available to be issued, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of December 31, 2012 and September 30, 2013, and events which occurred subsequently but were not recognized in the financial statements. The Company has concluded that no subsequent events have occurred that require disclosure, except as disclosed within these financial statements.
In connection with preparing for the proposed initial public offering of common stock, on December 2, 2013 the Companys Board of Directors approved, subject to stockholder approval, an amendment of the Companys certificate of incorporation to, among other things, change the definition of a qualified public offering to remove the per share price requirement and provide that mandatory conversion will occur upon the closing of a public offering of common stock with gross proceeds to the Company of not less than $30 million.
F-41
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.
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 |
$ | 9,628 | ||
FINRA filing fee |
11,713 | |||
NASDAQ Global Market listing fee |
* | |||
Accountants fees and expenses |
* | |||
Legal 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.
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,
II-1
Part II
pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director or officer of Concert Pharmaceuticals, 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 have entered into indemnification agreements with each of our directors and officers. These indemnification agreements may require us, among other things, to indemnify our directors and executive officers for some expenses, including attorneys fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of his or her service as one of our directors or officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request.
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 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, or the Securities Act. 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) Stock Option Grants
Between January 13, 2011 and January 13, 2014 we granted options to purchase an aggregate of 3,522,750 shares of common stock, with exercise prices ranging from $0.51 to $0.67 per share, to employees, directors and consultants pursuant to our Amended and Restated 2006 Stock Option and Grant Plan. Between January 13, 2011 and January 13, 2014, we issued an aggregate of 248,393 shares of common stock upon the exercise of options for aggregate consideration of $141,712.86.
The stock options and the common stock issuable upon the exercise of such options as described in this section (a) 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.
(b) Warrant Grants
On December 22, 2011, we issued a warrant to purchase an aggregate of 200,000 shares of Series C preferred stock at a price of $2.50 per share to Hercules. On March 29, 2012, this warrant became exercisable for an additional 200,000 shares of Series C preferred stock at a price of $2.50 per share.
The securities described in this section (b) of Item 15 were issued to Hercules in reliance upon the exemption from the registration requirements of the Securities Act, as set forth in Section 4(2) under the Securities Act promulgated thereunder relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required.
II-2
Part II
All of the securities described in paragraphs (a) and (b) 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:
Ø |
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. |
Ø |
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. |
II-3
Part II
Signatures
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 Town of Lexington, Commonwealth of Massachusetts, on the 13 th day of January, 2014.
CONCERT PHARMACEUTICALS, INC. | ||
By: |
/s/ Roger D. Tung |
|
Roger D. Tung, Ph.D. President and Chief Executive Officer |
Power of attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Roger D. Tung and Nancy Stuart, 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/ Roger D. Tung Roger D. Tung, Ph.D. |
Director, President and Chief Executive Officer (Principal Executive Officer) | January 13, 2014 | ||
/s/ Nancy Stuart Nancy Stuart |
Chief Operating Officer (Principal Financial Officer) | January 13, 2014 | ||
/s/ Pauline McGowan Pauline McGowan |
Vice President, Finance and Corporate Controller (Principal Accounting Officer) | January 13, 2014 | ||
/s/ Richard H. Aldrich Richard H. Aldrich |
Chairman | January 13, 2014 | ||
/s/ Ronald W. Barrett Ronald W. Barrett, Ph.D. |
Director | January 13, 2014 |
II-4
Part II
Signature | Title | Date | ||
/s/ John G. Freund John G. Freund, M.D. |
Director | January 13, 2014 | ||
/s/ Peter Barton Hutt Peter Barton Hutt |
Director | January 13, 2014 | ||
/s/ Wilfred E. Jaeger Wilfred E. Jaeger, M.D. |
Director | January 13, 2014 | ||
/s/ Helmut M. Schühsler Helmut M. Schühsler, Ph.D. |
Director | January 13, 2014 |
II-5
Exhibit index
Exhibit
number |
Description | |
1.1* | Underwriting Agreement | |
3.1 | Fourth Amended and Restated Certificate of Incorporation of the Registrant, as amended | |
3.2* | Restated Certificate of Incorporation of the Registrant to be effective upon the closing of this offering | |
3.3 | Bylaws of the Registrant | |
3.4* | 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 | Third Amended and Restated Registration Rights Agreement, dated as of June 1, 2009, as amended | |
10.2 | Warrant to purchase shares of Series C Convertible Preferred Stock issued by the Registrant to Hercules Technology Growth Capital, Inc. | |
10.3 | Amended and Restated 2006 Stock Option and Grant Plan, as amended | |
10.4 | Form of Incentive Stock Option Agreement under 2006 Stock Option and Grant Plan | |
10.5 | Form of Nonstatutory Stock Option Agreement under 2006 Stock Option and Grant Plan | |
10.6* | 2014 Stock Incentive Plan | |
10.7* | Form of Incentive Stock Option Agreement under 2014 Stock Incentive Plan | |
10.8* | Form of Nonstatutory Stock Option Agreement under 2014 Stock Incentive Plan | |
10.9 | Amended and Restated Employment Agreement, dated as of January 10, 2014, by and between the Registrant and Roger Tung, as amended | |
10.10 | Amended and Restated Employment Agreement, dated as of January 10, 2014, by and between the Registrant and Nancy Stuart, as amended | |
10.11 | Separation Agreement, dated as of October 2, 2013, by and between the Registrant and James E. Shipley, as amended | |
10.12 | Amended and Restated Employment Agreement, dated as of January 10, 2014, by and between the Registrant and I. Robert Silverman, as amended | |
10.13 | Form of Director and Officer Indemnification Agreement by and between the Registrant and each of Roger D. Tung, Nancy Stuart, James E. Shipley, Ian Robert Silverman, Pauline McGowan, Richard H. Aldrich, Ronald W. Barrett, John G. Freund, Peter Barton Hutt, Wilfred E. Jaeger and Helmut M. Schühsler | |
10.14 | Loan and Security Agreement, dated as of December 22, 2011, between the Registrant and Hercules Technology Growth Capital, Inc. | |
10.15 | Lease Agreement, dated as of February 12, 2008, by and between the Registrant and One Ledgemont LLC | |
10.16* | Development and License Agreement, dated as of February 24, 2012, between the Registrant and Avanir Pharmaceuticals, Inc. |
Exhibit index
Exhibit
number |
Description | |
10.17* | Development and License Agreement, dated as of February 26, 2013, between the Registrant and Jazz Pharmaceuticals Ireland Limited | |
10.18* | Master Development and License Agreement, dated as of April 4, 2013, among the Registrant, Celgene International Sàrl and Celgene Corporation | |
10.19 | Summary of Executive Bonus Program | |
10.20 |
Summary of Director Compensation Program |
|
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. |
Exhibit 3.1
FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CONCERT PHARMACEUTICALS, INC.
Concert Pharmaceuticals, Inc., a corporation organized and existing under the laws of the state of Delaware (the Corporation ), hereby certifies as follows:
1. This Corporations original Certificate of Incorporation was filed with the Secretary of State of Delaware on April 12, 2006 under the name Concert Pharmaceuticals, Inc. and was amended and restated on May 16, 2006, November 27, 2006 and April 25, 2008 and was further amended on April 1, 2009.
2. This Fourth Amended and Restated Certificate of Incorporation (the Certificate of Incorporation ) has been duly adopted by this Corporations Board of Directors and stockholders in accordance with the applicable provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware.
3. The Certificate of Incorporation of this Corporation is hereby amended and restated to read in full as follows:
FIRST : The name of the corporation is Concert Pharmaceuticals, Inc.
SECOND : The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, New Castle County, Delaware 19808, and the name of its registered agent at such address is Corporation Service Company.
THIRD : The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
FOURTH : The total number of shares of all classes of stock which the Corporation has the authority to issue is 144,183,334 shares, consisting of 81,266,667 shares of common stock, par value $0.001 per share (the Common Stock ), and 62,916,667 shares of preferred stock, of which 10,000,000 shares are designated Series A Convertible Preferred Stock, par value $0.001 per share (the Series A Preferred Stock ), 24,250,000 shares are designated Series B Convertible Preferred Stock, par value $0.001 per share (the Series B Preferred Stock ), 22,000,000 shares are designated Series C Convertible Preferred Stock, par value $0.001 per share (the Series C Preferred Stock ), and 6,666,667 shares are designated Series D Convertible Preferred Stock, par value $0.001 per share (the Series D Preferred Stock and, together with the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock, the Preferred Stock ).
The powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect of each class or series of stock of the Corporation shall be as follows:
Section 1 . Liquidation Rights .
(a) Liquidation Payments .
(i) In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary (a Liquidation ), the holders of shares of the Preferred Stock shall be entitled to be paid, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, out of the assets of the Corporation available for distribution to holders of the Corporations capital stock of all classes the greater of (A) $1.00 per share of Series A Preferred Stock, $2.00 per share of Series B Preferred Stock, $2.50 per share of Series C Preferred Stock and $2.50 per share of Series D Preferred Stock (which amounts shall be subject to equitable adjustment whenever there shall occur a stock dividend, stock split, combination of shares, reclassification or other similar event with respect to the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock, respectively, or the Common Stock underlying the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock, respectively) plus all dividends declared thereon but unpaid, to and including the date full payment shall be tendered to the holders of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock, as applicable, with respect to such liquidation, dissolution or winding up or (B) such amount per share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock as would have been payable had each share of each series of Preferred Stock that would receive a greater amount upon conversion into Common Stock than pursuant to clause (A) above (assuming for purposes of such determination that all shares of each series of Preferred Stock was issued on the date that the first share of such series was issued) been converted into Common Stock pursuant to the provisions of Section 2 of this Article FOURTH immediately prior to such liquidation, dissolution or winding up.
If the assets of the Corporation shall be insufficient to permit the payment in full to the holders of the Preferred Stock of all amounts so distributable to them, then the entire assets of the Corporation available for such distribution shall be distributed ratably among the holders of the Preferred Stock in proportion to the full preferential amount each such holder is otherwise entitled to receive under this Subsection 1(a)(i) of this Article FOURTH.
No payment shall be made with respect to the Common Stock unless and until full payment has been made to the holders of the Preferred Stock of the amounts they are entitled to receive under this Subsection 1(a)(i) of this Article FOURTH.
(ii) After such payments shall have been made in full to the holders of the Preferred Stock, or funds necessary for such payments shall have been set aside by the Corporation in trust for the account of holders of Preferred Stock so as to be available for such payments, the remaining assets available for distribution shall be distributed among the holders of the Common Stock ratably in proportion to the number of shares of Common Stock then held by each such holder of Common Stock.
2
(iii) Upon conversion of shares of Preferred Stock into shares of Common Stock pursuant to Section 2 of this Article FOURTH below, the holders of such Common Stock shall not be entitled to any preferential payment or distribution in case of any liquidation, dissolution or winding up, but shall share ratably in any distribution of the assets of the Corporation to all the holders of Common Stock as provided under Subsection 1(a)(ii).
(iv) The amounts payable with respect to shares of Preferred Stock under this Subsection 1(a) of this Article FOURTH are sometimes hereinafter referred to as Preferred Stock Liquidation Payments .
(b) Distributions Other than Cash . Whenever any portion of the distributions provided for in this Section 1 of this Article FOURTH shall be payable in property other than cash, the value of such property shall be assessed as the fair market value of such property as determined in good faith by the Board of Directors of the Corporation. The Corporation shall give prompt written notice of such valuation (including the methods used to determine the valuation), to each holder of Preferred Stock.
(c) Merger as Liquidation, etc . Any (i) merger or consolidation in which (A) the Corporation is a constituent party or (B) 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 in which the holders of capital stock of the Corporation outstanding immediately prior to such merger or consolidation hold at least a majority in 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, in which case the provisions of Subsection 2(h) of this Article FOURTH shall apply), (ii) exclusive license of substantially all of the intellectual property of the Corporation without field or geographic restriction or (iii) sale, lease or transfer of all or substantially all of the assets of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the affairs of the Corporation (a Deemed Liquidation ) for purposes of this Section 1 of this Article FOURTH with respect to the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock, unless the holders of at least (x) sixty percent (60%) of the then outstanding shares of the Series B Preferred Stock and (y) fifty percent (50%) of the then outstanding shares of Series C Preferred Stock elect to the contrary; such election to be made by giving notice thereof to the Corporation at least three days before the effective date of such event. If such notice is given with respect to the Preferred Stock, the provisions of Subsection 2(h) of this Article FOURTH shall apply. Unless such election is made with respect to the Preferred Stock, any amounts received by the holders of such Preferred Stock as a result of such merger, consolidation or other transaction shall be deemed to be applied toward, and all consideration received by the Corporation in such asset sale together with all other available assets of the Corporation shall be distributed toward, to the extent necessary, the Preferred Stock Liquidation Payments.
(d) Notice . In the event the Corporation shall propose to undertake any liquidation, dissolution or winding up of the affairs of the Corporation, including any Deemed Liquidation, the Corporation shall, within ten (10) days after the date the Board of Directors
3
approves such action or twenty (20) days prior to any stockholders meeting called to approve such action, whichever is earlier, give each holder of Preferred Stock initial written notice of the proposed action. Such initial written notice shall describe the material terms and conditions of such proposed action, including a description of the stock, cash and property to be received by the holders of the Preferred Stock and the Common Stock upon consummation of the proposed action and the proposed date of delivery thereof. If any material change in the facts set forth in the initial notice shall occur, the Corporation shall promptly give each holder of Preferred Stock written notice of such material change. The Corporation shall not consummate any such proposed liquidation, dissolution or winding up before the expiration of thirty (30) days after the mailing of the initial notice or twenty (20) days after the mailing of any subsequent written notice, whichever is later, provided that any such 30-day or 20-day period may be shortened or waived upon the written consent of the holders of at least sixty percent (60%) of the outstanding shares of Series B Preferred Stock and Series C Preferred Stock (voting together as a single class on an as converted to Common Stock basis). Any holder of outstanding shares of Preferred Stock may waive any notice required by this Subsection by a written instrument specifically indicating such waiver.
(e) Effect of Noncompliance . In the event the requirements of Subsection 2(d) above are not complied with, the Corporation shall forthwith either cause the closing of the Deemed Liquidation to be postponed until the requirements of such sections have been complied with, or cancel such Deemed Liquidation (to the extent possible under applicable law), in which event the rights, preferences, privileges and restrictions of the holders of Preferred Stock shall revert to and be the same as such rights, preferences, privileges and restrictions existing immediately prior to the date of the first notice referred to in Subsection 2(d).
Section 2 . Conversion . The holders of Preferred Stock shall have conversion rights as follows (the Conversion Rights ):
(a) Right to Convert: Conversion Price . Each share of Preferred Stock shall be convertible, without the payment of any additional consideration by the holder thereof and at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for the Preferred Stock, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing (i) with respect to the Series A Preferred Stock, $1.00 (the Original Series A Issue Price ), (as adjusted for any stock dividend, stock split, combination of shares, reclassification or other similar event with respect to the Series A Preferred Stock) by the Series A Conversion Price, determined as hereinafter provided, in effect at the time of conversion, (ii) with respect to the Series B Preferred Stock, $2.00 (the Original Series B Issue Price ), (as adjusted for any stock dividend, stock split, combination of shares, reclassification or other similar event with respect to the Series B Preferred Stock) by the Series B Conversion Price, determined as hereinafter provided, in effect at the time of conversion, (iii) with respect to the Series C Preferred Stock, $2.50 (the Original Series C Issue Price ), (as adjusted for any stock dividend, stock split, combination of shares, reclassification or other similar event with respect to the Series C Preferred Stock) by the Series C Conversion Price, determined as hereinafter provided, in effect at the time of conversion, and (iv) with respect to the Series D Preferred Stock, $2.50 (the Original Series D Issue Price ), (as adjusted for any stock dividend, stock split, combination of shares, reclassification or other similar event with respect to the Series D Preferred Stock) by the Series D Conversion Price,
4
determined as hereinafter provided, in effect at the time of conversion. The Series A Conversion Price (the Series A Conversion Price ) shall initially be $1.00 per share, the Series B Conversion Price (the Series B Conversion Price ) shall initially be $2.00 per share, the Series C Conversion Price (the Series C Conversion Price ) shall initially be $2.50 per share and the Series D Conversion Price (the Series D Conversion Price ) shall initially be $2.50 per share. Such initial Conversion Prices shall be subject to adjustment, in order to adjust the number of shares of Common Stock into which the Preferred Stock is convertible, as hereinafter provided.
The right of conversion with respect to any shares of Preferred Stock which shall have been called for redemption under Section 6 of this Article FOURTH shall terminate at the close of business on last full day preceding the day fixed for redemption unless the Corporation shall default in the payment of the redemption price, in which case the right of conversion with respect to such shares shall continue unless and until such redemption price is paid in full. In the event of a liquidation, dissolution or winding up of the Corporation, including a Deemed Liquidation, the right of conversion shall terminate at the close of business on the last full day preceding the day fixed for the payment of any such amounts distributable on such event to the holders of Preferred Stock.
(b) Automatic Conversion .
(i) Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as applicable, then in effect, plus any declared but unpaid dividends thereon, upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation to the public at an offering price per share (prior to underwriters discounts and commissions) of not less than $4.00 per share (as adjusted to reflect any stock dividends, distributions, combinations, reclassifications or other like transactions effected by the Corporation in respect of its Common Stock) and with gross proceeds to the Corporation of not less than $30,000,000 (in the event of which offering, the person(s) entitled to receive the Common Stock issuable upon such conversion of the Preferred Stock shall not be deemed to have converted the Preferred Stock until the closing of such offering).
(ii) Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the applicable Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as applicable, then in effect, plus any declared but unpaid dividends thereon upon the written election of the holders of at least (i) sixty percent (60%) of the then outstanding shares of Series B Preferred Stock and (ii) fifty percent (50%) of the then outstanding shares of Series C Preferred Stock to require such mandatory conversion on the date specified by such stockholders.
(c) Mechanics of Automatic Conversions . Upon the occurrence of an event specified in Subsection 2(b) of this Article FOURTH, the Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent;
5
provided , however , that all holders of shares of Preferred Stock being converted shall be given written notice of the occurrence of the event specified in Subsection 2(b) of this Article FOURTH triggering such conversion (which notice need not be sent in advance of the occurrence of the event), including the date such event occurred (the Mandatory Conversion Date ), and the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless certificates evidencing such shares of Preferred Stock being converted are either delivered to the Corporation or its transfer agent, or the holder notifies the Corporation or any transfer agent that such certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection therewith (such certificate, a Certificate of Loss ), On the Mandatory Conversion Date, all rights with respect to the Preferred Stock so converted shall terminate (except any of the rights of the holder thereof as a holder of Common Stock pursuant to this Certificate of Incorporation or otherwise agreed to between such holder and the Corporation or the other holders of the Corporations stock), other than such holders rights, upon surrender of the holders certificate or certificates therefor (or a Certificate of Loss), to receive certificates for the number of shares of Common Stock into which such Preferred Stock has been converted, together with cash in an amount equal to all dividends declared but unpaid on, and any and all other amounts owing with respect to, the shares of Preferred Stock converted to and including the time of conversion. Upon the automatic conversion of the Preferred Stock pursuant to Subsection 2(b) of this Article FOURTH, the holders of such Preferred Stock shall surrender the certificates representing such shares (or a Certificate of Loss) at the office of the Corporation or of its transfer agent. If required of the holders 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 the holders attorney duly authorized in writing. As soon as practicable after the Mandatory Conversion Date and surrender of such certificates (or a Certificate of Loss) there shall be issued and delivered to such holder, or to such holders nominee or nominees, promptly, a certificate or certificates for the number of shares of Common Stock into which the shares of Preferred Stock surrendered were convertible on the Mandatory Conversion Date, together with cash in an amount equal to all dividends declared but unpaid on, and any and all other amounts owing with respect to, the shares of Preferred Stock converted to and including the time of conversion. Upon the automatic conversion of the Preferred Stock, all shares of Preferred Stock being converted by any holder thereof shall be aggregated for the purpose of determining the number of shares of Common Stock to which such holder shall be entitled, and no fractional share of Common Stock shall be issued. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of the Common Stock on the Mandatory Conversion Date, as reasonably determined by the Board of Directors in good faith.
(d) Mechanics of Optional Conversions . Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, the holder shall surrender the certificate or certificates therefor at the office of the Corporation or of any transfer agent designated by the Corporation, or the holder shall notify the Corporation or any transfer agent that such certificates have been lost, stolen, or destroyed and execute a Certificate of Loss, and shall give written notice to the Corporation at such time that the holder elects to convert his or her Preferred Stock and shall state therein (a) the number of Preferred Stock shares to be so
6
converted and (b) the holders name or the name or names of the holders nominees in which the holder wishes the certificate or certificates for shares of Common Stock to be issued. On the date of conversion, all rights with respect to the Preferred Stock so converted shall terminate (except any of the rights of the holder thereof as a holder of Common Stock pursuant to this Certificate of Incorporation or otherwise agreed to between such holder and the Corporation or the other holders of the Corporations stock), upon surrender of the holders certificate or certificates therefor, other than such holders rights to receive certificates for the number of shares of Common Stock into which such Preferred Stock has been converted and cash in an amount equal to all dividends declared but unpaid on, and any and all other amounts owing with respect to, the shares of Preferred Stock being converted to and including the time of conversion. 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 the holders attorney duly authorized in writing. Upon the optional conversion of the Preferred Stock, all shares of Preferred Stock being converted by any holder thereof shall be aggregated for the purpose of determining the number of shares of Common Stock to which such holder shall be entitled, and no fractional share of Common Stock shall be issued. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of the Common Stock on the date of conversion, as reasonably determined by the Board of Directors in good faith. The Corporation shall, promptly after surrender of the certificate or certificates for conversion (or a Certificate of Loss), issue and deliver to such holder, or to the holders nominee or nominees, a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share and cash in an amount equal to all dividends declared but unpaid thereon and any and all other amounts owing with respect thereto at such time together with a certificate for the remaining number of shares of Preferred Stock if less than all of the shares of Preferred Stock evidenced by the certificate or certificates were converted. Unless otherwise specified by the holder in the written notice of conversion, such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.
(e) Adjustments to Conversion Prices for Diluting Issues .
(i) Special Definitions . For purposes of this Subsection 2(e) of this Article FOURTH, the following definitions shall apply:
(1) Option shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities.
(2) Original Issue Date shall mean the first date on which a share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, as applicable, is issued.
7
(3) Convertible Securities shall mean any evidences of indebtedness, shares of capital stock (other than Common Stock) or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
(4) Additional Shares of Common Stock shall mean all shares of Common Stock issued (or, pursuant to Subsection 2(e)(iii) of this Article FOURTH, deemed to be issued) by the Corporation after the Original Issue Date, other than:
(A) shares of Common Stock issued or issuable upon conversion of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock;
(B) up to 10,050,000 shares of Common Stock or Options issued or issuable to employees, consultants or directors of the Corporation pursuant to a stock purchase or stock option plan or other employee stock bonus arrangement approved by a majority of the Corporations Board of Directors, including at least two Preferred Stock Directors (as hereinafter defined); and provided that such number may be adjusted upward with the approval of the holders of at least sixty percent (60%) of the Series B Preferred Stock and the Series C Preferred Stock then outstanding (voting together as a single class on an as converted to Common Stock basis) as provided by Subsection 3(e) of this Article FOURTH;
(C) shares of Common Stock or Options issued in consideration for the acquisition or licensing of technology or a corporate partnership transaction, if approved by the Board of Directors, including at least two Preferred Stock Directors; and
(D) shares of Common Stock or Options issued in equipment leasing or other debt financing transactions, if approved by the Board of Directors, including at least two Preferred Stock Directors.
(ii) No Adjustment of Conversion Price . No adjustment in the number of shares of Common Stock into which the Preferred Stock is convertible shall be made, by adjustment to the applicable Conversion Price in respect of the issuance of Additional Shares of Common Stock (a) unless the consideration per share for an Additional Share of Common Stock (determined pursuant to Subsection 2(e)(v) of this Article FOURTH) issued or deemed to be issued by the Corporation is less than the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as applicable, in effect on the date of, and immediately prior to, the issue of such Additional Share of Common Stock, or (b) if prior to such issuance or within twenty (20) days thereafter the Corporation receives notice from the holders of (I) with respect to the Series A Conversion Price, at least sixty percent (60%) of the outstanding shares of the Series A Preferred Stock if the holders of Series A Preferred Stock are entitled to adjustment hereunder, (II) with respect to the Series B Conversion Price, at least sixty percent (60%) of the outstanding shares of Series B Preferred Stock if the holders of Series B Preferred Stock are entitled to adjustment hereunder, (III) with respect to the Series C Conversion Price, at least sixty percent (60%) of the outstanding shares of Series C Preferred Stock if the holders of Series C Preferred Stock are entitled to adjustment hereunder or (IV) with
8
respect to the Series D Conversion Price, at least a majority of the outstanding shares of Series D Preferred Stock if the holders of Series D Preferred Stock are entitled to adjustment hereunder, that no such adjustment in the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as applicable pursuant to the notice provided under (I), (II), (III) or (IV), shall be made.
(iii) | Issue of Securities Deemed Issue of Additional Shares of Common Stock . |
(1) Options and Convertible Securities . In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options (excluding for all purposes of this Subsection 2(e)(iii)(l) of this Article FOURTH Options excluded from the definition of Additional Shares of Common Stock in Subsection 2(e)(i)(4) of this Article FOURTH) or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date (assuming the satisfaction of any conditions to convertibility, exercisability or exchangeability, including without limitation, the passage of time), and the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price shall be adjusted accordingly, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their terms provide (other than by automatic adjustment pursuant to anti-dilution or similar provisions of such Options or Convertible Security), with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;
(C) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been
9
exercised, the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:
(I) In the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange; and
(II) in the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation (determined pursuant to Subsection 2(e)(v) of this Article FOURTH) upon the issue of the Convertible Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price to an amount which exceeds the lower of (i) the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price in effect immediately prior to the original adjustment date, or (ii) the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date;
(E) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price shall be adjusted pursuant to this Subsection 2(e)(iii) of this Article FOURTH as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and Subdivisions . In the event the Corporation at any time or from time to time after the Original Issue Date shall declare
10
or pay any dividend or make any other distribution on the Common Stock payable in Common Stock or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall be deemed to have been issued with respect to the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock:
(A) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or
(B) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which such corporate action becomes effective.
If such record date shall have been fixed and no part of such dividend or distribution shall have been paid on the date fixed therefor, the adjustment previously made in the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price shall be adjusted pursuant to this Subsection 2(e)(vi)(1) of this Article FOURTH as of the time of actual payment of such dividend or distribution. Notwithstanding anything to the contrary contained herein, Additional Shares shall not be deemed to have been issued pursuant to this Subsection 2(e)(iii) to the extent the holders of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the amount of shares of Common Stock as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.
(iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock . In the event that at any time or from time to time after the Original Issue Date the Corporation shall issue Additional Shares of Common Stock (including, without limitation, Additional Shares of Common Stock deemed to be issued pursuant to Subsection 2(e)(iii)(1) of this Article FOURTH but excluding Additional Shares of Common Stock deemed to be issued pursuant to Subsection 2(e)(iii)(2) of this Article FOURTH, which event is dealt with in Subsection 2(e)(vi)(1) of this Article FOURTH), without consideration or for consideration (determined pursuant to Subsection 2(e)(v) of this Article FOURTH) per share less than the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price in effect on the date of, and immediately prior to, the issue of such Additional Shares of Common Stock, then and in such event, such Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as applicable, shall be reduced, concurrently with such issue, to a price (calculated to the nearest one tenth of one cent) determined in accordance with the following formula:
NCP = |
(P 1 )(Q 1 ) + (P 2 )(Q 2 ) |
|||||
Q 1 + Q 2 |
11
where: |
||
NCP = |
New Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as applicable; | |
P 1 = |
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as applicable, in effect immediately prior to new issue; | |
Q 1 = |
Number of shares of Common Stock outstanding, or deemed to be outstanding as set forth below, immediately prior to such issue; | |
P 2 = |
Weighted average price per share received by the Corporation upon such issue; | |
Q 2 = |
Number of shares of Common Stock issued, or deemed to have been issued, in the subject transaction; |
provided that for the purpose of this Subsection 2(e)(iv) of this Article FOURTH, all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issue and conversion of shares of Preferred Stock outstanding immediately prior to such issue shall be deemed to be outstanding, and immediately after any Additional Shares of Common Stock are deemed issued pursuant to Subsection 2(e)(iii) of this Article FOURTH, such Additional Shares of Common Stock shall be deemed to be outstanding.
(v) Determination of Consideration . For purposes of this Subsection 2(e) of this Article FOURTH, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property : Such consideration shall:
(A) insofar as it consists of cash, be computed at the aggregate amounts of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors.
12
(2) Options and Convertible Securities . The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 2(e)(iii)(l) of this Article FOURTH, relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.
(3) Multiple Closing Dates . In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price pursuant to the terms of Subsection 2(e)(iv), and such issuance dates occur within a period of no more than 120 days from the first such issuance to the final such issuance, then, upon the final such issuance, the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as the case may be, shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).
(vi) Adjustment for Dividends, Distributions, Subdivisions, Combinations or Consolidations of Common Stock .
(1) Stock Dividends, Distributions or Subdivisions . In the event the Corporation shall be deemed to issue Additional Shares of Common Stock pursuant to Subsection 2(e)(iii)(2) of this Article FOURTH in a stock dividend, stock distribution or subdivision, the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price and Series D Conversion Price in effect immediately before such deemed issuance shall, concurrently with the effectiveness of such deemed issuance, be proportionately decreased.
(2) Combinations or Consolidations . In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Series A Conversion Price, Series B
13
Conversion Price, Series C Conversion Price and Series D Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased.
(f) Adjustments for Certain Dividends and Distributions . In the event that at any time or from time to time after the Original Issue Date the Corporation shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock or securities, the issuance of which are deemed to be issuances of Common Stock under Subsection 2(e)(iii) of this Article FOURTH, then and in each such event provision shall be made so that the holders of Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Preferred Stock been converted into Common Stock immediately prior to such event and had they thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period, giving application during such period to all adjustments called for herein; provided, however, that no such provision shall be made if the holders of Preferred Stock receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities in an amount equal to the amount of such securities as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.
(g) Adjustment for Reclassification, Exchange, or Substitution . In the event that at any time or from time to time after the Original Issue Date the Common Stock issuable upon the conversion of the Preferred Stock shall be changed into the same or a different number of shares of any class or series of stock or other securities or property, whether by capital reorganization, reclassification, recapitalization or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a merger, consolidation, or sale of assets provided for below), then and in each such event the holder of any shares of Preferred Stock shall have the right thereafter to convert such shares into, in lieu of Common Stock, the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification, recapitalization or other change by the holder of a number of shares of Common Stock equal to the number of shares of Common Stock into which such shares of Preferred Stock might have been converted immediately prior to such reorganization, reclassification, recapitalization or change, all subject to further adjustment as provided herein.
(h) Adjustment for Merger, Consolidation or Sale of Assets . In the event that at any time or from time to time after the Original Issue Date the Corporation shall merge or consolidate with or into another entity or sell all or substantially all of its assets, and such consolidation, merger or sale is not treated as a liquidation under Subsection 1(c) of this Article FOURTH, each share of Preferred Stock shall thereafter be convertible into the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such Preferred Stock would have been entitled to receive upon such consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions set forth in this Section 2 with respect to the rights and interest
14
thereafter of the holders of shares of such Preferred Stock, to the end that the provisions set forth in this Section 2 of this Article FOURTH (including provisions with respect to changes in and other adjustments of the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other securities or property thereafter deliverable upon the conversion of such Preferred Stock.
(i) No Impairment . The Corporation shall not, by amendment of its Certificate of Incorporation or through any 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 Section 2 of this Article FOURTH by the Corporation without the consent of the holders of at least a majority of the then outstanding shares of the series of Preferred Stock affected but shall at all times in good faith assist in the carrying out of all the provisions of this Section 2 of this Article FOURTH and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Preferred Stock against impairment.
(j) Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price pursuant to this Section 2 of this Article FOURTH, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock.
(k) Notices of Record Date . In the event of any taking by the Corporation of a record of the holders of any class or series of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, the Corporation shall mail to each holder of Preferred Stock at least ten (10) days prior to such record date a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.
(1) Common Stock Reserved . The Corporation shall reserve and keep available, free from pre-emptive rights, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect conversion of the Preferred Stock. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all the then outstanding shares of Preferred Stock, the Corporation shall promptly 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.
15
(m) Certain Taxes . The Corporation shall pay any issue or transfer taxes payable in connection with the conversion of Preferred Stock, provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer to a name other than that of the holder of the Preferred Stock.
(n) Closing of Books . The Corporation shall at no time close its transfer books against the transfer of any Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Preferred Stock in any manner which interferes with the timely conversion or transfer of such Preferred Stock or Common Stock.
(o) Validity of Shares . The Corporation agrees that it will from time to time take all such actions as may be required to assure that all shares of Common Stock which may be issued upon conversion of any Preferred Stock will, upon issuance, be legally and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.
Section 3 . Restrictions .
(a) In addition to any other vote required by law or this Certificate of Incorporation and so long as any share of Series A Preferred Stock is still outstanding, without first obtaining the affirmative vote or written consent of the holders of at least sixty percent (60%) of the then outstanding shares of Series A Preferred Stock, voting as a single class, the Corporation will not (by amendment, merger, consolidation, operation of law or otherwise):
(i) amend the preferences, rights or privileges of the Series A Preferred Stock; or
(ii) increase the authorized number of shares of Series A Preferred Stock.
(b) In addition to any other vote required by law or this Certificate of Incorporation and so long as any share of Series B Preferred Stock is still outstanding, without first obtaining the affirmative vote or written consent of the holders of at least sixty percent (60%) of the then outstanding shares of Series B Preferred Stock, voting as a single class, the Corporation will not (by amendment, merger, consolidation, operation of law or otherwise):
(i) amend the preferences, rights or privileges of the Series B Preferred Stock;
(ii) increase the authorized number of shares of Series B Preferred Stock;
16
(iii) authorize, reclassify or designate any class or series of capital stock, or securities convertible into any series or class of capital stock, having rights, preferences or privileges senior to or on a parity with the Series B Preferred Stock, unless the per share consideration to be received by the Corporation upon issuance of such stock is equal to or higher than the Original Series B Issue Price; or
(iv) amend any provision of the Corporations Certificate of Incorporation or By-Laws relating to the indemnification of directors.
(c) In addition to any other vote required by law or this Certificate of Incorporation and so long as any share of Series C Preferred Stock is still outstanding, without first obtaining the affirmative vote or written consent of the holders of at least sixty percent (60%) of the then outstanding shares of Series C Preferred Stock, voting as a single class, the Corporation will not (by amendment, merger, consolidation, operation of law or otherwise):
(i) amend the preferences, rights or privileges of the Series C Preferred Stock;
(ii) increase the authorized number of shares of Series C Preferred Stock; or
(iii) authorize, reclassify or designate any class or series of capital stock, or securities convertible into any series or class of capital stock, having rights, preferences or privileges senior to or on a parity with the Series C Preferred Stock, unless the per share consideration to be received by the Corporation upon issuance of such stock is equal to or higher than the Original Series C Issue Price.
(d) In addition to any other vote required by law or this Certificate of Incorporation and so long as any share of Series D Preferred Stock is still outstanding, without first obtaining the affirmative vote or written consent of the holders of at least a majority of the then outstanding shares of Series D Preferred Stock, voting as a single class, the Corporation will not (by amendment, merger, consolidation, operation of law or otherwise):
(i) amend the preferences, rights or privileges of the Series D Preferred Stock; or
(ii) increase the authorized number of shares of Series D Preferred Stock.
(e) In addition to any other vote required by law or this Certificate of Incorporation and so long as any share of Preferred Stock is still outstanding, without first obtaining the affirmative vote or written consent of the holders of at least sixty percent (60%) of the then outstanding shares of the Series B Preferred Stock and Series C Preferred Stock (voting together as a single class on an as converted to Common Stock basis), the Corporation will not (by amendment, merger, consolidation, operation of law or otherwise):
(i) amend or repeal any provision of, or add any provision to, the Corporations Certificate of Incorporation or By-laws;
17
(ii) enter into, or permit any subsidiary to enter into, any merger, consolidation, capital reorganization, liquidation or dissolution; sell, lease or otherwise dispose of all or substantially all of the assets of the Corporation or permit any subsidiary to sell, lease or otherwise dispose of all or substantially all of the assets of such subsidiary;
(iii) authorize, reclassify or designate any class or series of capital stock, or securities convertible into any series or class of capital stock, having rights, preferences or privileges senior to or on a parity with the Series D Preferred Stock;
(iv) enter into, or permit any subsidiary to enter into, any acquisition of the capital stock of another entity which results in the consolidation of that entity into the results of operations of the Corporation or acquisition of all or substantially all of the assets of another entity;
(v) incur indebtedness for borrowed funds, in a single or related series of transactions, in principal amount at any time outstanding in excess of $1,000,000;
(vi) create a new plan or arrangement for the grant of stock options, stock appreciation rights, restricted stock or other similar stock-based compensation, or increase the number of shares or other rights available under such existing plan or arrangement in an aggregate amount greater than 1,000,000 shares of Common Stock (where any such authorized stock options, stock appreciations rights, restricted stock or other stock-based compensation is treated on an as converted or as exchanged basis into Common Stock, consistent with the terms of any such issuance);
(vii) any provision of the By-Laws of the Corporation to the contrary notwithstanding, increase the number of directors constituting the entire Board of Directors to a number greater than nine;
(viii) pay or declare any dividend or distribution on any shares of its capital stock (except dividends payable solely in shares of Common Stock), or apply any of its assets to the redemption, retirement, purchase or acquisition, directly or indirectly, through subsidiaries or otherwise, of any shares of its capital stock (except as expressly set forth herein and except for repurchases of Common Stock upon termination of employment or service pursuant to written agreements in effect on the date hereof or written agreements approved by the Corporations Board of Directors or a committee thereof); or
(ix) materially change the nature or operation of the Corporations business as now conducted.
(f) In addition to the restrictions provided for above or as provided by applicable law and so long as there are any shares of Preferred Stock outstanding, the consent of the Board of Directors of the Corporation, including at least two Preferred Stock Directors, shall be required for the Corporation to effect: (i) any transaction in which a single party (or group of affiliated parties) who was not a holder of capital stock prior to such transaction acquires capital
18
stock of the Corporation representing a majority of the Corporations then outstanding voting power, other than through the issuance of shares that do not qualify as Additional Shares of Common Stock pursuant to Subsection 2(e)(i)(4) of this Article FOURTH; (ii) a Liquidation or Deemed Liquidation; (iii) merger (other than a merger with a parent corporation of the Corporation owning 100% of its outstanding stock); (iv) reincorporation of the Corporation; or (v) sale or other transfer of substantially all of the Corporations assets (other than a transfer to a parent corporation of the Corporation owning 100% of its outstanding stock) provided , however , that such consent shall not be specifically required in the event that such transaction described in items (ii) through (v) of this subsection results in the holders of the Series B Preferred Stock at the time of such transaction receiving proceeds equal to or greater than two times (2x) the aggregate Original Series B Issue Price for all outstanding shares of Series B Preferred Stock at the time of such transaction.
(g) Notwithstanding any other provision of this Certificate of Incorporation or the Corporations By-Laws to the contrary, written notice of any action specified in Subsections 3(a), 3(b), 3(c), 3(d) or 3(e) of this Article FOURTH shall be given by the Corporation to each holder of outstanding shares of Preferred Stock at least twenty (20) days before the date on which the books of the Corporation shall close or a record shall be taken with respect to such proposed action, or, if there shall be no such date, at least twenty (20) days before the date when such proposed action is scheduled to take place. Any holder of outstanding shares of Preferred Stock may waive any notice required by this Subsection by a written document specifically indicating such waiver.
Section 4 . Voting Rights .
(a) Except as otherwise required by law or set forth in this Certificate of Incorporation, the holders of Preferred Stock shall be entitled to notice of any meeting of stockholders and shall vote together with the holders of Common Stock as a single class upon any matter submitted to the stockholders for a vote. With respect to all questions as to which, under law, stockholders are required to vote by classes or series, the Preferred Stock shall vote separately as a single class and series apart from the Common Stock. Shares of Common Stock and Preferred Stock shall entitle the holders thereof to the following number of votes on any matter as to which they are entitled to vote:
(i) Holders of Common Stock shall have one vote per share; and
(ii) Holders of Preferred Stock shall have that number of votes per share as is equal to the number of shares of Common Stock (including fractions of a share) into which each such share of Preferred Stock held by such holder could be converted on the date for determination of stockholders entitled to vote at the meeting or on the effective date of any written consent.
(b) Any provision of the By-Laws of the Corporation to the contrary notwithstanding, the number of directors (including the Series A Preferred Stock Directors and Series B Preferred Stock Directors (as defined below)) constituting the whole Board of Directors of the Corporation shall not be fixed at a number greater than nine without the prior written
19
consent of the holders of at least sixty percent (60%) of the Series B Preferred Stock and Series C Preferred Stock (voting together as a single class on an as converted to Common Stock basis), then outstanding as provided in Subsection 3(e) of this Article FOURTH. The Board of Directors shall not delegate any of its powers or duties to any committee of the Board of Directors without the consent of at least two Preferred Stock Directors.
(c) At all times during which shares of Series A Preferred Stock remain outstanding, the holders of the outstanding shares of Series A Preferred Stock shall have the exclusive right, separately from the Common Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, to elect two directors of the Corporation (the Series A Preferred Stock Directors ). The Series A Preferred Stock Directors shall be elected by the vote or written consent of the holders of at least sixty percent (60%) of the outstanding Series A Preferred Stock. If a Series A Preferred Stock Director shall cease to serve as a director for any reason, another director elected by the holders of the Series A Preferred Stock shall replace such director. Any Series A Preferred Stock Director may be removed, with or without cause, and a replacement Series A Preferred Stock Director may be elected in his stead, at any time by the affirmative vote at a meeting duly called for the purpose, or by written consent, of the holders of at least sixty percent (60%) of the outstanding Series A Preferred Stock.
(d) At all times during which shares of Series B Preferred Stock remain outstanding, the holders of the outstanding shares of Series B Preferred Stock shall have the exclusive right, separately from the Common Stock, Series A Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, to elect two directors of the Corporation (the Series B Preferred Stock Directors , and together with the Series A Preferred Stock Directors, the Preferred Stock Directors ). The Series B Preferred Stock Directors shall be elected by the vote or written consent of the holders of at least sixty percent (60%) of the outstanding Series B Preferred Stock. If a Series B Preferred Stock Director shall cease to serve as a director for any reason, another director elected by the holders of the Series B Preferred Stock shall replace such director. Any Series B Preferred Stock Director may be removed, with or without cause, and a replacement Series B Preferred Stock Director may be elected in his stead, at any time by the affirmative vote at a meeting duly called for the purpose, or by written consent, of the holders of at least sixty percent (60%) of the outstanding Series B Preferred Stock.
(e) All other directors of the Corporation shall be elected by the holders of the Common Stock and Preferred Stock voting together as a single class, with the holders of Preferred Stock to have that number of votes as is determined in accordance with Subsection 4(a)(ii) of this Article FOURTH.
(f) In addition to any rights which may be available under the Corporations By-Laws or otherwise under law, the holders of not less than twenty percent (20%) of the outstanding Preferred Stock shall be entitled to call meetings of the stockholders of the Corporation. Within five (5) business days after written application by the holders of not less than twenty percent (20%) of the outstanding Preferred Stock, the President or Secretary, or such other officer of the Corporation as may be authorized in the By-Laws of the Corporation to give notice of meetings of stockholders of the Corporation, shall notify each stockholder of the Corporation entitled to such notice of the date, time, place and purpose of such meeting.
20
Section 5 . Dividends .
(a) Dividends may be declared and paid on Common Stock or Preferred Stock from funds lawfully available therefor as and when determined by the Board of Directors of the Corporation; provided that no dividends shall be declared or paid on shares of Common Stock unless (i) the Corporation shall declare and pay at the same time to each holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock a dividend equal to six percent (6%) per annum of the aggregate Series A Conversion Price, Series B Conversion Price, Series C Conversion Price and Series D Conversion Price, respectively, plus all dividends, previously declared and unpaid on the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock held by such holder, respectively (calculated as provided in Subsection 5(b) of this Article FOURTH below and respectively, the Series A Preferred Dividend , Series B Preferred Dividend , Series C Preferred Dividend and Series D Preferred Dividend ), plus the dividend which would have been payable to such holder if the shares of Preferred Stock held by such holder had been converted into Common Stock on the record date for the determination of holders of Common Stock entitled to receive such dividend.
(b) The calculation of the Series A Preferred Dividend, Series B Preferred Dividend, Series C Preferred Dividend and Series D Preferred Dividend shall be computed (y) on the number of days since the Original Issue Date that such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, respectively, were issued and outstanding (z) and shall include any accrued but unpaid dividends thereon; and shall be calculated on an annual basis and compounded annually for each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, respectively. Prior to payment of any dividend pursuant to this Section 5 of this Article FOURTH, the Corporation shall provide a statement to each holder of Preferred Stock as of the date of declaration of such dividend, indicating the amount of the Series A Preferred Dividend, Series B Preferred Dividend, Series C Preferred Dividend and Series D Preferred Dividend, as applicable, owing on each such share and stipulating an appropriate mechanism by which the holder of such share of Preferred Stock may contest the calculation of the Series A Preferred Dividend, Series B Preferred Dividend, Series C Preferred Dividend or Series D Preferred Dividend, as applicable.
(c) No dividends shall be declared or paid on the Common Stock or Preferred Stock except as set forth in this Section 5 of this Article FOURTH.
Section 6 . Redemption .
(a) At the written election of holders of at least (i) sixty percent (60%) of the outstanding shares of Series B Preferred Stock and (ii) fifty percent (50%) of the outstanding shares of Series C Preferred Stock made at any time on or after the date that is 90 days before April 25, 2013 (the Redemption Election ), the Corporation shall be required to redeem all, but not less than all, of the outstanding shares of Preferred Stock in three equal annual installments, upon the terms set forth in this Section 6 of this Article FOURTH. The first installment of such
21
redemption shall occur on a date (the First Redemption Date ) specified in the Redemption Election, which shall be not less than ninety (90) days after the date of the Redemption Election, and the second and third installments of such redemption shall occur on the first and second anniversaries, respectively, of the First Redemption Date. The First Redemption Date and the first and second anniversaries thereafter are referred to herein as the redemption dates . On each redemption date, the Corporation shall redeem that number of outstanding shares of Preferred Stock determined by dividing (i) the total number of shares of Preferred Stock outstanding immediately prior to such redemption date by (ii) the number of remaining redemption dates (including the redemption date to which such calculation applies), provided , that the redemption made on each redemption date shall be allocated pari passu among the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock according to the amount that each holder of Preferred Stock would be entitled to receive hereunder in the event of a Liquidation or Deemed Liquidation event pursuant to Subsection 1 (a)(i) hereof. On each such redemption date, the holders shall surrender the certificate or certificates for the shares to be redeemed duly endorsed for transfer or with duly executed stock transfer powers sufficient to permit transfer attached at the offices of the Corporation or of any transfer agent for the Preferred Stock, or the holder shall notify the Corporation or any transfer agent that such certificates have been lost, stolen, or destroyed and execute a Certificate of Loss. The Corporation shall, as soon as practicable thereafter, issue and deliver to each holder a certificate or certificates for the balance of the shares not being redeemed. The redemption price per share of Series A Preferred Stock shall be equal to $1.00 (as adjusted for any stock dividend, stock split, combination of shares, reclassification or other similar event with respect to the Series A Preferred Stock) (the Series A Redemption Price ) plus all dividends declared but unpaid on such share on the applicable redemption date; the redemption price per share of Series B Preferred Stock shall be equal to $2.00 (as adjusted for any stock dividend, stock split, combination of shares, reclassification or other similar event with respect to the Series B Preferred Stock) (the Series B Redemption Price ) plus all dividends declared but unpaid on such share on the applicable redemption date; the redemption price per share of Series C Preferred Stock shall be equal to $2.50 (as adjusted for any stock dividend, stock split, combination of shares, reclassification or other similar event with respect to the Series C Preferred Stock) (the Series C Redemption Price ) plus all dividends declared but unpaid on such share on the applicable redemption date; and the redemption price per share of Series D Preferred Stock shall be equal to $2.50 (as adjusted for any stock dividend, stock split, combination of shares, reclassification or other similar event with respect to the Series D Preferred Stock) (the Series D Redemption Price , and, together with the Series A Redemption Price, Series B Redemption Price and Series C Redemption Price, the Redemption Price ) plus all dividends declared but unpaid on such share on the applicable redemption date.
(b) Notice of redemption shall be sent by first class mail, postage prepaid, to each holder of record of the Preferred Stock, not less than thirty days nor more than sixty days prior to the First Redemption Date, at the address of such holder as it appears on the books of the Corporation. Such notice shall set forth (i) the redemption dates and the place of redemption; and (ii) the number of shares to be redeemed on each date of redemption and the Redemption Price calculated in accordance with Subsection 6(a) of this Article FOURTH, on each such date. The Corporation shall be obligated to redeem the Preferred Stock on the dates and in the amounts set forth in the notice; provided, however, that any holder of Preferred Stock who is not party to
22
a Redemption Election may convert any or all of the shares owned by such holder into Common Stock in accordance with Section 2 of this Article FOURTH at any time prior to the date of redemption of such shares. The Corporation, if advised before the close of business on the relevant redemption date by written notice from any holder of record of Preferred Stock to be redeemed, shall credit against the number of shares of Preferred Stock required to be redeemed from such holder, and shall not redeem, the number of shares of Preferred Stock which shall have been converted by such holder on or before such date and which shall not previously have been credited against any redemption.
(c) If, on or before a redemption date, the funds necessary for such redemption shall have been set aside by the Corporation and deposited with a bank or trust company, in trust for the pro rata benefit of the holders of the Preferred Stock that has been called for redemption, then, notwithstanding that any certificates for shares that have been called for redemption shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding from and after such redemption date, and all rights of holders of such shares so called for redemption shall forthwith, after such redemption date, cease and terminate with respect to such shares, excepting only the right to receive the redemption funds therefor to which they are entitled. Any interest accrued on funds so deposited and unclaimed by stockholders entitled thereto shall be paid to such stockholders at the time their respective shares are redeemed or to the Corporation at the time unclaimed amounts are paid to it. In case the holders of shares of Preferred Stock which shall have been called for redemption shall not, within one year after the final redemption date, claim the amounts so deposited with respect to the redemption thereof, any such bank or trust company shall, upon demand, pay over to the Corporation such unclaimed amounts and thereupon such bank or trust company shall be relieved of all responsibility in respect thereof to such holder and such holder shall look only to the Corporation for the payment thereof. Any funds so deposited with a bank or trust company which shall not be required for such redemption by reason of the exercise subsequent to the date of such deposit of the right of conversion of any shares or otherwise shall be returned to the Corporation forthwith.
(d) If the funds of the Corporation legally available for redemption of shares of Preferred Stock on a redemption date are insufficient to redeem the total number of shares of Preferred Stock submitted for redemption, those funds which are legally available will be used to redeem the maximum possible number of whole shares among the holders of such shares, based ratably on the aggregate Redemption Price which each such holder would be entitled to receive on such redemption date. The shares of Preferred Stock not redeemed shall remain outstanding and entitled to all rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of such shares of Preferred Stock, such funds will be used, at the end of the next succeeding fiscal quarter, to redeem the balance of such shares, or such portion thereof for which funds are then legally available.
(e) In the event that funds are unavailable on the redemption date for any reason, then all unredeemed shares shall remain outstanding and entitled to all rights and preferences provided herein, and the Corporation shall pay interest on the Redemption Price applicable to such unredeemed shares at the rate of eight percent (8%) per annum, with such interest to accrue daily in arrears; provided , however , that in no event shall such interest exceed the maximum permitted under applicable law (the Maximum Permitted Rate ). In the event that fulfillment of
23
any provision hereof results in such rate of interest being in excess of the Maximum Permitted Rate, the amount of interest required to be paid hereunder shall automatically be reduced to eliminate such excess; provided , however , that any subsequent increase in the Maximum Permitted Rate shall be retroactively effective to the applicable redemption date to the extent permitted by law. All interest accrued in accordance with this Section 6 shall be compounded annually and shall be due and payable upon redemption of shares in accordance with this Section 6.
Section 7 . No Reissuance of Preferred Stock . No 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 which the Corporation shall be authorized to issue.
Section 8 . Residual Rights . All rights accruing to the outstanding shares of the Corporation not expressly provided for to the contrary herein shall be vested in the Common Stock.
Section 9 . Notices . All notices required or permitted to be sent pursuant to this Article FOURTH shall be deemed sufficient if contained in a written instrument and delivered in person or duly sent by first-class mail postage prepaid (other than in the case of notices to or from any non-U.S. resident) or by fax or any recognized express international courier service, addressed to the intended recipient at the recipients address as it appears on the books of the Corporation.
Section 10 . Waiver of Certain Provisions .
(a) Subsection 3(a) hereof may be waived by the affirmative vote of the holders of at least sixty percent (60%) of the outstanding shares of the Series A Preferred Stock.
(b) Subsection 3(b) hereof may be waived by the affirmative vote of the holders of at least sixty percent (60%) of the outstanding shares of Series B Preferred Stock.
(c) Subsection 3(c) hereof may be waived by the affirmative vote of the holders of at least sixty percent (60%) of the outstanding shares of Series C Preferred Stock.
(d) Subsection 3(d) hereof may be waived by the affirmative vote of the holders of a majority of the outstanding shares of the Series D Preferred Stock.
(e) Subsection 3(e) hereof may be waived by the affirmative vote of the holders of at least sixty percent (60%) of the outstanding shares of Series B Preferred Stock and Series C Preferred Stock (voting together as a single class on an as converted to Common Stock basis).
(f) Any notice required by Subsection 3(g) hereof may be waived by the affirmative vote of the holders of at least sixty percent (60%) of the outstanding shares of Preferred Stock (voting together as a single class on an as converted basis) entitled to such notice.
24
FIFTH : In furtherance of and not in limitation of powers conferred by statute, it is further provided that:
(a) Subject to the limitations and exceptions, if any, contained in the By-Laws of the Corporation and the requirements of Subsection 3(e) and Subsection 4(b) of Article FOURTH hereof, the By-Laws may be adopted, amended or repealed by the Board of Directors of the Corporation with, and only with, the approval of a majority of the directors then in office;
(b) Elections of directors need not be by written ballot unless, and only to the extent, otherwise provided in the By-Laws;
(c) Subject to any applicable requirements of law, the books of the Corporation may be kept outside the State of Delaware at such locations as may be designated by the Board of Directors or in the By-Laws of the Corporation; and
(d) Except as provided to the contrary in the provisions establishing a class or series vote, the number of authorized shares of such class or series may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote or written consent of a majority of all outstanding shares of voting stock of the Corporation, voting together as a single class, irrespective of the provisions of Section 242(b)(2) of the Delaware General Corporate Law.
SIXTH : The Corporation shall indemnify each person who at any time is, or shall have been, a director or officer of the Corporation and was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement incurred in connection with any such action, suit or proceeding, to the maximum extent permitted by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended. In furtherance of and not in limitation of the foregoing, the Corporation shall advance expenses, including attorneys fees, incurred by an officer or director of the Corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such advances if it shall be ultimately determined that he is not entitled to be indemnified by the Corporation. The foregoing right of indemnification shall in no way be exclusive of any other rights of indemnification to which any such director or officer may be entitled, under any By-Law, agreement, vote of directors or stockholders or otherwise. No amendment to or repeal of the provisions of this Article SIXTH shall deprive a director or officer of the benefit hereof with respect to any act or failure to act occurring prior to such amendment or repeal.
SEVENTH : No director of the Corporation shall be personally liable to the Corporation or to any of its stockholders for monetary damages arising out of such directors breach of his fiduciary duty as a director of the Corporation, except to the extent that the elimination or
25
limitation of such liability is not permitted by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended. No amendment to or repeal of the provisions of this Article SEVENTH shall deprive any director of the Corporation of the benefit hereof with respect to any act or failure to act of such director occurring prior to such amendment or repeal.
EIGHTH : 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.
[ Signature Page Follows ]
26
IN WITNESS WHEREOF, the Corporation has caused this Fourth Amended and Restated Certificate of Incorporation to be signed by Roger D. Tung, its Chief Executive Officer, this 1 st day of June, 2009.
CONCERT PHARMACEUTICALS, INC. | ||||
By: |
/s/ Roger D. Tung |
|||
Name: | Roger D. Tung | |||
Title: | Chief Executive Officer |
CERTIFICATE OF AMENDMENT TO
THE FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CONCERT PHARMACEUTICALS, INC.
CONCERT PHARMACEUTICALS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the Corporation ), does hereby certify as follows:
The Corporations original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on April 12, 2006 under the name Concert Pharmaceuticals, Inc. and was amended and restated on May 16, 2006, November 27, 2006, April 25, 2008 and June 1, 2009.
This Certificate of Amendment amends the Corporations Fourth Amended and Restated Certificate of Incorporation and was duly adopted by the Corporations Board of Directors in accordance with the provisions of Sections 141(f) and 242 of the General Corporation Law of the State of Delaware, and was approved by written consent of the stockholders of the Corporation given in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. The resolutions setting forth the amendment to the Fourth Amended and Restated Certificate of Incorporation are as follows:
RESOLVED : | That the first paragraph of Article FOURTH of the Fourth Amended and Restated Certificate of Incorporation of the Corporation, be and hereby is, amended in its entirety as follows: |
FOURTH : The total number of shares of all classes of stock which the Corporation has the authority to issue is 146,633,334 shares, consisting of 83,716,667 shares of common stock, par value $0.001 per share (the Common Stock ), and 62,916,667 shares of preferred stock, of which 10,000,000 shares are designated Series A Convertible Preferred Stock, par value $0.001 per share (the Series A Preferred Stock ), 24,250,000 shares are designated Series B Convertible Preferred Stock, par value $0.001 per share (the Series B Preferred Stock ), 22,000,000 shares are designated Series C Convertible Preferred Stock, par value $0.001 per share (the Series C Preferred Stock ), and 6,666,667 shares are designated Series D Convertible Preferred Stock, par value $0.001 per share (the Series D Preferred Stock and, together with the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock, the Preferred Stock ).
RESOLVED : | That Section 2(e)(i)(4)(B) of Article FOURTH of the Fourth Amended and Restated Certificate of Incorporation of the Corporation, be and hereby is, amended in its entirety as follows: |
(B) up to 12,500,000 shares of Common Stock or Options issued or issuable to employees, consultants or directors of the Corporation pursuant to a stock purchase or stock option plan or other employee stock bonus arrangement approved by a majority of the Corporations Board of Directors, including at least two Preferred Stock Directors (as hereinafter defined); and provided that such number may be adjusted upward with the approval of the holders of at least sixty percent (60%) of the Series B Preferred Stock and the Series C Preferred Stock then outstanding (voting together as a single class on an as converted to Common Stock basis) as provided by Subsection 3(e) of this Article FOURTH;
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its Chief Executive Officer this 3 rd day of May 2010.
By: |
/s/ Roger Tung |
|
Roger Tung | ||
Chief Executive Officer |
CERTIFICATE OF AMENDMENT TO
THE FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CONCERT PHARMACEUTICALS, INC.
CONCERT PHARMACEUTICALS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the Corporation ), does hereby certify as follows:
The Corporations original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on April 12, 2006 under the name Concert Pharmaceuticals, Inc. and was amended and restated on May 16, 2006, November 27, 2006, April 25, 2008 and June 1, 2009 and further amended on May 3, 2010.
This Certificate of Amendment amends the Corporations Fourth Amended and Restated Certificate of Incorporation, as amended, and was duly adopted by the Corporations Board of Directors in accordance with the provisions of Sections 141(f) and 242 of the General Corporation Law of the State of Delaware, and was approved by written consent of the stockholders of the Corporation given in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. The resolution setting forth the amendment to the Fourth Amended and Restated Certificate of Incorporation, as amended, is as follows:
RESOLVED : | That the first sentence of Article FOURTH, Section 6(a) of the Fourth Amended and Restated Certificate of Incorporation of the Corporation be and hereby is amended by deleting the date April 25, 2013 and inserting the date October 31, 2015 in lieu thereof. |
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its Chief Executive Officer this 22 nd day of December 2011.
By: |
/s/ Roger D. Tung |
|
Roger D. Tung | ||
Chief Executive Officer |
Exhibit 3.3
BY-LAWS
OF
CONCERT PHARMACEUTICALS, INC.
Section 1. LAW, CERTIFICATE OF INCORPORATION AND BY-LAWS
1.1. These by-laws are subject to the certificate of incorporation of the corporation. In these by-laws, references to law, the certificate of incorporation and by-laws mean the law, the provisions of the certificate of incorporation and the by-laws as from time to time in effect.
Section 2. STOCKHOLDERS
2.1. Annual Meeting . The annual meeting of stockholders shall be held within six months after the end of each fiscal year on a date to be fixed by the board of directors or president, unless that day be a legal holiday at the place where the meeting is to be held, in which case the meeting shall be held at the same hour on the next succeeding day not a legal holiday, or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect a board of directors and transact such other business as may be required by law or these by-laws or as may properly come before the meeting.
2.2. Special Meetings . A special meeting of the stockholders may be called at any time by the chairman of the board, if any, the president or the board of directors. A special meeting of the stockholders shall be called by the secretary, or in the case of the death, absence, incapacity or refusal of the secretary, by an assistant secretary or some other officer, upon application of a majority of the directors. Any such application shall state the purpose or purposes of the proposed meeting. Any such call shall state the place, date, hour, and purposes of the meeting.
2.3. Place of Meeting . All meetings of the stockholders for the election of directors or for any other purpose shall be held at such place, within or without the State of Delaware, or, if so determined by the board of directors in its sole discretion, at no place (but rather by means of remote communication), as may be determined from time to time by the chairman of the board, if any, the president or the board of directors. Any adjourned session of any meeting of the stockholders shall be held at the place designated in the vote of adjournment.
2.4. Notice of Meetings . Except as otherwise provided by law, notice of each meeting of stockholders stating the place, if any, the day, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and hour thereof and, in the case of a special meeting, the purposes for which the meeting is called, shall be given not less then ten nor more than sixty days before the meeting, to each stockholder entitled to vote thereat, and to each stockholder who, by law, by the certificate of incorporation or by these by-laws, is entitled to notice, by leaving such notice with him or at his residence or usual place of business, or by depositing it in the United States mail, postage prepaid, and addressed to such stockholder at his address as it appears in the records of the
corporation. Such notice shall be given by the secretary, or by an officer or person designated by the board of directors, or in the case of a special meeting by the officer calling the meeting. As to any adjourned session of any meeting of stockholders, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment was taken except that if the adjournment is for more than thirty days or if after the adjournment a new record date is set for the adjourned session, notice of any such adjourned session of the meeting shall be given in the manner heretofore described. No notice of any meeting of stockholders or any adjourned session thereof need be given to a stockholder if a written waiver of notice, executed before or after the meeting or such adjourned session by such stockholder, is filed with the records of the meeting or if the stockholder attends such meeting without objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders or any adjourned session thereof need be specified in any written waiver of notice.
2.5. Quorum of Stockholders . At any meeting of the stockholders a quorum as to any matter shall consist of a majority of the votes entitled to be cast on the matter, except where a larger quorum is required by law, by the certificate of incorporation or by these by-laws. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. If a quorum is present at an original meeting, a quorum need not be present at an adjourned session of that meeting. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of any corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.
2.6. Action by Vote . When a quorum is present at any meeting, a plurality of the votes properly cast for election to any office shall elect to such office and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the certificate of incorporation or by these by-laws. Voting at meetings of stockholders need not be by written ballot and may be by electronic means, as determined by the board of directors in its sole discretion.
2.7. Action without Meetings . Unless otherwise provided in the certificate of incorporation, any action required or permitted to be taken by stockholders for or in connection with any corporate action may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in Delaware by hand or certified or registered mail, return receipt requested, to its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Each such written consent shall bear the date of signature of each stockholder who signs the consent. No written consent shall be effective to take the corporate action referred to therein unless written consents signed by a number of stockholders sufficient to take such action are delivered to the corporation in the manner specified in this paragraph within sixty days of the earliest dated consent so delivered.
If action is taken by consent of stockholders and in accordance with the foregoing, there shall be filed with the records of the meetings of stockholders the writing or writings comprising such consent.
If action is taken by less than unanimous consent of stockholders, prompt notice of the taking of such action without a meeting shall be given to those who have not consented in writing and a certificate signed and attested to by the secretary that such notice was given shall be filed with the records of the meetings of stockholders.
In the event that the action which is consented to is such as would have required the filing of a certificate under any provision of the General Corporation Law of the State of Delaware, if such action had been voted upon by the stockholders at a meeting thereof, the certificate filed under such provision shall state, in lieu of any statement required by such provision concerning a vote of stockholders, that written consent has been given under Section 228 of said General Corporation Law and that written notice has been given as provided in such Section 228.
2.8. Proxy Representation . Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, objecting to or voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. The authorization of a proxy may but need not be limited to specified action, provided, however, that if a proxy limits its authorization to a meeting or meetings of stockholders, unless otherwise specifically provided such proxy shall entitle the holder thereof to vote at any adjourned session but shall not be valid after the final adjournment thereof.
2.9. Inspectors . The directors or the person presiding at the meeting may, and shall if required by applicable law, appoint one or more inspectors of election and any substitute inspectors to act at the meeting or any adjournment thereof. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them.
2.10. List of Stockholders . At least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in his or her name shall be prepared by the officer or agent having charge of the stock transfer books and shall be open to examination by any stockholder on either a reasonably accessible electronic network (for which such information required to access the electronic network shall be provided with the notice of the meeting) or at the corporations principal place of business during ordinary hours. Such list shall be open to the examination of any stockholder, for the purpose germane to the meeting, as required by applicable law. If the meeting is to be held at a place, such list shall be produced and kept open at the time and place of the meeting during the whole time thereof, and shall be subject to the inspection of any stockholder who may be 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. The stock ledger shall be the only evidence as to who are stockholders entitled to examine such list or to vote in person or by proxy at such meeting.
Section 3. BOARD OF DIRECTORS
3.1. Number . The corporation shall have one or more directors, the number of directors to be determined from time to time by vote of a majority of the directors then in office. Except in connection with the election of directors at the annual meeting of stockholders, the number of directors may be decreased only to eliminate vacancies by reason of death, resignation or removal of one or more directors. No director need be a stockholder.
3.2. Tenure . Except as otherwise provided by law, by the certificate of incorporation or by these by-laws, each director shall hold office until the next annual meeting and until his successor is elected and qualified, or until he sooner dies, resigns, is removed or becomes disqualified.
3.3. Powers . The business and affairs of the corporation shall be managed by or under the direction of the board of directors who shall have and may exercise all the powers of the corporation and do all such lawful acts and things as are not by law, the certificate of incorporation or these by-laws directed or required to be exercised or done by the stockholders.
3.4. Vacancies . Vacancies and any newly created directorships resulting from any increase in the number of directors may be filled by vote of the holders of the particular class or series of stock entitled to elect such director at a meeting called for the purpose, or by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, in each case elected by the particular class or series of stock entitled to elect such directors. When one or more directors shall resign from the board, effective at a future date, a majority of the directors then in office, including those who have resigned, who were elected by the particular class or series of stock entitled to elect such resigning director or directors shall have power to fill such vacancy or vacancies, the vote or action by writing thereon to take effect when such resignation or resignations shall become effective. The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number, subject to any requirements of law or of the certificate of incorporation or of these by-laws as to the number of directors required for a quorum or for any vote or other actions.
3.5. Committees . The board of directors may, by vote of a majority of the whole board, (a) designate, change the membership of or terminate the existence of any committee or committees, each committee to consist of one or more of the directors; (b) designate one or more directors as alternate members of any such committee who may replace any absent or disqualified member at any meeting of the committee; and (c) determine the extent to which each such committee shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, including the power to authorize the seal of the corporation to be affixed to all papers which require it and the power and authority to declare dividends or to authorize the issuance of stock; excepting, however, such powers which by law, by the certificate of incorporation or by these by-laws they are prohibited from so delegating. In the absence or disqualification of any member of such committee and his alternate, if any, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting 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. 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 board or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these by-laws for the conduct of business by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors upon request.
3.6. Regular Meetings . Regular meetings of the board of directors may be held without call or notice at such places within or without the State of Delaware and at such times as the board may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of stockholders.
3.7. Special Meetings . Special meetings of the board of directors may be held at any time and at any place within or without the State of Delaware designated in the notice of the meeting, when called by the chairman of the board, if any, the president, or by one-third or more in number of the directors, reasonable notice thereof being given to each director by the secretary or by the chairman of the board, if any, the president or any one of the directors calling the meeting.
3.8. Notice . It shall be reasonable and sufficient notice to a director to send notice by mail at least forty-eight hours or by facsimile (or other means of electronic communication) at least twenty-four hours before the meeting addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting.
3.9. Quorum . Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, at any meeting of the directors a majority of the directors then in office shall constitute a quorum; a quorum shall not in any case be less than one-third of the total number of directors constituting the whole board. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice.
3.10. Action by Vote . Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, when a quorum is present at any meeting the vote of a majority of the directors present shall be the act of the board of directors.
3.11. Action Without a Meeting . Any action required or permitted to be taken at any meeting of the board of directors or a committee thereof may be taken without a meeting if all the members of the board or of such committee, as the case may be, consent thereto in writing or electronic transmission, and such writings or electronic transmission or transmissions are filed with the records of the meetings of the board or of such committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. Such consent shall be treated for all purposes as the act of the board or of such committee, as the case may be.
3.12. Participation in Meetings by Conference Telephone . Members of the board of directors, or any committee designated by such board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear and speak to each other or by any other means permitted by law. Such participation shall constitute presence in person at such meeting.
3.13. Compensation . In the discretion of the board of directors, each director may be paid such fees for his services as director and be reimbursed for his reasonable expenses incurred in the performance of his duties as director as the board of directors from time to time may determine. Nothing contained in this section shall be construed to preclude any director from serving the corporation in any other capacity and receiving reasonable compensation therefor.
3.14. Interested Directors and Officers .
(a) No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the corporations directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or
(2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders.
(b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction.
Section 4. OFFICERS AND AGENTS
4.1. Enumeration; Qualification . The officers of the corporation shall be a president, a treasurer, a secretary and such other officers, if any, as the board of directors from time to time may in its discretion elect or appoint including without limitation a chairman of the board, one or more vice presidents, assistant treasurers, assistant secretaries and a controller and assistant controllers. The corporation may also have such agents, if any, as the board of directors from time to time may in its discretion choose. Any officer may be but none need be a director or stockholder. Any two or more offices may be held by the same person. Any officer may be required by the board of directors to secure the faithful performance of his duties to the corporation by giving bond in such amount and with sureties or otherwise as the board of directors may determine.
4.2. Powers . Subject to law, to the certificate of incorporation and to the other provisions of these by-laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such additional duties and powers as the board of directors may from time to time designate.
4.3. Election . The officers may be elected by the board of directors at their first meeting following the annual meeting of the stockholders or at any other time. At any time or from time to time the directors may delegate to any officer their power to elect or appoint any other officer or any agents.
4.4. Tenure . Each officer shall hold office until the first meeting of the board of directors following the next annual meeting of the stockholders and until his respective successor is chosen and qualified unless a shorter period shall have been specified by the terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes disqualified. Each agent shall retain his authority at the pleasure of the directors, or the officer by whom he was appointed or by the officer who then holds agent appointive power.
4.5. Chairman of the Board of Directors, President and Vice President . The chairman of the board, if any, shall have such duties and powers as shall be designated from time to time by the board of directors. Unless the board of directors otherwise specifies, the chairman of the board, or if there is none the chief executive officer, shall preside, or designate the person who shall preside, at all meetings of the stockholders and of the board of directors.
Unless the board of directors otherwise specifies, the president shall be the chief executive officer and shall have direct charge of all business operations of the corporation and, subject to the control of the directors, shall have general charge and supervision of the business of the corporation.
Any vice presidents shall have such duties and powers as shall be set forth in these by-laws or as shall be designated from time to time by the board of directors or by the president.
4.6. Treasurer and Assistant Treasurers . Unless the board of directors otherwise specifies, the treasurer shall be the chief financial officer of the corporation and shall be in charge of its funds and valuable papers, and shall have such other duties and powers as may be designated from time to time by the board of directors or by the president. If no controller is elected, the treasurer shall, unless the board of directors otherwise specifies, also have the duties and powers of the controller.
Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the treasurer.
4.7. Controller and Assistant Controllers . If a controller is elected, he shall, unless the board of directors otherwise specifies, be the chief accounting officer of the corporation and be in charge of its books of account and accounting records, and of its accounting procedures. He shall have such other duties and powers as may be designated from time to time by the board of directors, the president or the treasurer.
Any assistant controller shall have such duties and powers as shall be designated from time to time by the board of directors, the president, the treasurer or the controller.
4.8. Secretary and Assistant Secretaries . The secretary shall record all proceedings of the stockholders, of the board of directors and of committees of the board of directors in a book or series of books to be kept therefor and shall file therein all actions by written consent of stockholders or directors. In the absence of the secretary from any meeting, an assistant secretary, or if there be none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Unless a transfer agent has been appointed the secretary shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the number of shares registered in the name of each stockholder. He shall have such other duties and powers as may from time to time be designated by the board of directors or the president.
Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the secretary.
Section 5. RESIGNATIONS AND REMOVALS
5.1. Any director or officer may resign at any time by delivering his resignation in writing to the chairman of the board, if any, the president, or the secretary or to a meeting of the board of directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time, and without in either case the necessity of its being accepted unless
the resignation shall so state. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, a director (including persons elected by stockholders or directors to fill vacancies in the board) may be removed from office with or without cause by the vote of the holders of a majority of the issued and outstanding shares of the particular class or series entitled to vote in the election of such directors. The board of directors may at any time remove any officer either with or without cause. The board of directors may at any time terminate or modify the authority of any agent.
Section 6. VACANCIES
6.1. If the office of the president or the treasurer or the secretary becomes vacant, the directors may elect a successor by vote of a majority of the directors then in office. If the office of any other officer becomes vacant, any person or body empowered to elect or appoint that officer may choose a successor. Each such successor shall hold office for the unexpired term, and in the case of the president, the treasurer and the secretary until his successor is chosen and qualified or in each case until he sooner dies, resigns, is removed or becomes disqualified. Any vacancy of a directorship shall be filled as specified in Section 3.4 of these by-laws.
Section 7. CAPITAL STOCK
7.1. Stock Certificates . Each stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity to law, the certificate of incorporation and the by-laws, be prescribed from time to time by the board of directors. Such certificate shall be signed by the chairman or vice chairman of the board, if any, or the president or a vice president and by the treasurer or an assistant treasurer or by the secretary or an assistant secretary. Any of or all the signatures on the certificate may be a facsimile. In case an officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the time of its issue.
7.2. Loss of Certificates . In the case of the alleged theft, loss, destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms, including receipt of a bond sufficient to indemnify the corporation against any claim on account thereof, as the board of directors may prescribe.
Section 8. TRANSFER OF SHARES OF STOCK
8.1. Transfer on Books . Subject to the restrictions, if any, stated or noted on the stock certificate, 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 therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the board of directors or the transfer agent of the corporation 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 receive notice and to vote or to give any consent with respect thereto and to be held liable for such calls and assessments, if any, as may lawfully be made thereon, regardless of any transfer, pledge or other disposition of such stock until the shares have been properly transferred on the books of the corporation.
It shall be the duty of each stockholder to notify the corporation of his post office address.
8.2. Record Date . In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no such record date is fixed by the board of directors, the record date for determining the stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no such record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by the General Corporation Law of the State of Delaware, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware by hand or certified or registered mail, return receipt requested, to its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. If no record date has been fixed by the board of directors and prior action by the board of directors is required by the General Corporation Law of the State of Delaware, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action.
In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such payment, exercise or other action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto.
Section 9. CORPORATE SEAL
9.1. Subject to alteration by the directors, the seal of the corporation shall consist of a flat-faced circular die with the word Delaware and the name of the corporation cut or engraved thereon, together with such other words, dates or images as may be approved from time to time by the directors.
Section 10. EXECUTION OF PAPERS
10.1. Except as the board of directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts or other obligations made, accepted or endorsed by the corporation shall be signed by the chairman of the board, if any, the president, a vice president or the treasurer.
Section 11. NOTICES AND WAIVERS GENERALLY
11.1. Form of Notice . Whenever by law, the certificate of incorporation or these by-laws, notice is to be given to any director or stockholder, and no provision is made as to how such notice will be given, such notice shall be given, in writing, by mail, postage prepaid, addressed to such director or stockholder at such address as appears on the books of the corporation. Any notice required or permitted to be given by mail shall be deemed to be given at the time the same is deposited in the United States mails. Notice to stockholders may be given by a form of electronic transmission if consented to by the stockholders to whom notice is given.
Notice to directors may be given by telecopier, electronic mail or other means of electronic transmission.
11.2. Waivers . Whenever any notice is required to be given to any stockholder or director as required by law, the certificate of incorporation or these by-law, a waiver thereof in writing signed by the person or persons entitled to such notice or a waiver of notice by electronic transmission, whether before or after the time stated in such notice, shall be equivalent to the giving of such notice. Attendance of a stockholder or director at a meeting shall constitute a waiver of notice of such meeting, except where such stockholder or director attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened.
Section 12. FISCAL YEAR
12.1. The fiscal year of the corporation shall end on the 31 st of December in each year.
Section 13. AMENDMENTS
13.1. These by-laws may be adopted, amended or repealed by vote of a majority of the directors then in office or by vote of a majority of the voting power of the stock outstanding and entitled to vote. Any by-law, whether adopted, amended or repealed by the stockholders or directors, may be amended or reinstated by the stockholders or the directors.
Section 14. INDEMNIFICATION
14.1. Power to Indemnify in Actions. Suits or Proceedings other than Those by or in the Right of the Corporation . Subject to Section 3 of this Section 14, the Corporation shall indemnify any person who was or is a party or is 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 such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving by judgment, order, settlement, conviction or upon a plea of nolo contendere equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person 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 such persons conduct was unlawful.
14.2. Power to Indemnify in Actions. Suits or Proceedings by or in the Right of the Corporation . Subject to sub-Section 3 of this Section 14, the Corporation shall indemnify any person who was or is it party or is 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 such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of 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 the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
14.3. Authorization of Indemnification . Any indemnification under this Section 14 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in sub-Section 1 or sub-Section 2 of this Section 14, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders. Such determination shall be made, with respect to former directors and officers by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.
14.4. Good Faith Defined . For purposes of any determination under sub-Section 3 of this Section 14, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such persons conduct was unlawful, if such persons action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term another enterprise as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 14 shall not be deemed to be exclusive or to limit in anyway the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in sub-Section 1 or sub-Section 2 of this Section 14, as the case may be.
14.5. Indemnification by a Court . Notwithstanding any contrary determination in the specific case under sub-Section 3 of this Section 14, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery in the State of Delaware for indemnification to the extent otherwise permissible under sub-Section 1 and sub-Section 2 of this Section 14. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in sub-Section 1 or sub-Section 2 of this Section 14, as the case may be. Neither a contrary determination in the specific case under sub-Section 3 of this Section 14 nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this sub-Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking Indemnification shall also be entitled to be paid the expense of prosecuting such application.
14.6. Expenses Payable in Advance . Expenses incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Section 14.
14.7. Nonexclusivity of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by or granted pursuant to this Section 14
shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation, any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such persons official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in sub-Section 1 and sub-Section 2 of this Section 14 shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in sub-Section 1 or sub-Section 2 of this Section 14 but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise.
14.8. Insurance . The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such persons status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provision of this Section 14.
14.9. Certain Definition . For purposes of this Section 14, references to the Corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Section 14 with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Section 14, references to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to serving at the request of the 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 or officer 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 interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the Corporation as referred to in this Section 14.
14.10. Survival of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 14 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.
14.11. Limitation on Indemnification . Notwithstanding anything contained in this Section 14 to the contrary, except for proceedings to enforce rights to indemnification (which, shall be governed by sub-Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.
14.12. Indemnification of Employees and Agents . The Corporation may, to the extent authorized from time to time by the board of directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Section 14 to directors and officers of the Corporation.
Section 15. LIMITATIONS ON CORPORATE OPPORTUNITIES
15.1. To the maximum extent permitted from time to time under the law of the General Corporation Law of the State of Delaware, the Corporation renounces any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, business opportunities that are from time to time presented to its directors or stockholders, other than those directors or stockholders who are employees of the Corporation. No amendment or repeal of this Section 15 shall apply to or have any effect on the liability or alleged liability of any officer, director or stockholder of the Corporation for or with respect to any opportunities of which such officer, director, or stockholder becomes aware prior to such amendment or repeal.
Exhibit 10.1
Execution Copy
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Third Amended and Restated Registration Rights Agreement (this Agreement ) is entered into as of June 1, 2009 by and among Concert Pharmaceuticals, Inc., a Delaware corporation (the Corporation ), and the persons and entities listed on signature pages hereto (the Investors ) and amends and restates the Second Amended and Restated Registration Rights Agreement (the Original Agreement ) dated as of April 25, 2008 by and among the Corporation and the persons and entities listed on the signature pages thereto (the Prior Investors ).
WHEREAS, the Corporation has entered into that certain Series D Convertible Preferred Stock Purchase Agreement (the Series D Purchase Agreement ) with one of the Investors (the Purchasing Investor ), pursuant to which, on the date hereof, the Corporation is issuing Series D Convertible Preferred Stock, par value $0.001 per share (the Series D Preferred Stock ), to the Purchasing Investor.
WHEREAS, the Purchasing Investor has required, as a condition to the purchase of the Series D Preferred Stock pursuant to the Series D Purchase Agreement and consistent with Section 6.7 thereof, that it be granted registration rights with respect to the shares of Common Stock issuable upon conversion of the shares of Series D Preferred Stock as set forth herein.
WHEREAS, the Corporation and the Prior Investors are parties to the Original Agreement pursuant to which the Corporation granted to the Prior Investors certain registration rights as set forth in the Original Agreement.
WHEREAS, the Corporation and the Prior Investors desire to amend and restate the Original Agreement on the terms set forth herein in order to grant to the Purchasing Investor the registration rights set forth herein, and the Prior Investors accept the rights created pursuant hereto in lieu of the rights granted to them under the Original Agreement.
WHEREAS, in accordance with Section 20(b) of the Original Agreement, this Agreement has been executed by the Corporation and the Holders (as defined in the Original Agreement) of at least 60% in voting power of the Series B Convertible Preferred Stock, par value $0.001 per share (the Series B Preferred Stock ), of the Corporation and the Series C Convertible Preferred Stock, par value $0.001 per share (the Series C Preferred Stock ), of the Corporation, voting together as a single class as if converted to shares of the Corporations Common Stock, par value $0.001 per share (the Common Stock ).
NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth, the parties hereby agree as follows:
SECTION 1. Definitions . As used in this Agreement, the following terms shall have the following meanings:
(a) The term 1934 Act means the Securities Exchange Act of 1934, as amended.
(b) The Affiliate of any Holder (or any transferee of any Holder) means any general or limited partner of any Holder (or transferee) that is a partnership, any member of any
Holder that is a limited liability company or any person or entity that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Holder or transferee, including, without limitation, any venture capital fund now or hereafter existing of which the Holder or transferee is a partner or member which is controlled by or under common control with one or more general partners of such Holder or transferee or shares the same management company with such Holder or transferee.
(c) The term Holder means any holder of Registrable Shares.
(d) The term Preferred Stock shall mean the Corporations Series A Convertible Preferred Stock, par value $0.001 per share, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock.
(e) The terms register , registered , and registration refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering of effectiveness of such registration statement.
(f) The term Registrable Shares means (1) the Common Stock issuable upon conversion of the Preferred Stock, (2) any Common Stock purchased by an Investor (or its permitted transferees) pursuant to Section 3 of the Third Amended and Restated Investor Rights Agreement of even date herewith by and among the Corporation and the Investors (or Common Stock issuable with respect to other securities so purchased), and (3) any Common Stock issued as a dividend or other distribution with respect to, or in exchange or in replacement of, such Preferred Stock or Common Stock, provided that any Registrable Shares shall cease to be Registrable Shares if transferred by an Investor other than in compliance with the provisions of Section 15 hereof.
(g) The term Rule 144 means Rule 144 promulgated under the Securities Act.
(h) The term SEC means the Securities and Exchange Commission.
(i) The term Securities Act means the Securities Act of 1933, as amended.
In addition, for purposes of all calculations and notices under this Agreement, and all other provisions of this Agreement where the context permits, a holder of Preferred Stock shall be deemed the Holder of the Registrable Shares issuable upon conversion thereof, and such Preferred Stock shall be deemed outstanding Registrable Shares hereunder. Notwithstanding the foregoing, nothing in this Agreement shall require the Corporation actually to register any shares of Preferred Stock.
SECTION 2. Request for Registration . If at any time after the earlier to occur of (i) the fourth anniversary of the date of the Original Agreement and (ii) the date six months after the closing of the first public offering of the Corporations securities, the Corporation shall receive a written request (specifying that it is being made pursuant to this Section 2) from one or more Holders that hold, in the aggregate, at least one-third of the then outstanding Registrable Shares, that the Corporation file a registration statement under the Securities Act, or a similar document pursuant to any other statute then in effect corresponding to the Securities Act, covering the
2
registration of at least the lesser of (a) at least one-third of the then outstanding Registrable Shares or (b) Registrable Shares the expected price to the public of which equals or exceeds $5,000,000 (based on the market price or fair value on the date of such request), then the Corporation shall promptly notify all other Holders of such request and shall use its best efforts to cause all Registrable Shares that Holders have requested be registered to be registered under the Securities Act on Form S-1 or any other available form the use of which is approved by the Holders of a majority of the Registrable Shares that are to be included in such registration.
Notwithstanding the foregoing, (i) the Corporation shall not be obligated to effect a registration pursuant to this Section 2 during the period starting with the date sixty (60) days prior to the Corporations estimated date of filing of, and ending on a date six (6) months following the effective date of, a registration statement pertaining to an underwritten public offering of securities for the account of the Corporation, provided that the Corporation is actively employing in good faith its best efforts to cause such registration statement to become effective and that the Corporations estimate of the date of filing such registration statement is made in good faith; (ii) the Corporation shall not be obligated to effect more than two registrations pursuant to this Section 2; and (iii) if the Corporation shall furnish to the Holders a certificate signed by the President of the Corporation stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Corporation or its stockholders for a registration statement to be filed in the near future, then the Corporations obligation to use its best efforts to file a registration statement shall be deferred for a period not to exceed ninety (90) days; provided , however , that the Corporation shall not be permitted to so defer its obligation more than once in any 12-month period.
SECTION 3. Corporation Registration . If at any time the Corporation proposes to register any of its Common Stock under the Securities Act in connection with the public offering of such securities for its own account or for the accounts of stockholders other than Holders, solely for cash on a form that would also permit the registration of the Registrable Shares, the Corporation shall, each such time, promptly give each Holder written notice of such determination. Upon the written request of any Holder given within thirty (30) days after giving of any such notice by the Corporation, the Corporation shall, subject to the limitations set forth in Section 8, use its best efforts to cause to be registered under the Securities Act all of the Registrable Shares that each such Holder has requested be registered; provided , that the Corporation shall have the right to postpone or withdraw any registration statement relating to an offering in which the Holders are eligible to participate under this Section 3 without any liability or obligation to the Holders under this Section 3.
SECTION 4. Obligations of the Corporation . Whenever required under Section 2, Section 3 or Section 11 to use its best efforts to effect the registration of any Registrable Shares, the Corporation shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to such Registrable Shares and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Shares registered thereunder, keep such registration statement effective for a period of up to one hundred eighty (180) days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided , however , that (i) such 180-day period shall be extended for a period of time
3
equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Corporation; and (ii) in the case of any registration of Registrable Shares on Form S-3 which are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such 180-day period shall be extended for up to ninety (90) days, if necessary, to keep the registration statement effective until all such Registrable Shares are sold.
(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement.
(c) Furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of such Registrable Shares owned by them.
(d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the distribution of the securities covered by the registration statement, provided that the Corporation shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, and further provided that (anything in this Agreement to the contrary notwithstanding with respect to the bearing of expenses) if any jurisdiction in which the securities shall be qualified shall require that expenses incurred in connection with the qualification of the securities in that jurisdiction be borne by selling stockholders, then such expenses shall be payable by selling stockholders pro rata, to the extent required by such jurisdiction.
(e) Provide a transfer agent for the Common Stock no later than the effective date of the first registration of any Registrable Shares.
(f) Otherwise use its best efforts to comply with all applicable rules and regulations of the SEC.
(g) Use its best efforts to cause all such Registrable Shares to be listed on a national securities exchange (if such securities are not already so listed) and on each additional national securities exchange on which similar securities issued by the Corporation are then listed, if the listing of such securities is then permitted under the rules of such exchange.
(h) Enter into such customary agreements (including an underwriting agreement in customary form) and take such other actions as the selling Holders of Registrable Shares shall reasonably request in order to expedite or facilitate the disposition of such Registrable Shares.
(i) Make available for inspection by any selling Holder of Registrable Shares, by any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by any such selling Holder or
4
any such underwriter, all pertinent financial and other records and pertinent corporate documents and properties of the Corporation, and cause all of the Corporations officers, directors and employees to supply all information reasonably requested by any such selling Holder, underwriter, attorney, accountant or agent in connection with such registration statement.
(j) Use reasonable efforts to prevent the issuance of any stop order suspending the effectiveness of such registration statement or of any order preventing or suspending the use of any preliminary prospectus and, if any such order is issued, to obtain the lifting thereof at the earliest reasonable time.
(k) Make such representations and warranties to the selling Holders of Registrable Shares and the underwriters as are customarily made by issuers to selling stockholders and underwriters, as the case may be, in primary underwritten public offerings.
SECTION 5. Furnish Information . It shall be a condition precedent to the obligations of the Corporation to take any action pursuant to this Agreement with respect to the registration of any Holders Registrable Shares that such Holder shall take such actions and furnish to the Corporation such information regarding itself, the Registrable Shares held by it, and the intended method of disposition of such securities, as the Corporation shall reasonably request and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement, including, without limitation (i) in connection with an underwritten offering, enter into an appropriate underwriting agreement containing terms and provisions then customary in agreements of that nature, (ii) enter into such custody agreements, powers of attorney and related documents at such time and on such terms and conditions as may then be customarily required in connection with such offering and (iii) distribute the Registrable Shares only in accordance with and in the manner of the distribution contemplated by the applicable registration statement and prospectus. In addition, the Holders shall promptly notify the Corporation of any request by the SEC or any state securities commission or agency for additional information or for such registration statement or prospectus to be amended or supplemented.
SECTION 6. Expenses of Demand Registration . All expenses incurred in connection with any registration pursuant to Section 2 or Section 11 (excluding underwriters discounts and commissions), including, without limitation, all registration and qualification fees, printers and accounting fees, fees and disbursements of counsel for the Corporation, and the reasonable fees and disbursements of one special counsel for the selling Holders collectively, shall be borne by the Corporation whether or not the registration statement to which such registration expenses relate becomes effective; provided , however , that the Corporation shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Shares to be registered (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Shares that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Shares agree to forfeit their right to one demand registration pursuant to Section 2; provided further , however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Corporation from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 2.
5
SECTION 7. Corporation Registration Expenses . All expenses (excluding underwriters discounts and commissions) incurred in connection with any registration pursuant to Section 3, including, without limitation, any additional registration and qualification fees and any additional fees and disbursements of counsel to the Corporation that result from the inclusion of securities held by the selling Holders in such registration and the reasonable fees and disbursements of one special counsel for the selling Holders collectively, shall be borne by the Corporation whether or not the registration statement to which such registration expenses relate becomes effective.
SECTION 8. Underwriting Requirements .
(a) In connection with any offering under Section 3 involving an underwriting of shares being issued by the Corporation, the Corporation shall not be required to include any Holders Registrable Shares in such underwriting unless such Holder accepts the terms of the underwriting as agreed upon between the Corporation and the underwriters selected by it, and then only in such quantity as will not, in the reasonable opinion of the underwriters, jeopardize the success of the offering by the Corporation. If the total amount of securities that all Holders request to be included in an underwritten offering under Section 3 exceeds the amount of securities that the underwriters reasonably believe compatible with the success of the offering, the Corporation may exclude some or all of the Registrable Shares from such registration and underwriting, provided , however , that the number of Registrable Shares of the Holders to be included in such underwriting and registration shall not be reduced unless all other securities (excluding those of the Corporation) are first entirely excluded from the underwriting and registration. If there is a reduction of the number of Registrable Shares pursuant to this Section 8(a), such reduction shall be made pro rata based upon the aggregate number of Registrable Shares required to be registered by such Holders.
(b) With respect to any underwriting of shares to be registered under Section 2 or Section 11, the selling Holders who initiate the request for registration shall have the right to designate the managing underwriter or underwriters, subject to the consent of the Corporation which shall not be unreasonably withheld or delayed. In connection with any underwritings of shares to be registered under Section 3, the Corporation shall have the right to designate the managing underwriter or underwriters.
SECTION 9. Delay of Registration . No Holder shall have any right to take any action to restrain, enjoin, or otherwise delay any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Agreement.
SECTION 10. Indemnification . In the event any Registrable Shares are included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Corporation will indemnify and hold harmless each Holder requesting or joining in a registration, the partners, members, officers, directors and stockholders of such Holder, legal counsel and accountants for such Holder, any
6
underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the 1934 Act, against any losses, claims, damages or liabilities, joint or several, to which they may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based on (i) any untrue or alleged untrue statement of any material fact contained in such registration statement, including, without limitation, any prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading or (iii) any violation by the Corporation of any rule or regulation promulgated under the Securities Act applicable to the Corporation and relating to action or inaction required of the Corporation in connection with any such registration; and will promptly reimburse each such Holder, underwriter, controlling person or other aforementioned person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action, provided , however , that the indemnity agreement contained in this Section 10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Corporation (which consent shall not be unreasonably withheld or delayed) nor shall the Corporation be liable to any such Holder, underwriter, controlling person or other aforementioned person in any such case for any such loss, claim, damage, liability or action to the extent that it (i) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in connection with such registration statement, preliminary prospectus, final prospectus, or amendments or supplements thereto, in reliance upon and in conformity with written information furnished to the Corporation expressly for use in connection with such registration by or on behalf of such Holder, underwriter, controlling person or other aforementioned person, (ii) is caused by the failure of such Holder to deliver a copy of the final prospectus relating to such Registrable Shares, as then amended or supplemented, in connection with a purchase, if the Corporation had previously furnished copies thereof to such Holder or (iii) is caused by such Holders disposition of Registrable Shares during any period during which such Holder is obligated to discontinue any disposition of Registrable Shares under Section 19.
(b) To the extent permitted by law, each Holder requesting or joining in a registration, severally and not jointly, will indemnify and hold harmless the Corporation, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Corporation within the meaning of the Securities Act, and any underwriter (within the meaning of the Securities Act) for the Corporation against any losses, claims, damages or liabilities to which the Corporation or any such director, officer, controlling person or underwriter may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in such registration statement, including any prospectus or final prospectus contained therein or any amendments or supplements thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information relating to and furnished to the Corporation by such Holder expressly for use in connection with such registration; and will promptly reimburse the Corporation or any such
7
director, officer, controlling person or underwriter for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided , however , that the indemnity agreement contained in this Section 10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld or delayed) and provided further that no Holder shall have any liability under this Section 10(b) in excess of the net proceeds actually received by such Holder in the relevant public offering.
(c) Promptly after receipt by an indemnified party under this Section 10 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 10, notify the indemnifying party in writing of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties. The failure to notify an indemnifying party promptly of the commencement of any such action, if prejudicial to his ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 10 to the extent the indemnifying party is prejudiced by a delay of such notification, but the omission so to notify the indemnifying party will not relieve him of any liability that he may have to any indemnified party otherwise than under this Section 10.
(d) If the indemnification provided for in this Section 10 is required by its terms but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party under Section 10(a) or Section 10(b) in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to herein in such proportion as is appropriate to reflect the relative fault of the Corporation and the selling Holders in connection with the statements or omissions described in such Section 10(a) or Section 10(b) which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of the Corporation and the selling Holders 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 Corporation or the selling Holders and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in this Section 10, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in Section 10(c) with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this Section 10(d); provided , however , that no additional notice shall be required with respect to any action for which notice has been given under subsection Section 10(c) for purposes of indemnification. The Corporation and the selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 10 were determined solely by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding the provisions of this Section 10(d),
8
no Holder shall be required to contribute an amount in excess of the net proceeds actually received by such Holder in the relevant public offering. 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.
(e) The rights and obligations of the Corporation and the Holders under this Section 10 shall survive termination of this Agreement.
SECTION 11. Registrations on Form S-3 .
(a) If (i) the Corporation shall receive a written request (specifying that it is being made pursuant to this Section 11) from one or more Holders that the Corporation file a registration statement on Form S-3 (or any successor form to Form S-3 regardless of its designation) for a public offering of Registrable Shares the reasonably anticipated aggregate price to the public of which would equal or exceed $ 1,000,000, and (ii) the Corporation is a registrant entitled to use Form S-3 (or any successor form to Form S-3) to register such shares, then the Corporation shall promptly notify all other Holders of such request and shall use its best efforts to cause all Registrable Shares that Holders have requested be registered to be registered on Form S-3 (or any successor form to Form S-3).
(b) Notwithstanding the foregoing, (i) the Corporation shall not be obligated to effect a registration pursuant to this Section 11 during the period starting with the date sixty (60) days prior to the Corporations estimated date of filing of, and ending on a date six (6) months following the effective date of, a registration statement pertaining to an underwritten public offering of securities for the account of the Corporation, provided that the Corporation is actively employing in good faith its best efforts to cause such registration statement to become effective and that the Corporations estimate of the date of filing such registration statement is made in good faith; (ii) the Corporation shall not be obligated to effect more than four registrations pursuant to this Section 11; and (iii) if the Corporation shall furnish to the Holders a certificate signed by the President of the Corporation stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Corporation or its stockholders for a registration statement to be filed in the near future, then the Corporations obligation to use its best efforts to file a registration statement shall be deferred for a period not to exceed ninety (90) days; provided , however , that the Corporation shall not be permitted to so defer its obligation more than once in any 12-month period.
(c) The Holders rights to registration under this Section 11 are in addition to, and not in lieu of, their rights to registration under Section 2 and Section 3 of this Agreement.
SECTION 12. Limitation on Corporation Offerings . The Corporation shall not register securities for sale for its own account (or, except as permitted by Section 14, any securities other than Registrable Shares) in any registration requested pursuant to Section 2 or Section 11 unless permitted to do so by the written consent of the Holders of a majority of the Registrable Shares as to which registration has been requested unless the inclusion of securities for the account of the Corporation would not require a reduction in the number of Registrable Shares to be included in such registration, as determined by the managing underwriter.
9
SECTION 13. Reports Under Securities Exchange Act of 1934 . With a view to making available to the Holders the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Corporation to the public without registration, the Corporation agrees to use its best efforts to:
(a) make and keep public information available, as those terms are understood and used in Rule 144, at all times subsequent to ninety (90) days after the effective date of the first registration statement covering an underwritten public offering filed by the Corporation;
(b) file with the SEC in a timely manner all reports and other documents, if any, required of the Corporation under the Securities Act and the 1934 Act; and
(c) furnish to any Holder forthwith upon request (at any time after ninety (90) days after the effective date of said first registration statement filed by the Corporation) a written statement by the Corporation that it has complied with the reporting requirements of the 1934 Act for the 12 months preceding the date of such request, a copy of the most recent publicly filed annual or quarterly report of the Corporation, and such other reports and documents so filed by the Corporation as may be reasonably requested in availing any such Holder to take advantage of any rule or regulation of the SEC permitting the selling of any such securities without registration.
SECTION 14. Limitations in Connection with Future Grants of Registration Rights . Without the prior written consent of the Holders of at least 60% in voting power of then outstanding Registrable Shares held by Investors, the Corporation shall not grant rights to any person or entity: (a) to cause the Corporation to register any of such persons or entitys securities of the Corporation; (b) to include such persons or entitys securities of the Corporation in any registration statement filed under Section 2 or Section 11 hereof; (c) to include such persons or entitys securities of the Corporation in any registration statement described in Section 3 hereof, unless, in the case of each of (a), (b) and (c), under the terms of such agreement, such person or entity may include such securities in any such registration only to the extent that the inclusion of his or its securities will not reduce the amount of Registrable Shares of the Holders which is included in such registration; or (d) otherwise to cause the registration of such persons or entitys securities of the Corporation in any manner which are superior to or pari passu with the registration rights granted herein to the Holders.
SECTION 15. Transfer of Registration Rights . The registration rights and obligations of any Holder (and of any transferee of any Holder, or its transferees, of the rights under this Agreement in accordance with this Section 15) under this Agreement with respect to any Registrable Shares may be transferred to any transferee who acquires (otherwise than in a registered public offering) at least five percent (5%) of the Registrable Shares then held by such Holder; provided , however , that the transfer of registration rights to any Affiliate of any Holder will not be subject to such requirement as to minimum shareholding; provided , further , that (a) such rights and obligations may not be transferred to any entity whose primary line of business is directly competitive with the primary line of business of the Corporation, as determined in good faith by the Board of Directors, (b) the Corporation shall be given written notice by the Holder at the time of any permitted transfer stating the name and address of the transferee and identifying the securities with respect to which the rights and obligations under this Agreement are being assigned and (c) the transferee shall execute an agreement to be bound by the terms of this Agreement.
10
SECTION 16. Termination of Registration Rights . All of the Corporations obligations to register Registrable Shares under Sections 2, 3 and 11 hereof shall terminate upon the earliest of (a) five years after the closing of the Initial Public Offering, (b) the date on which no Purchaser holds any Registrable Shares or (c) a Company Sale (as defined below).
SECTION 17. Mergers, Etc . The Corporation shall not, directly or indirectly, enter into any merger, consolidation or reorganization in which the Corporation shall not be the surviving corporation unless the proposed surviving corporation shall, prior to such merger, consolidation or reorganization, agree in writing to assume the obligations of the Corporation under this Agreement, and for that purpose references hereunder to Registrable Shares shall be deemed to be references to the securities which the Holders would be entitled to receive in exchange for Registrable Shares under any such merger, consolidation or reorganization; provided , however , that the provisions of this Agreement shall not apply in the event of any merger, consolidation or reorganization in which the Corporation is not the surviving corporation if the Holders of Registrable Shares are entitled to receive in exchange therefor (i) cash, or (ii) securities of the acquiring corporation which may be immediately sold to the public without registration under the Securities Act (a Company Sale).
SECTION 18. Stand-Off Agreement . In connection with the initial public offering of the Corporations securities pursuant to a registration statement under the Securities Act, each Holder, if requested by the Corporation and the managing underwriter of such offering by the Corporation, shall agree, by executing and delivering such form of agreement as the Corporation and such underwriter shall reasonably request, not to sell publicly or otherwise transfer or dispose of any Registrable Shares or other securities of the Corporation held by such Holder prior to the effective date of such registration statement for a specified period of time immediately following the effective date of such registration statement, such period of time not to exceed one hundred eighty (180) days; provided that:
(a) such one-hundred eighty (180) day period may be extended on one occasion by the managing underwriter to the extent necessary to prevent the managing underwriter(s) from violating Section 2711(f)(4) of the rules of the National Association of Securities Dealers, Inc., as incorporated into the rules of the Financial Industry Regulatory Authority, or any similar successor provision (e.g., as the result of the publication or other distribution of a research report or public appearance concerning the Company);
(b) such agreement shall not apply to resales of the Corporations securities purchased by a Holder in a public market, and
(c) all persons who hold shares of Common Stock, or securities convertible into or exchangeable or exercisable for shares of Common Stock, which in aggregate represent one percent (1%) or more of the shares of Common Stock then outstanding (including all securities convertible into or exchangeable or exercisable for shares of Common Stock, on an as converted, exchanged or exercised basis), and all officers and directors of the Corporation, enter into similar agreements.
11
Notwithstanding the foregoing, any discretionary waiver by an underwriter of a lock-up agreement shall not be effective unless such underwriter also releases all other stockholders of the Corporation from the equivalent provisions and a pro rata portion of their respective lock-up agreements.
SECTION 19. Future Events . The Corporation will notify each Holder participating in a registration of the occurrence of any of the following events of which the Corporation is actually aware, and when so notified, each Holder will immediately discontinue any disposition of Registrable Shares until notified by the Corporation that such event is no longer applicable:
(a) the issuance by the SEC or any state securities commission or agency of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose (in which case the Corporation will make reasonable efforts to obtain the withdrawal of any such order or the cessation of any such proceedings); or
(b) the existence of any fact which makes untrue any material statement made in the registration statement or prospectus or any document incorporated therein by reference or which requires the making of any changes in the registration statement or prospectus or any document incorporated therein by reference in order to make the statements therein not misleading (in which case the Corporation will make reasonable efforts to amend the applicable document to correct the deficiency).
SECTION 20. Notices . All notices, requests, consents and other communications hereunder ( Notices ) to any party shall be contained in a written instrument addressed to such party at the address set forth below or such other address as may hereafter be designated in writing by the addressee to the addressor listing all parties and shall be deemed given (a) when delivered in person or duly sent by fax showing confirmation of receipt, (b) three days after being duly sent by first class mail postage prepaid (other than in the case of Notices to or from any non-U.S. resident, which Notices must be sent in the manner specified in clause (a) or (c)), or (c) two days after being duly sent by recognized express international courier service:
if to the Corporation, to:
Concert Pharmaceuticals, Inc.
99 Hayden Avenue, Suite 500
Lexington, MA 02421
Fax: (781) 860-8923
with a copy to:
David E. Redlick
Lia Der Marderosian
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, MA 02109
Fax: (617) 526-5000
12
if to the Investors, to their respective addresses set forth on signature pages to this Agreement, with a copy to:
H. David Henken
Goodwin Proctor LLP
Exchange Place
53 State Street
Boston, MA 02109
Fax: (617) 523-1231
SECTION 21. Miscellaneous .
(a) This Agreement states the entire agreement of the parties concerning the subject matter hereof, and supersedes all prior agreements, written or oral, between or among them concerning such subject matter. Upon the effectiveness of this Agreement, the Original Agreement shall be deemed amended and restated and superseded and replaced in its entirety by this Agreement, and shall be of no further force or effect.
(b) This Agreement may be amended, and compliance with any provision of this Agreement may be omitted or waived, only by the written agreement of the Corporation and the Holders of at least sixty percent (60%) of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Common Stock issued upon conversion of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock (voting together as a single class on an as converted to Common Stock basis) then in voting power; provided however that no amendment or waiver may treat one Investor or group of Investors more adversely than any other Investor or group of Investors without the consent of such Investor or the consent of the Holders of a majority in voting power of the then outstanding Registrable Shares held by the Investor or group of Investors adversely affected by such amendment or waiver.
(c) This Agreement shall be governed by, and construed and enforced in accordance with, the substantive laws of the Commonwealth of Massachusetts, without regard to its principles of conflicts of laws.
(d) This Agreement may be executed in any number of counterparts, each such counterpart shall be deemed to be an original instrument, and all such counterparts together shall constitute but one agreement. Any such counterpart may contain one or more signature pages. This Agreement may be executed by facsimile signature pages.
SECTION 22. Aggregation of Stock . All shares of Preferred Stock and Common Stock of the Corporation held or acquired by Affiliates of a Holder shall be aggregated for the purpose of determining the availability of any rights under this Agreement.
[ Signature Pages Follow ]
13
IN WITNESS WHEREOF, the parties have executed this Third Amended and Restated Registration Rights Agreement as a contract under seal as of the date first written above.
THE CORPORATION:
CONCERT PHARMACEUTICALS, INC. | ||
By: | /s/ Roger D. Tung | |
|
||
Name: | Roger D. Tung | |
Title: | Chief Executive Officer |
[ Company Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this 1 st day of June, 2009.
THE PURCHASING INVESTOR:
GLAXO GROUP LIMITED | ||||
By: | /s/ Paul Williamson | |||
|
||||
Name: | ||||
Title: |
Paul Williamson For and on behalf of Edinburgh Pharmaceutical Industries Limited Corporate Director |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this day of , 2009.
THE INVESTOR:
FIDELITY MT. VERNON STREET TRUST: FIDELITY GROWTH COMPANY FUND | ||
By: |
|
|
Name: | ||
Title: |
To such Investor at: | ||||||||
Address: | 82 Devonshire Street, V13H | |||||||
Boston, MA 02109 | ||||||||
Attn: | Andrew J. Boyd, | |||||||
Associate General Counsel | ||||||||
Fax: | (617) 392-1605 |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this day of , 2009.
THE INVESTORS:
WESTFIELD LIFE SCIENCES FUND LP | ||||
By: |
|
|||
Name: | William A. Muggia | |||
Title: | Director | |||
WESTFIELD LIFE SCIENCES FUND II LP | ||||
By: |
|
|||
Name: | William A. Muggia | |||
Title: | Director |
To each such Investor at: | ||||||||
Address: |
Westfield Capital Management One Financial Center, 24th Floor |
|||||||
Boston, MA 02111 | ||||||||
Attn: | Eric D. Changelian, | |||||||
Manager of Fund Operations | ||||||||
Fax: | (617) 867-2801 |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this 1 st day of June, 2009.
THE INVESTOR:
ADAGE CAPITAL PARTNERS, L.P. | ||||
By: | /s/ Dan Lehan | |||
|
||||
Name: | Dan Lehan | |||
Title: | Chief Operating Officer |
To such Investor at: | ||||||
Address: | 200 Clarendon St., 52 nd Floor | |||||
Boston, MA 02116 | ||||||
Fax: | (617) 867-2801 |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein, (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this 1 st day of June, 2009.
THE INVESTORS:
MEDIPHASE VENTURE PARTNERS II LIMITED PARTNERSHIP |
MEDIPHASE VENTURE PARTNERS (DP & UP) LIMITED PARTNERSHIP |
|||||||||||
By: | Mediphase II LLC | By: | Mediphase (DP&UP) LLC | |||||||||
Its: | General Partner | Its: | General Partner | |||||||||
By: | /s/ Paul A. Howard | By: | /s/ Paul A. Howard | |||||||||
|
|
|||||||||||
Name: | Paul A. Howard | Name: | Paul A. Howard | |||||||||
Title: | Manager | Title: | Manager |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this 1 st day of June, 2009.
THE INVESTOR:
S.R. ONE, LIMITED | ||||
By: | /s/ Carol G. Ashe | |||
|
||||
Name: | Carol G. Ashe | |||
Title: | Partner/Vice President |
To such Investor at: | ||||||||
Address: |
161 Washington Street Suite 500 Eight Tower Bridge |
|||||||
Conshohocken, PA 19428 | ||||||||
Attn: | Rajeev Dadoo, Ph.D. | |||||||
Fax: | (610) 567-1039 |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this 1 st day of June, 2009.
THE INVESTORS:
THREE ARCH PARTNERS IV, L.P. | THREE ARCH PARTNERS III, L.P. | |||||||||||
By: | Three Arch Management IV, L.L.C. | By: | Three Arch Management III, L.L.C. | |||||||||
Its: | General Partner | Its: | General Partner | |||||||||
By: | /s/ Wilfred Jaeger | By: | /s/ Wilfred Jaeger | |||||||||
|
|
|||||||||||
Name: | Wilfred Jaeger | Name: | Wilfred Jaeger | |||||||||
Title: | Managing Member | Title: | Managing Member |
THREE ARCH ASSOCIATES IV, L.P. | THREE ARCH ASSOCIATES III, L.P. | |||||||||||
By: | Three Arch Management IV, L.L.C. | By: | Three Arch Management III, L.L.C. | |||||||||
Its: | General Partner | Its: | General Partner | |||||||||
By: | /s/ Wilfred Jaeger | By: | /s/ Wilfred Jaeger | |||||||||
|
|
|||||||||||
Name: | Wilfred Jaeger | Name: | Wilfred Jaeger | |||||||||
Title: | Managing Member | Title: | Managing Member |
To each such Investor at: | ||||||||||||||||
Address: |
3200 Alpine Road Portola Valley, CA 94028 |
|||||||||||||||
Attn: | Steve Bonelli, | |||||||||||||||
Chief Financial Officer | ||||||||||||||||
Fax: | (650) 529-8039 |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this day of , 2009.
THE INVESTORS:
To each such Investor at: | ||||||||
Address: | 880 Winter Street | |||||||
Waltham, MA 02451 | ||||||||
Attn: | Donald A. Sullivan, | |||||||
Treasurer | ||||||||
Fax: | (781) 622-2326 |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this 1 st day of June, 2009.
THE INVESTORS:
TVM LIFE SCIENCE VENTURES VI GMBH & CO. KG | ||||
/s/ Jens Eckstein | ||||
|
||||
By: | Jens Eckstein | |||
Its: | Managing Limited Partner | |||
/s/ David Poltack | ||||
|
||||
By: | David Poltack | |||
Its: | Managing Limited Partner | |||
TVM LIFE SCIENCE VENTURES VI LP | ||||
By: TVM Life Science Ventures VI Cayman Ltd., Its General Partner |
||||
/s/ Jens Eckstein | ||||
|
||||
By: | Jens Eckstein | |||
Its: | Authorized Officer | |||
/s/ David Poltack | ||||
|
||||
By: | David Poltack | |||
Its: | Authorized Officer |
To each such Investor at: | ||||||||
Address: | 101 Arch Street, Suite 1950 | |||||||
Boston, MA 02110 | ||||||||
Attn: | David Poltack | |||||||
Fax: | (617) 345-9377 |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this 1 st day of June, 2009.
THE INVESTOR:
SKYLINE VENTURE PARTNERS | ||||
QUALIFIED PURCHASER FUND IV, L.P. | ||||
By: | Skyline Venture Management IV, LLC | |||
Its: | General Partner | |||
By: | /s/ John Freund | |||
|
||||
Name: | John Freund | |||
Title: | Managing Director |
To such Investor at: | ||||||||
Address: | c/o Skyline Ventures | |||||||
525 University Avenue Suite 520 Palo Alto, CA 94301 |
||||||||
Attn: | Kerry Kenny | |||||||
Fax: | (650) 329-1090 |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this 1 st day of June, 2009.
THE INVESTOR:
QVT FUND LP | ||||
By: | QVT Associates GP LLC | |||
Its: | General Partner | |||
By: | /s/ Tracy Fu | |||
|
||||
Name: | Tracy Fu | |||
Title: | Managing Member | |||
By: | /s/ Keith S Manchester | |||
|
||||
Name: |
Keith S Manchester |
|||
Title: |
Portfolio Manager |
To such Investor at: | ||||||||
Address: | c/o QVT Financial LP | |||||||
1177 Avenue of the Americas 9 th Floor New York, NY 10036 |
||||||||
Attn: | Keith Manchester | |||||||
Fax: | (212) 705-8820 | |||||||
Note: Registered Address is: | ||||||||
Address: | c/o Walkers SPV | |||||||
Walker House P.O. Box 908GT, Mary Street George Town, Grand Cayman Cayman Islands |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this 1 st day of June, 2009.
THE INVESTOR:
FLAGSHIP VENTURES FUND 2004, L.P. | ||||
By: | Flagship Ventures General Partner, LLC | |||
its General Partner | ||||
By: | /s/ Noubar Afeyan | |||
|
||||
Name: | Noubar Afeyan | |||
Title: |
To such Investor at: | ||||||||
Address: | One Memorial Drive | |||||||
7th Floor | ||||||||
Cambridge, MA 02142 | ||||||||
Attn: | Douglas G. Cole, M.D. | |||||||
Fax: | (617) 868-1115 |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this 1 st day of June, 2009.
THE INVESTOR:
BROOKSIDE CAPITAL PARTNERS FUND, LP | ||||
By: | /s/ Matt McPherron | |||
|
||||
Name: | Matt McPherron | |||
Title: | Managing Director |
To such Investor at: | ||||||||
Address: | c/o Bain Capital | |||||||
111 Huntington Avenue Boston, MA 02199 |
||||||||
Attn: |
Marlene Wojcik, Chief Financial Officer |
|||||||
Fax: | (617) 516-2910 |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this 1 st day of June, 2009.
THE INVESTOR:
New Leaf Ventures I, L.P. | ||||||||
By: | New Leaf Venture Management I, L.P. | |||||||
Its: | General Partner | |||||||
By: | New Leaf Venture Management I, L.L.C. | |||||||
Its: | General Partner | |||||||
/s/ Vijay K. Lathi | ||||||||
|
||||||||
By: | Vijay K. Lathi | |||||||
Its: | Managing Director |
To such Investor at: | ||||||||
Address: | 2500 Sand Hill Road | |||||||
Suite 203 Menlo Park, CA 94025 |
||||||||
Attn: | Craig L. Slutzkin, | |||||||
Chief Financial Officer | ||||||||
Fax: | (650) 234-2704 |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this 1 st day of June, 2009.
THE INVESTORS:
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this 27 th day of May, 2009.
THE INVESTORS:
|
||||
Name: | Peter Kolchinsky | |||
|
||||
Name: | Caleb Aldrich | |||
|
||||
Name: | Peter Barton Hutt | |||
RA CAPITAL ASSOCIATES, INC. | ||||
|
||||
By: | Richard H. Aldrich | |||
Title: | Managing Director |
To such Investor at: | ||||||
Address: | 800 Boylston Street, Suite 1500 | |||||
Boston, MA 02199 |
TUNG FAMILY INVESTMENT TRUST | ||||||
By: | /s/ Roger D. Tung | |||||
|
||||||
Name: | Roger D. Tung | |||||
Title: | Trustee |
To each such Investor, care of the Corporation: |
||||||||
Address: | 99 Hayden Avenue | |||||||
Suite 100 Lexington, MA |
||||||||
Fax: | (781) 860-8923 |
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
By executing this page in the space provided, the undersigned hereby agree (i) that each is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of the date first above written, by and among Concert Pharmaceuticals, Inc. and the parties named therein (the Registration Rights Agreement ), (ii) that each is a party to the Registration Rights Agreement for all purposes and (iii) that each is bound by all terms and conditions of the Registration Rights Agreement.
EXECUTED this day of , 2009.
THE INVESTORS:
[ Investor Signature Page to Concert Pharmaceuticals, Inc. Third Amended and Restated Registration Rights Agreement ]
F IRST A MENDMENT TO
T HIRD A MENDED AND R ESTATED R EGISTRATION R IGHTS A GREEMENT
December 22, 2011
This First Amendment (this Amendment ) to the Third Amended and Restated Registration Rights Agreement (the RRA ), dated as of June 1, 2009, by and among Concert Pharmaceuticals, Inc., a Delaware corporation (the Company ) and the Investors named therein, is made and entered as of the date first written above. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the RRA.
WHEREAS, the undersigned stockholders of the Company (the Holders ) are holders of at least 60% in voting power of the currently outstanding Registrable Shares held by Investors, and, consequently, pursuant to Section 14 of the RRA, may consent to the grant by the Company of further rights with respect to the Companys registration of its securities under the Securities Act of 1933, as amended (the Securities Act ), similar to those currently existing under the RRA;
WHEREAS, the Holders are holders of at least 60% of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Common Stock issued upon conversion of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock (taken together as a single class on an as-converted to Common Stock basis) in voting power, and, consequently, pursuant to Section 21(b) of the RRA, may, with the consent of the Company, which is indicated by the signature of its authorized signatory below, consent to an amendment of the RRA on behalf of all parties thereto;
WHEREAS, in connection with a loan and security agreement (the Loan and Security Agreement ) to be entered into by and between the Company and Hercules Technology Growth Capital, Inc., a Maryland corporation (the Lender ), the Company will issue a warrant to the Lender (the Warrant ) to purchase shares of the Series C Preferred Stock; and
WHEREAS, to induce the Lender to enter into the Loan and Security Agreement, the undersigned desire to amend the RRA to provide the shares issuable under the Warrant with rights with respect to registration by the Company of such shares under the Securities Act;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Amendment to the RRA .
a. The definition of Registrable Shares in Section 1(f) of the RRA is hereby deleted in its entirety and replaced with the following definition:
The term Registrable Shares means (1) the Common Stock issued or issuable upon conversion of the Preferred Stock held by any Investor (other than Hercules and any Hercules Warrant Transferee, each as defined below, the Registable Shares of which shall be determined in accordance with clause (3) below), (2) any Common Stock purchased by an Investor (or its permitted transferees) pursuant to
Section 3 of the Third Amended and Restated Investor Rights Agreement, dated as of June 1, 2009, by and among the Corporation and certain of the Investors (or Common Stock issuable with respect to other securities so purchased), (3) any Common Stock issued or issuable upon conversion of any Preferred Stock issued to (i) Hercules Technology Growth Capital, Inc., a Maryland corporation ( Hercules ), upon exercise of its warrant to purchase shares of Series C Preferred Stock dated as of December 22, 2011 and any other warrant issued to Hercules in conjunction with a future loan advance by Hercules to the Corporation pursuant to the terms of the Loan and Security Agreement, dated as of December 22, 2011, by and between Hercules and the Corporation (such warrants, collectively, the Hercules Warrants ) or (ii) any holder of a Hercules Warrant if other than Hercules (a Hercules Warrant Transferee ) at any time of exercise thereof by such Hercules Warrant Transferee, provided that the transfer of such Hercules Warrant to such Hercules Warrant Transferee satisfied the requirements of clauses (a) through (c) of Section 15 of this Agreement, mutatis mutandis, and (4) any Common Stock issued as a dividend or other distribution with respect to, or in exchange or in replacement of, such Preferred Stock or Common Stock; provided that any Registrable Shares shall cease to be Registrable Shares if transferred by an Investor other than in compliance with the provisions of Section 15 of this Agreement.
b. The following definition is hereby inserted as Section 1(j) of the RRA:
(j) The term Demand Rights Holder means any Holder other than Hercules or a Hercules Warrant Transferee.
c. Section 2 of the RRA is hereby deleted in its entirety and replaced with the following:
Request for Registration . If at any time after the earlier to occur of (i) the fourth anniversary of the date of the Original Agreement and (ii) the date six months after the closing of the first public offering of the Corporations securities, the Corporation shall receive a written request (specifying that it is being made pursuant to this Section 2) from one or more Demand Rights Holders that hold, in the aggregate, at least one-third of the then outstanding Registrable Shares held by Demand Rights Holders, that the Corporation file a registration statement under the Securities Act, or a similar document pursuant to any other statute then in effect corresponding to the Securities Act, covering the registration of at least the lesser of (a) at least one-third of the then outstanding Registrable Shares held by Demand Rights Holders or (b) Registrable Shares held by Demand Rights Holders the expected price to the public of which equals or exceeds $5,000,000 (based on the market price or fair value on the date of such request), then the Corporation shall promptly notify all other Holders of such request and shall use its best efforts to cause all Registrable Shares that Holders have requested be registered to be registered under the Securities Act on Form S-1 or any other available form the use of which is approved by Demand Rights Holders holding a majority of the Registrable Shares held by Demand Rights Holders that are to be included in such registration.
Notwithstanding the foregoing, (i) the Corporation shall not be obligated to effect a registration pursuant to this Section 2 during the period starting with the date sixty (60) days prior to the Corporations estimated date of filing of, and ending on a date six (6) months following the effective date of, a registration statement pertaining to an underwritten public offering of securities for the account of the Corporation, provided that the Corporation is actively employing in good faith its best efforts to cause such registration statement to become effective and that the Corporations estimate of the date of filing such registration statement is made in good faith; (ii) the Corporation shall not be obligated to effect more than two registrations pursuant to this Section 2; and (iii) if the Corporation shall furnish to the Demand Rights Holders a certificate signed by the President of the Corporation stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Corporation or its stockholders for a registration statement to be filed in the near future, then the Corporations obligation to use its best efforts to file a registration statement shall be deferred for a period not to exceed ninety (90) days; provided, however, that the Corporation shall not be permitted to so defer its obligation more than once in any 12-month period.
d. Section 6 of the RRA is hereby deleted in its entirety and replaced with the following:
Expenses of Demand Registration . All expenses incurred in connection with any registration pursuant to Section 2 or Section 11 (excluding underwriters discounts and commissions), including, without limitation, all registration and qualification fees, printers and accounting fees, fees and disbursements of counsel for the Corporation, and the reasonable fees and disbursements of one special counsel for the selling Holders collectively, shall be borne by the Corporation whether or not the registration statement to which such registration expenses relate becomes effective; provided, however, that the Corporation shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2 if the registration request is subsequently withdrawn at the request of the Demand Rights Holders holding a majority of the Registrable Shares held by the Demand Rights Holders to be registered (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Shares that were to be included in the withdrawn registration), unless the Demand Rights Holders holding a majority of the Registrable Shares held by Demand Rights Holders agree to forfeit their right to one demand registration pursuant to Section 2; provided further, however, that if at the time of such withdrawal, the Demand Rights Holders have learned of a material adverse change in the condition, business, or prospects of the Corporation from that known to the Demand Rights Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 2.
2. Remaining Provisions of the RRA . Except as provided herein, each of the other provisions of the RRA shall remain in full force and effect.
3. Entire Agreement . The RRA, as supplemented and modified by this Amendment, together with the any other writings referred to in the RRA or delivered pursuant thereto which form a part thereof, contain the entire agreement among the parties with respect to the subject matter thereof and amend and supersede all prior and contemporaneous arrangements or understandings with respect thereto.
4. References . Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the RRA to this Agreement, hereunder, hereof, herein or words of like import shall mean and be a reference to the RRA, as amended hereby.
5. Governing Law . This Amendment shall be governed by, and construed and enforced in accordance with, the substantive laws of the Commonwealth of Massachusetts, without regard to its principles of conflicts of laws.
6. Counterparts . This Amendment may be executed in any number of counterparts, each such counterpart shall be deemed to be an original instrument, and all such counterparts together shall constitute but one agreement. Any such counterpart may contain one or more signature pages. This Amendment may be executed by facsimile signature pages.
[Signature Pages Follow]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
THE COMPANY: | ||
CONCERT PHARMACEUTICALS, INC. | ||
By: | /s/ Roger D. Tung | |
|
||
Name: | Roger D. Tung | |
Title: | Chief Executive Officer |
By executing this page in the space provided, the undersigned hereby agrees (i) that it is an Investor as defined in the Third Amended and Restated Registration Rights Agreement dated as of June 1, 2009, by and among Concert Pharmaceuticals, Inc. and the parties named therein, as amended by this First Amendment to Third Amended and Restated Registration Rights Agreement (the Registration Rights Agreement ), (ii) that it is a party to the Registration Rights Agreement for all purposes and (ii) that it is bound by all terms and conditions of the Registration Rights Agreement.
INVESTORS: | ||||||||
HERCULES TECHNOLOGY GROWTH CAPITAL, INC., | ||||||||
a Maryland corporation | ||||||||
By: |
/s/ K. Nicholas Martitsch |
|||||||
Name: |
K. Nicholas Martitsch |
|||||||
Title: |
Associate General Counsel |
With notice to such Investor at: |
HERCULES TECHNOLOGY GROWTH |
CAPITAL INC. |
Legal Department |
Attention: Chief Legal Officer and Janice Bourque |
400 Hamilton Avenue, Suite 310 |
Palo Alto, CA 94301 |
Facsimile: 650-473-9194 |
Telephone: 650-289-3060 |
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS: | ||||
GLAXO GROUP LIMITED | ||||
By: | /s/ Paul Williamson | |||
|
||||
Name: | Paul Williamson | |||
Title: | Authorised Signatory For and on behalf of Edinburgh Pharmaceutical Industries Limited Corporate Director |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS: | ||
FIDELITY MT. VERNON STREET TRUST: | ||
FIDELITY GROWTH COMPANY FUND | ||
By: | /s/ Jeffrey Christian | |
|
||
Name: Jeffrey Christian | ||
Title: Deputy Treasurer |
To such Investor at: | ||||||
Address: | 82 Devonshire Street, V13H | |||||
Boston, MA 02109 | ||||||
Attn: | Andrew J. Boyd, | |||||
Associate General Counsel | ||||||
Fax: | (617) 392-1605 |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS: | ||
WESTFIELD LIFE SCIENCES FUND LP | ||
By: |
|
|
Name: William A. Muggia | ||
Title: Director |
WESTFIELD LIFE SCIENCES FUND II LP | ||
By: |
|
|
Name: William A. Muggia | ||
Title: Director |
To each such Investor at: | ||||||
Address: | Westfield Capital Management | |||||
One Financial Center, 24th Floor | ||||||
Boston, MA 02111 | ||||||
Attn: | Eric D. Changelian, | |||||
Manager of Fund Operations | ||||||
Fax: (617) 867-2801 |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS: | ||
ADAGE CAPITAL PARTNERSHIP | ||
By: | /s/ Dan Lehan | |
|
||
Name: Dan Lehan | ||
Title: Chief Operating Officer |
To such Investor at: | ||||
Address: | 200 Clarendon St., 52 nd Floor | |||
Boston, MA 02116 | ||||
Fax: | (617) 867-2801 |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS: | ||||||||
MEDIPHASE VENTURE PARTNERS II LIMITED PARTNERSHIP |
MEDIPHASE VENTURE PARTNERS (DP & UP) LIMITED PARTNERSHIP |
|||||||
By: | Mediphase II LLC | By: | Mediphase (DP&UP) LLC | |||||
Its: | General Partner | Its: | General Partner | |||||
By: |
|
By: |
|
|||||
Name: Paul A. Howard | Name: Paul A. Howard | |||||||
Title: Manager | Title: Manager |
MEDIPHASE VENTURE PARTNERS II | To each such Investor at: | |||||||||||
(ANNEX FUND) LIMITED | ||||||||||||
PARTNERSHIP |
Address: |
Mediphase Venture Partners | ||||||||||
3 Newton Executive Park | ||||||||||||
By: | Mediphase II (Annex Fund) LLC | 2223 Washington Street | ||||||||||
Its: | General Partner | Suite 104 | ||||||||||
Newton, MA 02462 | ||||||||||||
Attn: Amanda Cobb, | ||||||||||||
By: |
|
Operations Manager | ||||||||||
Name: Paul A. Howard | Fax: | (617) 332-8463 | ||||||||||
Title: Manager |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS: | ||
S.R. ONE, LIMITED | ||
By: | /s/ Brian M. Gallagher, Jr., Phd | |
|
||
Name: Brian M. Gallagher, Jr., Phd | ||
Title: Vice President & Partner |
To such Investor at: | ||||
Address: | 161 Washington Street | |||
Suite 500 | ||||
Eight Tower Bridge | ||||
Conshohocken, PA 19428 | ||||
Attn: Rajeev Dadoo, Ph.D, | ||||
Fax: | (610) 567-1039 |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
Address: | 3200 Alpine Road | |
Portola Valley, CA 94028 | ||
Attn: Steve Bonelli, | ||
Chief Financial Officer | ||
Fax: | (650) 529-8039 |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS: | ||
GREYLOCK XII LIMITED PARTNERSHIP | ||
By: | Greylock XII GP LLC, its General Partner | |
By: |
|
|
Name: Donald A. Sullivan | ||
Title: Administrative Partner | ||
GREYLOCK XII-A LIMITED PARTNERSHIP | ||
By: | Greylock XII GP LLC, its General Partner | |
By: |
|
|
Name: Donald A. Sullivan | ||
Title: Administrative Partner | ||
GREYLOCK XII PRINCIPALS LLC | ||
By: | Greylock Management Corporation, | |
Sole Member | ||
By: |
|
|
Name: Donald A. Sullivan | ||
Title: Treasurer |
To each such Investor at: | ||||
Address: | 880 Winter Street | |||
Waltham, MA 02451 | ||||
Attn: Donald A. Sullivan, Treasurer |
||||
Fax: | (781) 622-2326 |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS:
TVM LIFE SCIENCE VENTURES VI GMBH & CO. KG |
||||
/s/ Mark C. Cipriano | ||||
|
||||
By: | Mark C. Cipriano | |||
Its: | Managing Limited Partner | |||
/s/ Alexandra Goll | ||||
|
||||
By: | Alexandra Goll | |||
Its: | Managing Limited Partner | |||
TVM LIFE SCIENCE VENTURES VI LP | ||||
/s/ Mark C. Cipriano | ||||
|
||||
By: | Mark C. Cipriano | |||
Its: | Authorized Officer | |||
/s/ Alexandra Goll | ||||
|
||||
By: | Alexandra Goll | |||
Its: | Authorized Officer |
To each such Investor at: | ||||
Address: |
470 Atlantic Ave 4th Floor Boston MA. 02210 Attn: Mark Cipriano |
|||
Fax: | 617-273-8001 |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS:
SKYLINE VENTURE PARTNERS QUALIFIED PURCHASER FUND IV, L.P. |
||
By: | Skyline Venture Management IV, LLC | |
Its: | General Partner | |
By: | /s/ John Freund | |
|
||
Name: John Freund | ||
Title: Managing Directory |
To such Investor at: | ||||
Address: | c/o Skyline Ventures | |||
525 University Avenue | ||||
Suite 520 | ||||
Palo Alto, CA 94301 | ||||
Attn: Kerry Kenny | ||||
Fax: | (650) 329-1090 |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS:
QVT FUND LP | ||||
By: | QVT Associates GP LLC | |||
Its: | General Partner | |||
By: |
|
|||
Name: | ||||
Title: | Managing Member | |||
By: |
|
|||
Name: |
|
|||
Title: |
|
To such Investor at: | ||||
Address: | c/o QVT Financial LP | |||
1177 Avenue of the Americas | ||||
9 th Floor | ||||
New York, NY 10036 | ||||
Attn: Keith Manchester | ||||
Fax: | (212) 705-8820 | |||
Note: Registered Address is: | ||||
Address: | c/o Walkers SPV | |||
Walker House | ||||
P.O. Box 908GT, Mary Street | ||||
George Town, Grand Cayman | ||||
Cayman Islands |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS: | ||
FLAGSHIP VENTURES FUND 2004, L.P. | ||
By: | Flagship Ventures General Partner, LLC | |
its General Partner | ||
By: | /s/ Noubar Afeyan | |
|
||
Name: Noubar Afeyan | ||
Title: |
To such Investor at: | ||||
Address: | One Memorial Drive | |||
7th Floor | ||||
Cambridge, MA 02142 | ||||
Attn: Douglas G. Cole, M.D. | ||||
Fax: | (617) 868-1115 |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS: | ||
BROOKSIDE CAPITAL PARTNERS FUND, LP | ||
By: | /s/ Adam M Koppel | |
|
||
Name: Adam M Koppel | ||
Title: Managing Director |
To such Investor at: | ||||
Address: | c/o Bain Capital | |||
111 Huntington Avenue | ||||
Boston, MA 02199 | ||||
Attn: Marlene Wojcik, | ||||
Chief Financial Officer | ||||
Fax: | (617) 516-2910 |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS: | ||
NEW LEAF VENTURES I, L.P. | ||
By: | New Leaf Venture Management I, L.P. | |
Its: | General Partner | |
By: | New Leaf Venture Management I, L.L.C. | |
Its: | General Partner | |
By: | /s/ Craig L. Slutzkin | |
|
||
Name: Craig L. Slutzkin, | ||
Title: Chief Financial Officer |
To such Investor at: | ||||
Address: | 2500 Sand Hill Road | |||
Suite 203 | ||||
Menlo Park, CA 94025 | ||||
Attn: Craig L. Slutzkin, | ||||
Chief Financial Officer | ||||
Fax: | (650) 234-2704 |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS: | ||||
|
||||
Name: | Peter Kolchinsky | |||
|
||||
Name: | Caleb Aldrich | |||
|
||||
Name: | Peter Barton Hutt | |||
RA CAPITAL ASSOCIATES, INC. | ||||
|
||||
By: | Richard H. Aldrich | |||
Title: | Managing Director |
To such Investor at: | ||||
Address: | 800 Boylston Street, Suite 1500 | |||
Boston, MA 02199 |
TUNG FAMILY INVESTMENT TRUST | ||||
By: |
|
|||
Name: Roger D. Tung | ||||
Title: Trustee |
To each such Investor, | ||||||
care of the Corporation: | ||||||
Address: | 99 Hayden Avenue | |||||
Suite 100 | ||||||
Lexington, MA | ||||||
Fax: | (781) 860-8923 |
[2011 Hercules Debt Financing - RRA Amendment]
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Third Amended and Restated Registration Rights Agreement as of the date first written above.
INVESTORS:
ALEXANDRIA EQUITIES, LLC |
||||||
By: | Alexandria Real Estate Equities, Inc. | |||||
Its: | Managing Member | |||||
By: |
|
|||||
Name: | Jennifer J. Pappas | |||||
Title: | Senior Vice President and Assistant Secretary |
To such Investor at: | ||||
Address: | 385 E. Colorado Road | |||
Suite 299 | ||||
Pasadena, CA 91101 | ||||
Attn: Amanda Cashin, | ||||
Executive Director of Life Sciences | ||||
Fax: | (626) 578-0770 |
[2011 Hercules Debt Financing - RRA Amendment]
Exhibit 10.2
NEITHER THIS WARRANT NOR THE SHARES OF CAPITAL STOCK ISSUED UPON ITS EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF THIS WARRANT.
WARRANT AGREEMENT
To Purchase Shares of the Series C Preferred Stock of
CONCERT PHARMACEUTICALS, INC.
Dated as of December 22, 2011 (the Effective Date )
WHEREAS, CONCERT PHARMACEUTICALS, INC., a Delaware corporation (the Company ), has entered into a Loan and Security Agreement of even date herewith (the Loan Agreement ) with Hercules Technology Growth Capital, Inc. (the Warrantholder );
WHEREAS, the Company desires to grant to Warrantholder, in consideration for, among other things, the financial accommodations provided for in the Loan Agreement, the right to purchase shares of its Series C Preferred Stock pursuant to this Warrant Agreement (the Warrant);
NOW, THEREFORE, in consideration of the Warrantholder executing and delivering the Loan Agreement and providing the financial accommodations contemplated therein, and in consideration of the mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows:
SECTION 1. | GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK. |
For value received, the Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase, from the Company, (i) on the Effective Date, 200,000 fully paid and non-assessable shares of the Preferred Stock (as defined below), and (ii) on the date, if any, that Company obtains the proceeds of the Second Tranche under the Loan Agreement, 200,000 fully paid and non-assessable shares of the Preferred Stock, in each case at a purchase price of $2.50 per share (the Exercise Price ). The number and Exercise Price of such shares are subject to adjustment as provided in Section 8. As used herein, the following terms shall have the following meanings:
Act means the Securities Act of 1933, as amended.
Charter means the Companys Articles of Incorporation, Certificate of Incorporation or other constitutional document, as may be amended from time to time.
Common Stock means the Companys common stock;
Initial Public Offering means the initial underwritten public offering of the Companys Common Stock pursuant to a registration statement under the Act, which registration statement has been declared effective by the Securities and Exchange Commission ( SEC );
Investor Rights Agreement means that certain Third Amended and Restated Investor Rights Agreement, dated as of June 1, 2009, by and among the Company and certain holders of its capital stock, as it may be amended or restated from time to time.
Merger Event means a merger or consolidation involving the Company in which the Company is not the surviving entity, or in which the outstanding shares of the Companys capital stock are otherwise converted into or exchanged for shares of capital stock of another entity.
1
Preferred Stock means the Series C Preferred Stock of the Company and any other stock into or for which the Series C Preferred Stock has been converted or exchanged, and upon and after the occurrence of an event which results in the automatic or voluntary conversion, redemption or retirement of all (but not less than all) of the outstanding shares of such Preferred Stock, including, without limitation, the consummation of an Initial Public Offering of the Common Stock in which such a conversion occurs, then from and after the date upon which such outstanding shares are so converted, redeemed or retired, Preferred Stock shall mean such Common Stock; and
Purchase Price means, with respect to any exercise of this Warrant, an amount equal to the Exercise Price as of the relevant time multiplied by the number of shares of Preferred Stock requested to be exercised under this Warrant pursuant to such exercise.
Registration Rights Agreement means that certain Third Amended and Restated Registration Rights Agreement, dated as of June 1, 2009, by and among the Company and certain holders of the Companys capital stock, as amended, and as it may be further amended or restated from time to time.
SECTION 2. | TERM OF THE WARRANT. |
Except as otherwise provided for herein, the term of this Warrant and the right to purchase Preferred Stock as granted herein (the Warrant) shall commence on the Effective Date and shall be exercisable for a period ending upon the sooner to occur of (i) ten (10) years after the Effective Date; or (ii) five (5) years after the Initial Public Offering.
SECTION 3. | EXERCISE OF THE PURCHASE RIGHTS. |
(a) Exercise . The purchase rights set forth in this Warrant are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the Notice of Exercise ), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the Purchase Price in accordance with the terms set forth below, and in no event later than ten (10) days (three (3) business days, if the Companys securities are then publicly traded) thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the Acknowledgment of Exercise ) indicating the number of shares which remain subject to future purchases, if any.
The Purchase Price may be paid at the Warrantholders election either (i) by cash or check, or (ii) by surrender of all or a portion of the Warrant for shares of Preferred Stock to be exercised under this Warrant and, if applicable, a new warrant of like tenor representing the remaining number of shares purchasable hereunder, as determined below ( Net Issuance ). If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula:
For purposes of the above calculation, fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an Initial Public Offering, and if the Companys Registration Statement relating to such Initial Public Offering has been declared
2
effective by the SEC, then the fair market value per share shall be the product of (x) the initial Price to Public of the Common Stock specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise;
(ii) if the exercise is after, and not in connection with an Initial Public Offering, and:
(A) if the Common Stock is traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the closing price on the day the Warrant is exercised and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; or
(B) if the Common Stock is traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) on the day the Warrant is exercised and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the over-the-counter market, the fair market value of Preferred Stock shall be the product of (x) the price per share which the Company could obtain from a willing buyer in an arms length transaction for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise, provided that, in the event that the exercise is in connection with a Merger Event in which the Company is not the surviving entity, the fair market value of Preferred Stock shall be deemed to be the per share value received by the holders of the Companys Preferred Stock on a common equivalent basis pursuant to such Merger Event.
Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue a new Warrant representing the remaining number of shares purchasable hereunder. All other terms and conditions of such new Warrant shall be identical to those contained herein, including, but not limited to the Effective Date hereof.
(b) Exercise Prior to Expiration . To the extent this Warrant is not previously exercised as to all Preferred Stock subject hereto, and if the fair market value of one share of the Preferred Stock is greater than the Exercise Price then in effect, this Warrant shall be deemed automatically exercised pursuant to Section 3(a) (even if not surrendered) immediately before its expiration. For purposes of such automatic exercise, the fair market value of one share of the Preferred Stock upon such expiration shall be determined pursuant to Section 3(a). To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 3(b), the Company agrees to promptly notify the Warrantholder of the number of shares of Preferred Stock, if any, the Warrantholder is to receive by reason of such automatic exercise.
SECTION 4. | RESERVATION OF SHARES. |
During the term of this Warrant, the Company will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein, and shall have authorized and reserved a sufficient number of shares of its Common Stock to provide for the conversion of the Preferred Stock issuable hereunder.
SECTION 5. | NO FRACTIONAL SHARES OR SCRIP. |
No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect.
SECTION 6. | REGISTRATION RIGHTS; NO RIGHTS AS STOCKHOLDER. |
The Registration Rights Agreement has been amended to provide that the Common Stock into which the Preferred Stock issuable upon exercise of this Warrant is convertible shall be Registrable Shares, and Warrantholder shall have the rights of, and be subject to the obligations of, a Holder under the Registration Rights Agreement. This Agreement does not entitle the Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the exercise of this Warrant.
3
SECTION 7. | WARRANTHOLDER REGISTRY. |
The Company shall maintain a registry showing the name and address of the registered holder of this Warrant. Warrantholders initial address, for purposes of such registry, is set forth in Section 12(e) below. Warrantholder may change such address by giving written notice of such changed address to the Company.
SECTION 8. | ADJUSTMENT RIGHTS. |
The Exercise Price and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows:
(a) Merger Event . If at any time there shall be Merger Event, then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of this Warrant, the number of shares of preferred stock or other securities or property of the successor corporation resulting from such Merger Event that would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Companys Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Warrantholder after the Merger Event to the end that the provisions of this Warrant (including adjustments of the Exercise Price and number of shares of Preferred Stock purchasable) shall be applicable in their entirety, and to the greatest extent possible. Without limiting the foregoing, in connection with any Merger Event, upon the closing thereof, the successor or surviving entity shall assume the obligations of this Warrant. In connection with a Merger Event and upon Warrantholders written election to the Company at least three (3) business days prior to the closing thereof, the Company shall cause this Warrant to be exchanged for the consideration that Warrantholder would have received if Warrantholder chose to exercise its right to have shares issued pursuant to the Net Issuance provisions of this Warrant without actually exercising such right, acquiring such shares and exchanging such shares for such consideration
(b) Reclassification of Shares . Except as set forth in Section 8(a), if the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares . If the Company at any time shall combine or subdivide its Preferred Stock, (i) in the case of a subdivision, the Exercise Price shall be proportionately decreased, and the number of shares of Preferred Stock issuable upon exercise of this Warrant shall be proportionately increased, or (ii) in the case of a combination, the Exercise Price shall be proportionately increased, and the number of shares of Preferred Stock issuable upon the exercise of this Warrant shall be proportionately decreased.
(d) Stock Dividends . If the Company at any time while this Warrant is outstanding and unexpired shall:
(i) pay a dividend with respect to the Preferred Stock payable in Preferred Stock, then the Exercise Price shall be adjusted, from and after the date of determination of stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Preferred Stock outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Preferred Stock outstanding immediately after such dividend or distribution; or
(ii) make any other distribution with respect to Preferred Stock (or stock into which the Preferred Stock is convertible), except any distribution specifically provided for in any other
4
clause of this Section 8, then, in each such case, provision shall be made by the Company such that the Warrantholder shall receive upon exercise of this Warrant a proportionate share of any such distribution as though it were the holder of the Preferred Stock (or other stock for which the Preferred Stock is convertible) as of the record date fixed for the determination of the stockholders of the Company entitled to receive such distribution.
(e) Antidilution Rights . Antidilution rights applicable to the Preferred Stock purchasable hereunder are as set forth in the Charter and shall be applicable with respect to the Preferred Stock issuable hereunder. The Company shall promptly provide the Warrantholder with any restatement, amendment, modification or waiver of the Charter; provided , that no such amendment, modification or waiver shall impair or reduce the antidilution rights applicable to the Preferred Stock as of the date hereof unless such amendment, modification or waiver affects the rights of Warrantholder with respect to the Preferred Stock in the same manner (on a proportionate basis) as it affects all other holders of Preferred Stock. For the avoidance of doubt, there shall be no duplicate anti-dilution adjustment pursuant to this subsection (e), the forgoing subsection (d) and the Charter.
(f) Notice of Adjustments . If: (i) the Company shall declare any dividend or distribution upon its shares of Preferred Stock, whether in stock, cash, property or other securities; (ii) the Company shall offer for subscription (other than contractual preemptive rights) prorata to the holders of any of its Preferred Stock any additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; (iv) there shall be an Initial Public Offering; (v) the Company shall sell, lease, license or otherwise transfer all or substantially all of its assets in a single transaction or series of related transactions, other than sales of inventory in the Companys ordinary course of business; or (vi) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least twenty (20) days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such Merger Event, sale, lease, license or other transfer of all or substantially all assets, dissolution, liquidation or winding up, at least twenty (20) days prior written notice of the date when the same shall take place (and specifying the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of an Initial Public Offering, the Company shall give the Warrantholder at least twenty (20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, to the extent known, (i) the event requiring the notice, and (ii) if any adjustment is required to be made, (A) the amount of such adjustment, (B) the method by which such adjustment was calculated, (C) the adjusted Exercise Price (if the Exercise Price has been adjusted), and (D) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given in the manner set forth in Section 12(e).
(g) Timely Notice . Failure to timely provide such notice required by subsection (f) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder.
SECTION 9. | REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. |
The Company makes the following representations to the Warrantholder as of the Effective Date:
(a) Reservation of Preferred Stock . The Preferred Stock issuable upon exercise of the Warrantholders rights has been duly and validly reserved and, when issued in accordance with the provisions of this Warrant, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided , that the Preferred Stock issuable pursuant to this Warrant may be subject to restrictions on transfer hereunder and under state and/or federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and current bylaws. The issuance of certificates for shares of Preferred Stock upon exercise of this Warrant shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of
5
Preferred Stock; provided , that the Company shall not be required to pay any tax which may be payable in respect of any transfer and the issuance and delivery of any certificate in a name other than that of the Warrantholder.
(b) Due Authority . The execution and delivery by the Company of this Warrant and the performance of all obligations of the Company hereunder, including the grant to Warrantholder of the right to acquire the shares of Preferred Stock and the Common Stock into which such Preferred Stock may be converted, have been duly authorized by all necessary corporate action on the part of the Company. The execution and delivery of this Warrant: (1) do not violate the Charter or the Companys current bylaws; (2) do not contravene any law or governmental rule, regulation or order applicable to it; and (3) do not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound. This Warrant constitutes a valid and binding agreement of the Company, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors rights generally, and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
(c) Consents and Approvals . Subject to the accuracy of the representations and covenants of the Warrantholder contained in Section 10 hereof, no consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant, except for the filing of notices pursuant to Regulation D under the Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby.
(d) Issued Securities . All issued and outstanding shares of Common Stock, Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all federal and state securities laws. In addition, as of the date immediately preceding the date of this Warrant:
(i) The authorized capital of the Company consists of (A) 83,716,667 shares of Common Stock, of which 7,289,956 shares are issued and outstanding, and (B) 62,916,667 shares of preferred stock of all series, of which (1) 10,000,000 shares have been designated as Series A Convertible Preferred Stock, all of which are issued and outstanding and each share is convertible into one (1) share of Common Stock; (2) 24,250,000 shares have been designated Series B Convertible Preferred Stock, all of which are issued and outstanding and each share is convertible into one (1) share of Common Stock; (3) 22,000,000 shares have been designated Series C Convertible Preferred Stock, of which 15,130,400 shares are issued and outstanding and each share is convertible into one (1) share of Common Stock; and 6,666,667 shares have been designated Series D Convertible Preferred Stock, all of which are issued and outstanding and each share is convertible into one (1) share of Common Stock.
(ii) The Company has reserved 12,500,000 shares of Common Stock for issuance under its 2006 Amended and Restated Stock Option Plan, under which 188,080 shares of Common Stock have been issued upon the exercise of options, options to purchase 11,031,975 shares of Common Stock are outstanding and 281,876 shares of restricted stock are outstanding. Other than as set forth in clause (i) above and this clause (ii), there are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Companys capital stock or other securities of the Company.
(iii) Except as set forth in the Investor Rights Agreement, no stockholder of the Company has preemptive rights to purchase new issuances of the Companys capital stock.
(e) Other Commitments to Register Securities . Except as set forth in the Registration Rights Agreement, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the Act any of its presently outstanding securities or any of its securities which may hereafter be issued.
(f) Exempt Transaction . Subject to the accuracy of the Warrantholders representations in Section 10, the issuance of the Preferred Stock upon exercise of this Warrant, and the issuance of the
6
Common Stock upon conversion of the Preferred Stock, will each constitute a transaction exempt from (i) the registration requirements of Section 5 of the Act, and (ii) the qualification requirements of the applicable state securities laws.
(g) Compliance with Rule 144 . If the Warrantholder proposes to sell Preferred Stock issuable upon the exercise of this Warrant, or the Common Stock into which it is convertible, in compliance with Rule 144 promulgated by the SEC, then, upon Warrantholders written request to the Company, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement indicating whether the Company is in compliance with the filing requirements of the SEC as set forth in such Rule, as such Rule may be amended from time to time.
(h) Information Rights . During the term of this Warrant, the Warrantholder shall be entitled to the rights afforded to the Major Stockholders (as defined in the Investor Rights Agreement) pursuant to Section 2 of the Investor Rights Agreement.
SECTION 10. | REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER. |
This Warrant has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder, which representations and covenants are made on the Effective Date and upon each exercise of this Warrant (including any automatic exercise):
(a) Investment Purpose . This Warrant and the right to acquire Preferred Stock, the Preferred Stock issuable upon exercise of the Warrantholders rights contained herein and the Common Stock issuable upon conversion of the Preferred Stock are and will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption. Warrantholder has not been organized, reorganized or recapitalized specifically for the purpose of investing in the Company.
(b) Private Issue . The Warrantholder understands (i) that the Preferred Stock issuable upon exercise of this Warrant and the Common Stock issuable upon conversion of the Preferred Stock is not registered under the Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant will be exempt from the registration and qualifications requirements thereof, and (ii) that the Companys reliance on such exemption is predicated on the representations set forth in this Section 10.
(c) Financial Risk . The Warrantholder has sufficient knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment in the Company. The Warrantholder has made such inquiry concerning the Company and its business and personnel as it has deemed appropriate.
(d) Risk of No Registration . The Warrantholder understands that if the Company does not register shares of capital stock with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934 (the 1934 Act ), or file reports pursuant to Section 15(d) of the 1934 Act, or if a registration statement covering the securities under the Act is not in effect when the Warrantholder desires to sell (i) this Warrant or the rights to purchase Preferred Stock pursuant to this Warrant, (ii) the Preferred Stock issuable upon exercise of this Warrant or (iii) the Common Stock issuable upon conversion of the Preferred Stock issuable upon exercise of this Warrant, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of (A) this Warrant or its rights hereunder to purchase Preferred Stock or (B) Preferred Stock issued or issuable hereunder or the Common Stock issuable upon conversion thereof, which might be made by it in reliance upon Rule 144 under the Act may be made only in accordance with the terms and conditions of that Rule.
(e) Accredited Investor . Warrantholder is an accredited investor within the meaning of Rule 501 of Regulation D, as presently in effect, under the Act.
(f) Market Stand-Off Agreement . In connection with the Initial Public Offering, the Warrantholder, if requested by the Company and the managing underwriter shall agree, by executing and delivering such form of agreement as the Company and such underwriter shall reasonably request, not to sell publicly or otherwise transfer or dispose of this Warrant, the shares of Preferred Stock or other shares
7
of capital stock issued upon exercise of this Warrant (or the conversion of any such shares) or other securities of the Company held by the Warrantholder prior to the effective date of such registration statement for a specified period of time immediately following the effective date of such registration statement, such period of time not to exceed one hundred eighty (180) days; provided that (i) such one-hundred eighty (180) day period may be extended on one occasion by the managing underwriter to the extent necessary to prevent the managing underwriter(s) from violating Section 2711(f)(4) of the rules of the National Association of Securities Dealers, Inc., as incorporated into the rules of the Financial Industry Regulatory Authority, or any similar successor provision (e.g., as the result of the publication or other distribution of a research report or public appearance concerning the Company); (ii) such agreement shall not apply to resales of the Companys securities purchased by the Warrantholder in a public market, and (iii) all persons who hold shares of Common Stock, or securities convertible into or exchangeable or exercisable for shares of Common Stock, which in aggregate represent one percent (1%) or more of the shares of Common Stock then outstanding (including all securities convertible into or exchangeable or exercisable for shares of Common Stock, on an as converted, exchanged or exercised basis), and all officers and directors of the Company, enter into similar agreements. Notwithstanding the foregoing, any discretionary waiver by an underwriter of a lock-up agreement shall not be effective unless such underwriter also releases all other stockholders of the Company from the equivalent provisions and a pro rata portion of their respective lock-up agreements.
(g) Confidentiality . Except as provided in the Loan Agreement (for as long as such Loan Agreement remains in effect), the Warrantholder agrees that it shall keep confidential and shall not disclose or use (other than to monitor its investment in the Corporation) any confidential, proprietary, or secret information that it has or may obtain from the Company, unless such confidential information (i) is known or becomes known to the public in general (other than as a result of a breach of this Section 10(g), (ii) is or has been independently developed or conceived by the Warrantholder without use of the Companys confidential information or (iii) is or has been made known or disclosed to the Warrantholder by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that the Warrantholder may disclose confidential information (A) to its attorneys, accountants, consultants and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company and negotiating the terms thereof or (B) as may otherwise be required by law, court order or subpoena, provided that the Warrantholder promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any required disclosure.
SECTION 11. | TRANSFERS. |
Subject to compliance with applicable federal and state securities laws and subsection 11(c) below:
(a) This Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes) upon surrender of this Warrant properly endorsed.
(b) Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that the holder hereof, when this Warrant shall have been properly endorsed and its transfer recorded on the Companys books, shall be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant. The transfer of this Warrant shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the Transfer Notice), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. Until the Company receives such Transfer Notice, the Company may treat the registered owner hereof as the owner for all purposes.
(c) Neither this Warrant nor the shares of capital stock issuable upon exercise of this Warrant (or upon conversion of the shares of Preferred Stock issuable upon exercise of this Warrant) shall be sold or transferred unless either (i) they first shall have been registered under the Act, or (ii) the Company first shall have been furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such sale or transfer is exempt from the registration requirements of the Act. The Company shall not require a legal opinion in connection with any transfer by Warrantholder of this Warrant to an affiliate of Warrantholder, provided that such transferee is an accredited investor within the meaning of Rule 501
8
of Regulation D, as in effect under the Act. Notwithstanding any of the foregoing, this Warrant nor the shares of Preferred Stock issuable hereunder may be transferred to a competitor of the Company (as determined in good faith by the Companys Board of Directors) prior to a Qualified Public Offering (as defined in the Investor Rights Agreement).
Each certificate representing shares of capital stock issuable upon exercise of this Warrant shall bear a legend substantially in the following form:
The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be offered, sold or otherwise transferred, pledged or hypothecated unless and until such securities are registered under such Act or, subject to Section 11 of that certain Warrant Agreement dated December 22, 2011 (the Warrant), an opinion of counsel satisfactory to the Company is obtained to the effect that such registration is not required.
SECTION 12. | MISCELLANEOUS. |
(a) Effective Date . The provisions of this Warrant shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Warrant shall be binding upon any successors or assigns of the Company.
(b) Remedies . In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where the non-defaulting party will not have an adequate remedy at law and where damages will not be readily ascertainable. The parties hereto hereby declare that it is impossible to measure in money the damages which will accrue to a party hereunder by reason of the other partys failure to perform any of the obligations under this Warrant and agree that the terms of this Warrant shall be specifically enforceable by each party.
(c) Attorneys Fees . In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to reasonable attorneys fees and expenses and all reasonable costs of proceedings incurred in enforcing this Warrant. For the purposes of this Section 12(c), attorneys fees shall include without limitation reasonable fees incurred in connection with the following (to the extent reasonably taken): (i) contempt proceedings; (ii) discovery; (iii) motions, proceedings or other activities of any kind in connection with an insolvency proceeding; (iv) garnishment, levy, and debtor and third party examinations; and (v) post-judgment motions and proceedings, including without limitation any of the foregoing reasonably taken to collect or enforce any judgment.
(d) Severability . In the event any one or more of the provisions of this Warrant shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.
(e) Notices . Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication that is required, contemplated, or permitted under this Warrant or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the day of transmission by facsimile or hand delivery if transmission or delivery occurs on a business day at or before 5:00 pm in the time zone of the recipient, or, if transmission or delivery occurs on a non-business day or after such time, the first business day thereafter, or the first business day after deposit with an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows:
9
If to Warrantholder:
HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
Legal Department
Attention: Chief Legal Officer and Manuel Henriquez
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
Facsimile: 650-473-9194
Telephone: 650-289-3060
(i) If to the Company:
CONCERT PHARMACEUTICALS, INC.
99 Hayden Ave., Suite 500
Lexington, MA 02421
Attention: Nancy Stuart, Chief Operating Officer
Facsimile: 781-674-5305
Telephone: 781-674-5205
With a copy to:
WilmerHale
60 State Street
Boston, MA 02109
Attention: David Redlick, Esq.
Facsimile: 617-526-5000
Telephone: 617-526-6000
or to such other address as each party may designate for itself by like notice. Delivery hereunder to any party to this Warrant shall be effective if made in accordance with this Section despite failure to deliver to any Person not a party to this Warrant.
(f) Entire Agreement; Amendments . This Warrant constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof, and supersedes and replaces in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof. None of the terms of this Warrant may be amended except by an instrument executed by each of the parties hereto.
(g) Headings . The various headings in this Warrant are inserted for convenience only and shall not affect the meaning or interpretation of this Warrant or any provisions hereof.
(h) No Strict Construction . The parties hereto have participated jointly in the negotiation and drafting of this Warrant. In the event an ambiguity or question of intent or interpretation arises, this Warrant shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Warrant.
(i) No Waiver . No omission or delay by either party at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by the other party at any time designated, shall be a waiver of any such right or remedy to which such party is entitled, nor shall it in any way affect the right of such party to enforce such provisions thereafter.
(j) Survival . All agreements, representations and warranties contained in this Warrant or in any document delivered pursuant hereto shall be for the benefit of Warrantholder or the Company, as the case may be, and shall survive the execution and delivery of this Warrant and the expiration or other termination of this Warrant.
10
(k) Governing Law . This Warrant have been negotiated and delivered to Warrantholder in the Commonwealth of Massachusetts, and shall have been accepted by Warrantholder in the Commonwealth of Massachusetts. Delivery of Preferred Stock to Warrantholder by the Company under this Warrant is due in the Commonwealth of Massachusetts. This Warrant shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.
(l) Consent to Jurisdiction and Venue . All judicial proceedings arising in or under or related to this Warrant may be brought in any state or federal court of competent jurisdiction located in the Commonwealth of Massachusetts. By execution and delivery of this Warrant, each party hereto generally and unconditionally: (a) consents to personal jurisdiction in Suffolk County, Commonwealth of Massachusetts; (b) waives any objection as to jurisdiction or venue in the Business Litigation Session of the Suffolk County Superior Court, Suffolk County, Commonwealth of Massachusetts; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid court; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Warrant. Service of process on any party hereto in any action arising out of or relating to this Warrant shall be effective if given in accordance with the requirements for notice set forth in Section 12(e), and shall be deemed effective and received as set forth in Section 12(e). Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.
(m) Mutual Waiver of Jury Trial . Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF THE COMPANY AND WARRANTHOLDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, CLAIMS) ASSERTED BY THE COMPANY AGAINST WARRANTHOLDER OR ITS ASSIGNEE OR BY WARRANTHOLDER OR ITS ASSIGNEE AGAINST THE COMPANY. This waiver extends to all such Claims, including Claims that involve Persons other than Company and Warrantholder; Claims that arise out of or are in any way connected to the relationship between the Company and Warrantholder; and any Claims for damages, breach of contract, specific performance, or any equitable or legal relief of any kind, arising out of this Warrant.
(n) Counterparts . This Warrant and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.
[Remainder of Page Intentionally Left Blank]
11
IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be executed by its officers thereunto duly authorized Effective Date.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be executed by its officers thereunto duly authorized Effective Date.
Company: |
CONCERT PHARMACEUTICALS, INC. | |||||
By: |
|
|||||
Name: |
|
|||||
Title: |
|
WARRANTHOLDER: |
HERCULES TECHNOLOGY GROETH CAPITAL, INC. | |||||||
By: | /s/ K. Nicholas Maritsch | |||||||
|
||||||||
Name: K. Nicholas Maritsch | ||||||||
Its: Associate General Counsel |
12
EXHIBIT I
NOTICE OF EXERCISE
To: | CONCERT PHARMACEUTICALS, INC. |
(1) | The undersigned Warrantholder hereby elects to purchase [ ] shares of the Series [ ] Preferred Stock of [ ], pursuant to the terms of the Warrant dated the [ ] day of [ , ] (the Warrant) between [ ] and the Warrantholder, and [CASH PAYMENT: tenders herewith payment of the Purchase Price in full, together with all applicable transfer taxes, if any.] [NET ISSUANCE: elects pursuant to Section 3(a) of the Warrant to effect a Net Issuance.] |
(2) | Please issue a certificate or certificates representing said shares of Series [ ] Preferred Stock in the name of the undersigned or in such other name as is specified below. |
|
||||
(Name) | ||||
|
||||
(Address) | ||||
HERCULES TECHNOLOGY GROWTH CAPITAL, INC. | ||||
By: |
|
|||
Name: K. Nicholas Martitsch | ||||
Its: Associate General Counsel |
13
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned CONCERT PHARMACEUTICALS, INC., hereby acknowledge receipt of the Notice of Exercise from Hercules Technology Growth Capital, Inc. to purchase [ ] shares of the Series [ ] Preferred Stock of [ ], pursuant to the terms of the Warrant, and further acknowledges that [ ] shares remain subject to purchase under the terms of the Warrant.
COMPANY: |
[ ] | |||||
By: |
|
|||||
Title: |
|
|||||
Date: |
|
14
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby transferred and assigned to
|
||||
(Please Print) | ||||
whose address is |
|
|||
|
Dated: |
|
|
Holders Signature: |
|
|
Holders Address: |
|
|
|
15
E XHIBIT 10.3
C ONCERT P HARMACEUTICALS , I NC .
AMENDED AND RESTATED
2006 STOCK OPTION AND GRANT PLAN
1. | Purpose |
The purpose of this Amended and Restated 2006 Stock Option and Grant Plan (the Plan ) of Concert 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 better align the interests of such persons 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 be granted options, restricted stock, restricted stock units ( RSUs ) 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 construe and interpret the terms of the Plan and any Award agreements entered into under the Plan. 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. All references in the Plan to the Board shall mean the Board or a committee or subcommittee 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 subcommittee or such officers.
1
(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 (subject to any limitations under the Plan) 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). The Board may not delegate authority under this Section 3(c) to grant restricted stock, unless Delaware law then permits such delegation.
4. | Stock Available for Awards . |
(a) Number of Shares . Subject to adjustment under Section 8, Awards may be made under the Plan for up to 12,500,000 shares of common stock, par value $0.001 per share, of the Company (the Common Stock ). If any Award expires or is terminated, surrendered or canceled without having been fully exercised, 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.
(b) Substitute Awards . 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 Awards in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute Awards may be granted on such terms as the Board deems appropriate in the circumstances, notwithstanding any limitations on Awards contained in the Plan. Substitute Awards 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.
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 that is not intended to be an Incentive Stock Option (as hereinafter defined) shall be designated a Nonstatutory Stock Option .
2
(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 Concert Pharmaceuticals, Inc., any of Concert Pharmaceuticals, Inc.s 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, including without limitation the conversion of an Incentive Stock Option to a Nonstatutory Stock Option.
(c) Exercise Price . The Board shall establish the exercise price of each Option and specify the exercise price in the applicable option agreement. The exercise price of any Option of granted on or after March 15, 2009 shall be not less than 100% of the Fair Market Value (as defined below) on the date the Option is granted.
(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 as soon as practicable following exercise, subject to any restrictions which shall be set forth in the applicable option agreement.
(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) when the Common Stock is registered under the Exchange Act, except as may otherwise be provided in the applicable 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 and to the extent provided for in the applicable option agreement or approved by the Board, in its sole discretion, by delivery (either by actual delivery or attestation) 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,
3
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; provided, however, that for Incentive Stock Options granted before March 15, 2009, any stock delivered pursuant to this subsection must have been beneficially owned by the Participant for at least six months prior to delivery.
(4) to the extent permitted by applicable law and provided for in the applicable option agreement or approved by the Board, in its sole discretion, 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, which shall be set forth in the applicable option agreement; or
(5) by any combination of the above permitted forms of payment.
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 or cash to be delivered at the time such Award vests ( Restricted Stock Units ) (Restricted Stock and Restricted Stock Units are each referred to herein as a Restricted Stock Award ).
(b) Terms and Conditions for All Restricted Stock Awards . The Board shall determine the terms and conditions of a Restricted Stock Award, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any.
(c) Additional Provisions Relating to Restricted Stock .
(1) Dividends . Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such shares, unless otherwise provided by the Board. Unless otherwise provided by the Board, if any dividends or distributions are paid in shares, or consist of a dividend or distribution to holders of Common Stock other than an ordinary cash dividend, the shares, cash or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid. Each dividend payment will be made no later than the end of the calendar year in which the dividends are paid to shareholders of that class of stock or, if later, the 15th day of the third month following the date the dividends are paid to shareholders of that class of stock.
(2) Stock Certificates . The Company may require that any stock certificates issued in respect of shares of Restricted Stock shall be deposited in escrow 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,
4
to the beneficiary designated, in the manner provided in Section 9(a) below, 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-Based 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-Based 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-Based Awards may be 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 terms and conditions of each Other Stock-Based 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 dividend or 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 number of shares subject to and the repurchase price per share subject to each outstanding Restricted Stock Award, and (iv) the terms of each other outstanding Award shall be equitably adjusted by the Company (or substituted Awards may be made, if applicable) in the manner determined by the Board. Without limiting the generality of 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 an outstanding 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.
(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, (c) any liquidation or dissolution of the Company, (d) the sale of all or substantially all of the assets of the Company, (e) a Deemed Liquidation as defined in the Companys Certificate of Incorporation, as
5
amended from time to time, or (f) any other transaction in which the owners of the Companys outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the successor entity immediately upon completion of the transaction.
(2) Consequences of a Reorganization Event on Awards Other than Restricted Stock Awards . In connection with a Reorganization Event, the Board may take any one or more of the following actions as to all or any (or any portion of) outstanding Awards other than Restricted Stock 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 Awards 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 exercisable, 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 the excess, if any, of (A) the Acquisition Price times the number of shares of Common Stock subject to the Participants Awards (to the extent the exercise price does not exceed the Acquisition Price) over (B) the aggregate exercise price of all such outstanding Awards and any applicable tax withholdings, in exchange for the termination of such 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 any applicable tax withholdings) and (vi) any combination of the foregoing. Notwithstanding anything herein to the contrary, in the event that provision is made in connection with a Reorganization Event for the assumption or substitution of Awards pursuant to clause (i) of the preceding sentence, any Award so assumed or substituted shall, unless the Board determines otherwise with respect to such Award in particular, be deemed vested and exercisable in full upon the date on which the employment or service relationship with the Company or its successor entity, as the case may be, of the Participant holding such Award terminates if such termination occurs within 18 months after such Reorganization Event and such termination is by the Company or its successor entity, as the case may be, without Cause (as defined below). In taking any of the actions permitted under this Section 8(b), the Board shall not be obligated by the Plan to treat all Awards, all Awards held by a Participant, or all Awards of the same type, identically.
For purposes of the preceding paragraph, Cause shall mean a vote of the Board resolving that the Participant should be dismissed as a result of (I) the commission of any act by such Participant constituting financial dishonesty against the Company (which act would be chargeable as a crime under applicable law); (II) the Participants engaging in any other act of dishonesty, fraud, intentional misrepresentation, moral turpitude, illegality or harassment which, as determined in good faith by the Board, would materially adversely affect the business or the reputation of the Company with its current or prospective customers, suppliers, lenders and/or other third parties with whom it does or might do business or would expose the Company to a risk of civil or criminal legal damages, liabilities or penalties; (III) the repeated failure by the Participant to follow the directives of the Companys chief executive officer or the Board or (IV)
6
any material misconduct, violation of the Companys policies, or willful and deliberate non-performance of duty by the Participant in connection with the business affairs of the Company. Notwithstanding the foregoing, this definition of Cause shall in any event include any termination of the Participants employment for cause as specified in a written employment agreement, if the Participant is party to a written employment agreement with the Company.
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 in 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.
Notwithstanding the terms of any Award agreement entered into under the Plan prior to March 15, 2009, such Award shall not terminate upon the consummation of a Reorganization Event except as provided herein.
(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, unless the Board determines otherwise, 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 (or by the Participants guardian or
7
personal representative in the event of the Participants incapacity). A Participant may elect to designate or change a Designated Beneficiary at any time by filing a written notice of designation, revocation or change with the Company. Such Designated Beneficiary may exercise the Participants rights under any Awards in the event of the Participants death, to the extent provided in the Plan or in the applicable Award agreement. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees or such Designated Beneficiary so empowered.
(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, termination or other cessation of employment, 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; provided, however, that the following events shall not be deemed a termination of employment: (1) a transfer to the employment of the Company from a Subsidiary (as defined below) or from the Company to a Subsidiary, or from one Subsidiary to another; or (2) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the Participants right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Board otherwise so provides in writing. A Subsidiary shall mean any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities beginning with the Company if each of the corporations or entities (other than the last corporation or entity in the unbroken chain) owns stock or other interests possessing 50 percent or more of the economic interest or 50 percent or more of the total combined voting power of all classes of stock or other interests in one of the other corporations or entities in the chain.
(e) Withholding . The Participant must satisfy all applicable federal, state, and local or other income and employment tax withholding obligations before the Company will deliver stock certificates or otherwise recognize ownership of Common Stock under an Award. The Company may decide to satisfy the withholding obligations through additional withholding on salary or wages. If the Company elects not to or cannot withhold from other compensation, the Participant must pay the Company the full amount, if any, required for withholding or have a broker tender to the Company cash equal to the withholding obligations. Payment of withholding obligations is due before the Company will issue any shares on exercise or release from forfeiture of an Award or, if the Company so requires, at the same time as payment of the exercise price unless the Company determines otherwise. If provided for in an Award or approved by the Board in its sole discretion, a Participant 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
8
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.
(f) Amendment of Award .
(1) 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. The Participants consent to such action shall be required unless (i) the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participants rights under the Plan or (ii) the change is permitted under Section 8 hereof.
(2) The Board may, without stockholder approval, amend any outstanding Award 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 Award. The Board may also, without stockholder approval, cancel any outstanding award (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 award.
(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.
(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.
9
(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.
(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 expiration 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; provided that if at any time the approval of the Companys stockholders is required as to any modification or amendment under Section 422 of the Code or any successor provision with respect to Incentive Stock Options, the Board may not effect such modification or amendment without such approval. Unless otherwise specified in the amendment, any amendment to the Plan adopted in accordance with this Section 10(d) shall apply to, and be binding on the holders of, all Awards outstanding under the Plan at the time the amendment is adopted, provided the Board determines that such amendment does not materially and adversely affect the rights of Participants under the Plan.
(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. The Company shall have no liability to a Participant, or any other party, if an Award that is intended to be exempt from, or compliant with, Section 409A is not so exempt or compliant or for any action taken by the Board.
(g) Certain Definitions . For all Awards made under the Plan prior to March 15, 2009, the following terms shall have the following meanings under the Plan:
Committee shall mean the Board.
Initial Public Offering shall mean the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Stock for the account of the Company to the public at
10
an offering price per share (prior to underwriters discounts and commissions) of not less than $3.00 (as adjusted to reflect any stock dividends, distributions, combinations, reclassifications or other like transactions effected by the Company in respect of the Stock) and with gross proceeds to the Company of not less than $30,000,000.
ISO shall mean an Incentive Stock Option.
Shares shall mean shares of the Common Stock.
Stock shall mean the Common Stock.
(h) Governing Law . For all Awards made under the Plan prior to March 15, 2009, the provisions of the Plan and such Awards shall be governed by and interpreted in accordance with the laws of the State of New York, 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. For all other Awards made under the Plan, the provisions of the Plan and such Awards 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.
Adopted by the Board March 15, 2009
Adopted by the stockholders on April 1, 2009
Amended by the Board March 25, 2010
Adopted by the stockholders as amended effective April 30, 2010
11
E XHIBIT 10.4
C ONCERT P HARMACEUTICALS , I NC .
Incentive Stock Option Agreement
Granted Under Amended and Restated 2006 Stock Option and Grant Plan
1. | Grant of Option . |
This agreement evidences the grant by Concert Pharmaceuticals, Inc., a Delaware corporation (the Company ), on , 20 (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 Amended and Restated 2006 Stock Option and Grant Plan (the Plan ), a total of shares (the Shares ) of common stock, par value $0.001 per share, of the Company ( Common Stock ) at $ per Share. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern time, on , 20 (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 [25]% of the original number of Shares on [the first anniversary of the Grant Date] and as to an additional [6.25]% 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 in the form attached hereto as Exhibit A , 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, Disability or Retirement . If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) or retires after attaining age 60 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, disability or retirement 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, disability or retirement, 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, prior to the Final Exercise Date, the Participant is given notice by the Company of the termination of his or her employment by the Company for Cause, and the effective date of such employment termination is subsequent to the date of delivery of such notice, the right to exercise this option shall be suspended from the time of the delivery of such notice until the earlier of (i) such time as it is determined or otherwise agreed that the Participants employment shall not be terminated for Cause as provided in such notice or (ii) the effective date of such termination of employment (in which case the right to exercise this option shall, pursuant to the preceding sentence, terminate 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 Participants employment shall be considered to have been terminated for Cause if the Company determines, within 30 days after the Participants resignation, that termination for Cause was warranted.
- 2 -
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 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 (or, if later, within the 30-day period following expiration of all other restrictions on transfer applicable to the Offered Shares through any agreement between the Company and the Participant other than this agreement), 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.
- 3 -
(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 outstanding 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.
(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 closing of the sale of all or substantially all of the outstanding shares of 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 Companys voting securities immediately prior to such transaction beneficially own, directly or indirectly, a majority (determined on an as-converted basis) of the outstanding securities entitled to vote generally in the election of directors of the resulting, surviving or acquiring corporation in such transaction) (a Sale Event ).
(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.
- 4 -
5. | Agreement in Connection with Initial Public Offering . |
The Participant agrees, in connection with the initial underwritten public offering of the Common Stock pursuant to a registration statement under the Securities Act, (i) not to (a) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any other securities of the Company or (b) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of shares of Common Stock or other securities of the Company, whether any transaction described in clause (a) or (b) is to be settled by delivery of securities, in cash or otherwise, during the period beginning on the date of the filing of such registration statement with the Securities and Exchange Commission and ending 180 days after the date of the final prospectus relating to the offering (plus up to an additional 34 days to the extent requested by the managing underwriters for such offering in order to address Rule 2711(f) of the National Association of Securities Dealers, Inc. as incorporated into the rules of the Financial Industry Regulatory Authority, or any similar successor provision), 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. The Company may impose stop-transfer instructions with respect to the shares of Common Stock or other securities subject to the foregoing restriction until the end of this lock-up period.
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. | Transfer Restrictions . |
(a) 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.
(b) The Participant agrees that he or she will not transfer any Shares issued pursuant to the exercise of this option unless the transferee, as a condition to such transfer, delivers to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of Section 4 and Section 5 hereof; provided that such a written confirmation shall not be required with respect to (1) Section 4 after such provision has terminated in accordance with Section 4(g) or (2) Section 5 after the completion of the lock-up period in connection with the Companys initial underwritten public offering.
- 5 -
8. | Drag-Along Right . |
(a) In the event that an eighty-five-percent (85%) majority of the Companys equity stockholders (a Super Majority ) approves a Sale Event, the Participant shall be obligated to, and shall upon the written request of such Super Majority or the Company, (1) sell, transfer and deliver, or cause to be sold, transferred and delivered, on substantially the same terms applicable to such Super Majority, any Shares acquired upon the exercise of this option; and (2) execute and deliver such instruments of conveyance and transfer and take such other action, including voting such Shares in favor of such Sale Event and executing any purchase agreements, merger agreements, indemnity agreements, escrow agreements or related documents, as such Super Majority may reasonably require in order to carry out the terms and provisions of this Section 8.
(b) The provisions of this Section 8 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 closing of a Sale Event.
9. | Provisions of the Plan . |
This option is subject to the provisions of the Plan (including the provisions relating to amendments to 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.
Concert Pharmaceuticals, Inc. | ||||
By: |
|
|||
Name: |
|
|||
Title: |
|
- 6 -
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 Amended and Restated 2006 Stock Option and Grant Plan.
PARTICIPANT: | ||
|
||
Address: |
|
|
|
- 7 -
Exhibit A
NOTICE OF INCENTIVE STOCK OPTION EXERCISE
Date:
Concert Pharmaceuticals, Inc.
99 Hayden Avenue, Suite 100
Lexington, MA 02421
Attention: Treasurer
Dear Sir or Madam:
I am the holder of an Incentive Stock Option granted to me under the Concert Pharmaceuticals, Inc. (the Company ) Amended and Restated 2006 Stock Option and Grant Plan on , 20 for the purchase of shares of common stock, par value $0.001 per share, of the Company (the Common Stock ) at a purchase price of $ per share.
I hereby exercise my option to purchase shares of Common Stock (the Shares ), for which I have enclosed payment in the form of in the amount of $ . Please register my stock certificate as follows:
Name(s): |
|
|||
|
||||
Address: |
|
|||
SSN: |
|
I represent, warrant and covenant as follows:
1. I am purchasing the Shares for my 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. I have had such opportunity as I have deemed adequate to obtain from representatives of the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company.
3. I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.
4. I can afford a complete loss of the value of the Shares and am able to bear the economic risk of holding such Shares for an indefinite period.
5. I understand 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 will not be available for at least six months 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.
Very truly yours, | ||
|
||
(Signature) | ||
Name: |
|
E XHIBIT 10.5
C ONCERT P HARMACEUTICALS , I NC .
Nonstatutory Stock Option Agreement
Granted Under Amended and Restated 2006 Stock Option and Grant Plan
1. | Grant of Option . |
This agreement evidences the grant by Concert Pharmaceuticals, Inc., a Delaware corporation (the Company ), on , 20 (the Grant Date ) to , an [employee of/director of/consultant to/advisor to] the Company (the Participant ), of an option to purchase, in whole or in part, on the terms provided herein and in the Companys Amended and Restated 2006 Stock Option and Grant Plan (the Plan ), a total of shares (the Shares ) of common stock, par value $0.001 per share, of the Company ( Common Stock ) at $ per Share. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern time, on , 20 (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 [25]% of the original number of Shares on [the first anniversary of the Grant Date] and as to an additional [6.25]% 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 in the form attached hereto as Exhibit A , 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, officer or director of, or a 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, Disability or Retirement . If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) or retires after attaining age 60 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, disability or retirement 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, disability or retirement, 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, prior to the Final Exercise Date, the Participant is given notice by the Company of the termination of his or her employment or other relationship by the Company for Cause, and the effective date of such employment or other termination is subsequent to the date of the delivery of such notice, the right to exercise this option shall be suspended from the time of the delivery of such notice until the earlier of (i) such time as it is determined or otherwise agreed that the Participants employment or other relationship shall not be terminated for Cause as provided in such notice or (ii) the effective date of such termination of employment or other relationship (in which case the right to exercise this option shall, pursuant to the preceding sentence, 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 Participants employment or other relationship shall be considered to have been terminated for Cause if the Company determines, within 30 days after the Participants resignation, that termination for Cause was warranted.
-2-
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 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 (or, if later, within the 30-day period following expiration of all other restrictions on transfer applicable to the Offered Shares through any agreement between the Company and the Participant other than this agreement), 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.
-3-
(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 outstanding 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.
(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 closing of the sale of all or substantially all of the outstanding shares of 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 Companys voting securities immediately prior to such transaction beneficially own, directly or indirectly, a majority (determined on an as-converted basis) of the outstanding securities entitled to vote generally in the election of directors of the resulting, surviving or acquiring corporation in such transaction) (a Sale Event ).
(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.
-4-
5. | Agreement in Connection with Initial Public Offering . |
The Participant agrees, in connection with the initial underwritten public offering of the Common Stock pursuant to a registration statement under the Securities Act, (i) not to (a) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any other securities of the Company or (b) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of shares of Common Stock or other securities of the Company, whether any transaction described in clause (a) or (b) is to be settled by delivery of securities, in cash or otherwise, during the period beginning on the date of the filing of such registration statement with the Securities and Exchange Commission and ending 180 days after the date of the final prospectus relating to the offering (plus up to an additional 34 days to the extent requested by the managing underwriters for such offering in order to address Rule 2711(f) of the National Association of Securities Dealers, Inc. as incorporated into the rules of the Financial Industry Regulatory Authority, or any similar successor provision), 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. The Company may impose stop-transfer instructions with respect to the shares of Common Stock or other securities subject to the foregoing restriction until the end of this lock-up period.
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. | Transfer Restrictions. |
(a) 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 or pursuant to a qualified domestic relations order, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.
(b) The Participant agrees that he or she will not transfer any Shares issued pursuant to the exercise of this option unless the transferee, as a condition to such transfer, delivers to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of Section 4 and Section 5 hereof; provided that such a written confirmation shall not be required with respect to (1) Section 4 after such provision has terminated in accordance with Section 4(g) or (2) Section 5 after the completion of the lock-up period in connection with the Companys initial underwritten public offering.
-5-
8. | Drag-Along Right . |
(a) In the event that an eighty-five-percent (85%) majority of the Companys equity stockholders (a Super Majority ) approves a Sale Event, the Participant shall be obligated to, and shall upon the written request of such Super Majority or the Company, (1) sell, transfer and deliver, or cause to be sold, transferred and delivered, on substantially the same terms applicable to such Super Majority, any Shares acquired upon the exercise of this option; and (2) execute and deliver such instruments of conveyance and transfer and take such other action, including voting such Shares in favor of such Sale Event and executing any purchase agreements, merger agreements, indemnity agreements, escrow agreements or related documents, as such Super Majority may reasonably require in order to carry out the terms and provisions of this Section 8.
(b) The provisions of this Section 8 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 closing of a Sale Event.
9. | Provisions of the Plan . |
This option is subject to the provisions of the Plan (including the provisions relating to amendments to 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.
Concert Pharmaceuticals, Inc. | ||||
By: |
|
|||
Name: |
|
|||
Title: |
|
-6-
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 Amended and Restated 2006 Stock Option and Grant Plan.
PARTICIPANT: | ||
|
||
Address: |
|
|
|
-7-
Exhibit A
NOTICE OF NONSTATUTORY STOCK OPTION EXERCISE
Date:
Concert Pharmaceuticals, Inc.
99 Hayden Avenue, Suite 100
Lexington, MA 02421
Attention: Treasurer
Dear Sir or Madam:
I am the holder of a Nonstatutory Stock Option granted to me under the Concert Pharmaceuticals, Inc. (the Company ) Amended and Restated 2006 Stock Option and Grant Plan on , 20 for the purchase of shares of common stock, par value $0.001 per share, of the Company (the Common Stock ) at a purchase price of $ per share.
I hereby exercise my option to purchase shares of Common Stock (the Shares ), for which I have enclosed payment in the form of in the amount of $ . Please register my stock certificate as follows:
Name(s): |
|
|||
|
||||
Address: |
|
|||
SSN/TIN: |
|
I represent, warrant and covenant as follows:
1. I am purchasing the Shares for my 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. I have had such opportunity as I have deemed adequate to obtain from representatives of the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company.
3. I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.
4. I can afford a complete loss of the value of the Shares and am able to bear the economic risk of holding such Shares for an indefinite period.
5. I understand 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 will not be available for at least six months 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.
Very truly yours, | ||
|
||
(Signature) | ||
Name: |
|
Exhibit 10.9
January 10, 2014
Roger D. Tung
c/o
Concert Pharmaceuticals Inc.
99 Hayden Avenue, Suite 500
Lexington, MA 02421
Dear Dr. Tung:
This agreement revises the terms of your continued employment as President and Chief Executive Officer of Concert Pharmaceuticals, Inc. (the Company or Concert and, with you, the Parties ) reporting directly to the Companys Board of Directors (the Board ), effective as of January 10, 2014 (the Effective Date ). You agree to continue to perform the duties of your position and such other duties as the Board may reasonably assign to you from time to time. Although your position is for full-time employment, the Board has agreed that you may maintain up to two advisory or consulting roles with other organizations, as long as (i) such roles are disclosed to and discussed with the Boards Compensation Committee (the Compensation Committee ) on an annual basis, (ii) the Compensation Committee determines that such roles do not conflict with your obligations to the Company, and (iii) you do not spend more than 12 days per year in such roles, in the aggregate.
1. Salary . You will continue to receive annualized base salary of $378,033 per year, payable in accordance with the regular payroll practices of the Company and less applicable taxes and withholdings, as in effect from time to time. The base salary shall be subject to increase from time to time by the Compensation Committee in its exclusive discretion.
2. Bonus . During your employment, you may be eligible for an annual discretionary performance bonus in addition to your base salary. Bonus compensation in any year, if any, will be based on your performance and/or that of the Company, in accordance with a general bonus program to be established by the Board (and administered by the Compensation Committee) and will be payable not later than two and one-half months following the calendar year, except as the bonus program may from time to time provide.
3. Benefits; Vacation . You will be entitled to participate in all employee benefit plans from time to time in effect for employees of the Company generally. Your participation will be subject to the terms of the applicable plan documents and generally applicable Company policies. Benefits are subject to change at any time at the Companys sole discretion. You will remain eligible to accrue three weeks paid vacation in each calendar year (or such greater amount as is generally made available in accordance with the Companys policies from time to time in effect), in addition to holidays observed by the Company. Vacation may be taken at such times and intervals as you shall determine, subject to the business needs of the Company, and otherwise shall be subject to the policies of the Company, as in effect from time to time.
4. Expense Reimbursement . The Company will pay or reimburse you for all and customary reasonable out-of-pocket business expenses incurred or paid by you in the performance of your duties and responsibilities for the Company, subject to any maximum annual limit and other restrictions on such expenses set by the Company and to such reasonable substantiation and documentation as the Company may specify. Any such reimbursement that would constitute nonqualified deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended ( Section 409A of the Code ) shall be subject to the following additional rules: (i) no reimbursement of any such expense shall affect your right to reimbursement of any other such expense in any other taxable year; (ii) reimbursement of the expense shall be made, if at all, not later than the end of the calendar year following the calendar year in which the expense was incurred; and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.
5. Confidentiality Agreement . You represent that you have complied and agree that you will continue to comply with the Employee Confidentiality, Non-Competition, and Proprietary Information Agreement between the Company and you dated May 17, 2006 (the Confidentiality Agreement ). It is understood and agreed that a breach by you of the Confidentiality Agreement would be a material breach of this Agreement.
6. At-Will; Timing for Termination; Accrued Benefits . This employment letter is not intended to create or constitute an employment agreement or contract (express or implied) between you and the Company for a fixed term. It is also important for you to understand that Massachusetts is an at will employment state. This means that you will have the right to terminate your employment relationship with the Company at any time for any reason, although you are requested to give at least two weeks notice. Similarly, the Company will have the right to terminate its employment relationship with you at any time for any reason. You may terminate your employment hereunder for Good Reason (as defined below) by providing notice to the Company of the condition giving rise to the Good Reason no later than 30 days following the occurrence of the condition, by giving the Company 30 days to remedy the condition and by terminating employment for Good Reason within 30 days thereafter if the Company fails to remedy the condition. Upon your termination, the Company will pay on the date of termination any base salary earned but not paid through the date of termination and pay for any vacation time accrued but not used to that date. In addition, the Company will pay you any bonus that has been awarded to you and earned, but not yet paid on the termination of your employment (together with the preceding sentence, the Accrued Benefits ). In the event of any termination of your employment, other than a termination under Section 7 or as provided for COBRA under Section 7(c), the Company shall have no obligation to you under this Agreement other than with respect to the Accrued Benefits.
7. Termination without Cause; Termination for Good Reason .
(a) Severance Pay . A termination by you for Good Reason, or any termination of your employment by the Company (other than for Cause, as defined below, death, or inability to perform as a result of physical or mental infirmity
2
( disability )) shall entitle you to 12 months of severance pay (the Severance Pay ) and the other compensation provided in this section, as well as to the Accrued Benefits. The Severance Pay shall be calculated on the basis of your base salary as of the date the Company gives you notice of your termination and shall be exclusive of any bonus or benefit payments. The Company will provide the Severance Pay in the form of salary continuation in accordance with the normal payroll practices of the Company, beginning with the Companys next regular payroll period following the Effective Release Date (as defined below), with the first payment including any amounts that would have been paid between the termination date and the Effective Date if the payments had commenced on the termination date and with the remaining payments made proportionately over the remainder of the 12 month severance period. The receipt of any severance benefits provided for under this Section 7 or otherwise shall be dependent upon your delivery to the Company, within 60 days following the date of termination of employment, of an effective general release of claims in a form provided by the Company; provided, however, that if the last day of the 60 day period falls in the calendar year following the year of your date of termination, the severance payments shall be paid or commence on the first payroll period of such subsequent calendar year following the Effective Release Date. The date on which your release of claims becomes effective is the Effective Release Date .
(b) Effect of Change of Control . If a Change of Control (as defined below) occurs that is a 409A Change of Control Event (as defined below) and if, within one year following such Change of Control, the Company or any successor thereto terminates your employment other than for Cause, or you terminate your employment for Good Reason, then, in lieu of installments, the Severance Pay will be paid in a single lump sum in the Companys next regular payroll period following the Effective Release Date (subject to the same delay provided above where the 60 day period ends in the following year); provided, however, that the payments will instead be made in installments as provided in the preceding section if the Change of Control is not also a 409A Change of Control Event. A 409A Change of Control Event is a change in the ownership or effective control of the Company or change in the ownership of a substantial portion of the assets of the Company within the meaning of Treasury Regulation § 1.409A-3(i)(5). In addition, if a Change of Control occurs and if, within one year following such Change of Control, (a) the Company or any successor thereto terminates your employment other than for Cause or your employment ends on death or disability, or (b) you terminate your employment for Good Reason, then all stock options held by you at such time shall immediately vest in full, notwithstanding any contrary provision in any agreement evidencing any such stock option.
(c) COBRA . In addition to Severance Pay, if you are participating in the Companys group health plan and/or dental plan at the time your employment ends and you exercise the right to continue participation in those plans under the federal law known as COBRA, or any successor law and if your employment has ended for a reason other than resignation without Good Reason or termination for Cause, the Company will continue to pay the full premium for such coverage that is applicable for active and similarly-situated employees who receive the same type of coverage (single, family, or other) until the earlier of (i) the end of the 12th month after your employment ends or (ii)
3
the date your COBRA continuation coverage expires, unless the Companys providing payments for COBRA will violate the nondiscrimination requirements of applicable law, in which case this benefit will not apply.
(d) Definitions .
i. For purposes of this Agreement, Cause shall include (i) your conviction or plea of guilty or nolo contendre to a crime involving moral turpitude which adversely affects your ability to perform your obligations to the Company or the business activities, reputation, goodwill or image of the Company or to a felony, (ii) your deliberate dishonesty or breach of fiduciary duty which could be reasonably expected to or does cause material loss, damage or injury to the Company, (iii) your material breach of the terms of this agreement or your failure or refusal to carry out any material tasks assigned to you by the Company in accordance with the terms hereof, which breach or failure (only as to those susceptible to cure) continues for a period of more than ten days after your receipt of written notice thereof and which could be reasonably expected to or does cause material loss, damage or injury to the Company, (iv) the commission by you of any act of fraud, embezzlement or deliberate disregard of a rule or policy of the Company known to you or contained in a policy and procedure manual provided to you which could be reasonably expected to or does cause material loss, damage or injury to the Company, or (v) the material breach or threatened breach by you of any of the provisions of the Confidentiality Agreement which could be reasonably expected to or does cause material loss, damage or injury to the Company. ( Company , for purposes of this section, shall include the Company and any Company subsidiary.)
ii. Good Reason shall mean, without your consent: (i) material diminution in the nature or scope of your responsibilities, duties or authority, provided that neither of the following (x) or (y) shall constitute Good Reason: (x) the Companys failure to continue your appointment or election as a director or officer of any of its Affiliates nor (y) any diminution in the nature or scope of your responsibilities, duties or authority that is reasonably related to a diminution of the business of the Company or any of its Affiliates, other than any such diminution resulting from the sale or transfer of any or all of the assets of the Company or any of its Affiliates; (ii) a material reduction in your base salary other than one temporary reduction of not more than 120 days and not in excess of 20% of your base salary in connection with and in proportion to a general reduction of the base salaries of the Companys executive officers; (iii) relocation of your office more than 35 miles from Lexington, Massachusetts; or (iv) material breach by the Company of any material provision of this Agreement or any other service-providing agreement between the Company or any of its Affiliates and you.
iii. Change of Control shall mean (i) the acquisition of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly by any person (as such term is used in Sections 13(d) and 14(d) of the
4
Exchange Act), of securities of the Company representing a majority or more of the combined voting power of the Companys then outstanding securities, other than an acquisition of securities for investment purposes pursuant to a bona fide financing of the Company; (ii) a merger or consolidation of the Company with any other corporation in which the holders of the voting securities of the Company prior to the merger or consolidation do not own more than 50% of the total voting securities of the surviving corporation; (iii) the sale or disposition by the Company of all or substantially all of the Companys assets other than a sale or disposition of assets to an entity whose equity interests are held, directly or indirectly, entirely by the same persons and in the same proportions as the equity interests of the Company; or (iv) a change in the composition of the Board that results, during any one year period, in the Continuing Directors no longer constituting a majority of the Board (or, if applicable, the board of directors of a successor corporation to the Company), where the term Continuing Director means at any date a member of the Board (x) who was a member of the Board on the Effective Date or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however , that there shall be excluded from this clause (y) any individual whose initial assumption of office after the Effective Date occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board.
8. Withholdings; Section 409A . Anything to the contrary notwithstanding, (a) all payments required to be made by the Company hereunder to you shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation, and (b) if and to the extent any portion of any payment, compensation or other benefit provided to you in connection with your employment termination is determined to constitute nonqualified deferred compensation within the meaning of Section 409A and you are a specified employee as defined in Section 409A(a)(2)(B)(i), as determined by the Company in accordance with its procedures, by which determination you hereby agree that you are bound, such portion of the payment, compensation or other benefit shall not be paid before the earlier of (i) the expiration of the six month period measured from the date of your separation from service (as determined under Section 409A) or (ii) the tenth day following the date of your death following such separation from service (the New Payment Date ). The aggregate of any payments that otherwise would have been paid to you during the period between the date of separation from service and the New Payment Date shall be paid to you in a lump sum in the first payroll period beginning after such New Payment Date, and any remaining payments will be paid on their original schedule. For purposes of this Agreement, (i) each amount to be paid or benefit to be provided shall be construed as a separate identified payment for purposes of Section 409A, (ii) neither you nor the Company shall have the right to accelerate or defer any payment or benefit hereunder unless permitted or required by Section 409A, and (iii) any payments that are due within the short term deferral period as defined in Section 409A or paid in a manner consistent
5
with Treas. Reg. § 1.409A-1(b)(9)(iii) shall not be treated as deferred compensation unless applicable law requires otherwise. The terms of this employment letter are intended to be compliant with, or exempt from, Section 409A; provided, however, that the Company shall have no liability to you or to any other person in the event that the employment letter terms are determined not to be so compliant or exempt.
9. Parachute Taxation . The Company will make any payments due to you without regard to whether Section 280G of the Code would limit or preclude the deductibility of such payments (or any other payments or benefits) and without regard to whether such payments would subject you to the federal excise tax levied on certain excess parachute payments under Section 4999 of the Code; provided, however, that if the Total After-Tax Payments (as defined below) would be increased by the reduction or elimination of any payment and/or other benefit (including the vesting of any equity awards), then the amounts payable under this Agreement or otherwise will be reduced or eliminated as follows, as determined by the Company, in the following order: (i) nonacceleration of any stock options whose exercise price is at or above the fair market value of the Companys common stock as determined in the discretion of the Compensation Committee (taking into account, as appropriate, the proceeds that would be received in connection with the event covered by Section 4999) ( Underwater Options ), (ii) nonacceleration of any stock options other than Underwater Options, (iii) any vesting or distribution of restricted stock or restricted stock units, (iv) any other taxable benefits, (v) any nontaxable benefits, and (vi) the cash severance due under Section 7(a) above. Within each category described in clauses (i), (ii), and (iii), reductions or eliminations shall be made in reverse order beginning with vesting or distributions that are to be paid the farthest in time from the date of the event covered by Section 4999. The Companys independent, certified public accounting firm will determine whether and to what extent payments or vesting under this Agreement are required to be reduced in accordance with the preceding sentence. If there is an underpayment or overpayment under this Agreement (as determined after the application of this paragraph), the amount of such underpayment or overpayment will be immediately paid to you or refunded by you, as the case may be, with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. For purposes of this Agreement, Total After-Tax Payments means the total of all parachute payments (as that term is defined in Section 280G(b)(2) of the Code) made to you or for your benefit (whether made under the Agreement or otherwise), after reduction for all applicable federal taxes (including the tax described in Section 4999 of the Code).
10. Miscellaneous .
(a) Notices . All notices required or permitted under this Agreement must be in writing and will be deemed effective upon personal delivery or three business days following deposit in a United States Post Office, by certified mail, postage prepaid, or one business day after it is sent for next-business day delivery via a reputable nationwide overnight courier service addressed in the case of notice to the Company at its then principal headquarters (with copies to the Chairman of the Board and the Companys General Counsel, which will not constitute notice), and in the case of notice to you to the current address on file with the Company. Either Party may change the address to which notices are to be delivered by giving notice of such change to the other Party in the manner set forth in this Section 10(a)
6
(b) No Mitigation . You are not required to seek other employment or otherwise mitigate the value of any severance benefits contemplated by this Agreement, nor will any such benefits be reduced by any earnings or benefits that you may receive from any other source. Notwithstanding any other provision of this Agreement, any sum or sums paid under this Agreement will be in lieu of any amounts to which you may otherwise be entitled under the terms of any severance plan, policy, program, agreement or other arrangement sponsored by the Company or an affiliate of the Company.
(c) Waiver of Jury Trial . TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER PROCEEDING ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE RELEASE IT CONTEMPLATES, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY PARTY MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE THEIR RIGHTS TO TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR TO ANY OF THE MATTERS CONTEMPLATED UNDER THIS AGREEMENT, RELATING TO YOUR EMPLOYMENT, OR COVERED BY THE CONTEMPLATED RELEASE.
(d) Severability. Each provision of this Agreement is intended to be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Moreover, if an arbitrator or a court of competent jurisdiction determines any of the provisions contained in this Agreement to be unenforceable because the provision is excessively broad in scope, whether as to duration, activity, geographic application, subject or otherwise, it will be construed, by limiting or reducing it to the extent legally permitted, so as to be enforceable to the extent compatible with then applicable law to achieve the intent of the Parties.
(e) Assignment. This Agreement will be binding upon and will inure to the benefit of (i) your heirs, beneficiaries, executors and legal representatives upon your death and (ii) any successor of the Company. Any such successor of the Company will be treated as substituted for the Company under the terms of this Agreement for all purposes. The Company may assign this Agreement without your consent, and such an assignment will not terminate your employment for purposes of triggering your entitlement to severance. You specifically agree that any assignment may include rights under the Confidentiality Agreement without requiring your consent. As used herein, successor will mean any person, firm, corporation or other business entity that at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company and its subsidiaries. None of
7
your rights to receive any form of compensation payable under this Agreement will be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon your death or as provided in Section 10(k). Any attempted assignment, transfer, conveyance or other disposition of any interest in your rights to receive any form of compensation hereunder, except as provided in the preceding sentence, will be null and void.
(f) No Oral Modification, Waiver, Cancellation or Discharge. This Agreement may only be amended, canceled or discharged or any obligations thereunder waived through a writing signed by you and the Board or any duly authorized executive officer of the Company.
(g) No Conflict of Interest . You confirm that you have fully disclosed to the Company and its affiliates, to the best of your knowledge, any circumstances under which you, your immediate family and other persons who reside in your household have or may have a conflict of interest with the Company. You further agree to fully disclose to the Company any such circumstances that might arise during your employment upon your becoming aware of such circumstances.
(h) Other Agreements . You hereby represent that your performance of all the terms of this Agreement and the performance of your duties as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by you in confidence or in trust prior to your employment with the Company. You also represent that you are not a party to or subject to any restrictive covenants, legal restrictions, policies, commitments or other agreements in favor of any entity or person that would in any way preclude, inhibit, impair or limit your ability to perform your obligations under this Agreement, including noncompetition agreements or nonsolicitation agreements, and you further represent that your performance of the duties and obligations under this Agreement does not violate the terms of any agreement to which you are a party. You agree that you will not enter into any agreement or commitment or agree to any policy that would prevent or unreasonably hinder your performance of duties and obligations under this Agreement.
(i) Disclosure of this Agreement . You acknowledge that the Company may provide persons or entities who may employ or engage you with a copy of the Confidentiality Agreement (or portions thereof) to highlight your continuing obligations to the Company. You also acknowledge that the Company may be obligated to disclose this Agreement or any portion thereof to satisfy applicable laws and regulations.
(j) Survivorship. The respective rights and obligations of the Company and you hereunder will survive any termination of your employment to the extent necessary to preserve the intent of such rights and obligations.
(k) Beneficiaries. You will be entitled, to the extent applicable law permits, to select and change the beneficiary or beneficiaries to receive any compensation or benefit payable hereunder upon your death by giving the Company written notice thereof in a manner consistent with the terms of any applicable plan documents. If you die, severance then due or other amounts due hereunder will be paid to your designated beneficiary or beneficiaries or, if none are designated or none survive you, your estate.
8
(l) Company Policies . References in this Agreement to Company policies and procedures are to those policies and procedures in effect at the Effective Date, as the Company may amend them from time to time.
(m) Governing Law; Dispute Resolution . This Agreement must be construed, interpreted, and governed in accordance with the laws of the Commonwealth of Massachusetts without reference to rules relating to conflict of law. The Parties agree that the Federal Arbitration Act, 9 U.S.C. §1 et seq. and the American Arbitration Associations National Rules for the Resolution of Employment Disputes (the National Rules ) apply to the interpretation and enforcement of this Agreement. In case of any controversy, dispute, or claim directly or indirectly arising out of or related to this Agreement, or the breach thereof, or relating to your employment (including claims relating to employment discrimination), except as expressly excluded herein, each Party agrees to give the other Party notice of an intent to seek arbitration under this Agreement and 10 days to reach a resolution. Should resolution of any controversy or claim not be reached following provision of notice and a reasonable opportunity to cure, then the Parties agree that any controversy or claim arising out of or relating to this Agreement, including the arbitrability of the dispute itself, shall be settled by one arbitrator in accordance with the National Rules in effect at the time the arbitration demand is filed or such other rules as may be mutually agreed to by the Parties. The dispute will be arbitrated in Boston, Massachusetts, absent mutual agreement of the Parties to another venue. Any claim or controversy not submitted to arbitration in accordance with this Section 10(m) (other than as provided under the Confidentiality Agreement) will be waived, and thereafter no arbitrator, arbitration panel, tribunal, or court will have the power to rule or make any award on any such claim or controversy. In determining a claim or controversy under this Agreement and in making an award, the arbitrator must consider the terms and provisions of this Agreement, as well as all applicable federal, state, or local laws. The award rendered in any arbitration proceeding held under this Section 10(m) will be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof. Claims for workers compensation or unemployment compensation benefits are not covered by this Section 10(m). Also not covered by this Section 10(m) are claims by the Company or by you for temporary restraining orders, preliminary injunctions or permanent injunctions ( equitable relief ) in cases in which such equitable relief would be otherwise authorized by law or pursuant to the Confidentiality Agreement. The Company will be responsible for paying any filing fee of the sponsoring organization and the fees and costs of the arbitrator; provided, however, that if you initiate the claim, you will contribute an amount equal to the filing fee you would have incurred to initiate a claim in the court of general jurisdiction in the Commonwealth of Massachusetts. Each party will pay for its own costs and attorneys fees, if any, provided that the arbitrator or court, as applicable, may award reasonable costs and expenses in favor of the prevailing party. The Company and you agree that the decision as to whether a party is the prevailing party in an arbitration, or a legal proceeding that is commenced in connection therewith, will be made in the sole discretion of the arbitrator or, if applicable, the court. Any action, suit or other legal proceeding with respect to equitable relief that is excluded from arbitration above must be commenced only in a court of the Commonwealth of Massachusetts (or, if appropriate, a federal court located within the Commonwealth of Massachusetts), and the Company
9
and you each consent to the jurisdiction of such a court. With respect to any such court action, the Parties hereto (i) submit to the personal jurisdiction of such courts; (ii) consent to service of process by the means specified under Section 10(a); and (iii) waive any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, inconvenient forum, or service of process.
(n) Interpretation. The parties agree that this Agreement will be construed without regard to any presumption or rule requiring construction or interpretation against the drafting party. References in this Agreement to include or including should be read as though they said without limitation or equivalent forms. References to day or days are to calendar days, unless the Agreement specifically refers to business days.
(o) Entire Agreement. This Agreement and any documents referred to herein represent the entire agreement of the Parties and will supersede any and all previous contracts, arrangements or understandings between the Company and you relating to matters covered by this Agreement, including specifically your prior employment agreement dated as January 21, 2008 and amended as of December 30, 2008.
Signatures on Following Page
10
Very truly yours, | ||||
/s/ Nancy Stuart |
||||
Nancy Stuart | ||||
Chief Operating Officer | ||||
Agreed and Accepted: | ||||
Signature: | ||||
/s/ Roger D. Tung |
1/13/2014 |
|||
Roger D. Tung | Date: |
11
Exhibit 10.10
January 10, 2014
Nancy Stuart
c/o
Concert Pharmaceuticals Inc.
99 Hayden Avenue, Suite 500
Lexington, MA 02421
Dear Ms. Stuart:
This agreement revises the terms of your continued employment as Chief Operating Officer of Concert Pharmaceuticals, Inc. (the Company or Concert and, with you, the Parties ) reporting to the Companys Chief Executive Officer and to the Companys Board of Directors (the Board ), effective as of January 10, 2014 (the Effective Date ). You agree to continue to perform the duties of your position and such other duties as the Board may reasonably assign to you from time to time.
1. Salary . You will continue to receive annualized base salary of $304,209 per year, payable in accordance with the regular payroll practices of the Company and less applicable taxes and withholdings, as in effect from time to time. The base salary shall be subject to increase from time to time by the Compensation Committee of the Board (the Compensation Committee ) in its exclusive discretion.
2. Bonus . During your employment, you may be eligible for an annual discretionary performance bonus in addition to your base salary. Bonus compensation in any year, if any, will be based on your performance and/or that of the Company, in accordance with a general bonus program to be established by the Board (and administered by the Compensation Committee) and will be payable not later than two and one-half months following the calendar year, except as the bonus program may from time to time provide.
3. Benefits; Vacation . You will be entitled to participate in all employee benefit plans from time to time in effect for employees of the Company generally. Your participation will be subject to the terms of the applicable plan documents and generally applicable Company policies. Benefits are subject to change at any time at the Companys sole discretion. You will remain eligible to accrue three weeks paid vacation in each calendar year (or such greater amount as is generally made available in accordance with the Companys policies from time to time in effect), in addition to holidays observed by the Company. Vacation may be taken at such times and intervals as you shall determine, subject to the business needs of the Company, and otherwise shall be subject to the policies of the Company, as in effect from time to time.
4. Expense Reimbursement . The Company will pay or reimburse you for all and customary reasonable out-of-pocket business expenses incurred or paid by you in the
performance of your duties and responsibilities for the Company, subject to any maximum annual limit and other restrictions on such expenses set by the Company and to such reasonable substantiation and documentation as the Company may specify. Any such reimbursement that would constitute nonqualified deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended ( Section 409A of the Code ) shall be subject to the following additional rules: (i) no reimbursement of any such expense shall affect your right to reimbursement of any other such expense in any other taxable year; (ii) reimbursement of the expense shall be made, if at all, not later than the end of the calendar year following the calendar year in which the expense was incurred; and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.
5. Confidentiality Agreement . You represent that you have complied and agree that you will continue to comply with the Employee Confidentiality, Non-Competition, and Proprietary Information Agreement between the Company and you dated June 19, 2006 (the Confidentiality Agreement ). It is understood and agreed that a breach by you of the Confidentiality Agreement would be a material breach of this Agreement.
6. At-Will; Timing for Termination; Accrued Benefits . This employment letter is not intended to create or constitute an employment agreement or contract (express or implied) between you and the Company for a fixed term. It is also important for you to understand that Massachusetts is an at will employment state. This means that you will have the right to terminate your employment relationship with the Company at any time for any reason, although you are requested to give at least two weeks notice. Similarly, the Company will have the right to terminate its employment relationship with you at any time for any reason. You may terminate your employment hereunder for Good Reason (as defined below) by providing notice to the Company of the condition giving rise to the Good Reason no later than 30 days following the occurrence of the condition, by giving the Company 30 days to remedy the condition and by terminating employment for Good Reason within 30 days thereafter if the Company fails to remedy the condition. Upon your termination, the Company will pay on the date of termination any base salary earned but not paid through the date of termination and pay for any vacation time accrued but not used to that date. In addition, the Company will pay you any bonus that has been awarded to you and earned, but not yet paid on the termination of your employment (together with the preceding sentence, the Accrued Benefits ). In the event of any termination of your employment, other than a termination under Section 7 or as provided for COBRA under Section 7(c), the Company shall have no obligation to you under this Agreement other than with respect to the Accrued Benefits.
7. Termination without Cause; Termination for Good Reason .
(a) Severance Pay . A termination by you for Good Reason, or any termination of your employment by the Company (other than for Cause, as defined below, death, or inability to perform as a result of physical or mental infirmity ( disability )) shall entitle you to 12 months of severance pay (the Severance Pay ) and the other compensation provided in this section, as well as to the Accrued Benefits. The Severance Pay shall be calculated on the basis of your base salary as of the date the Company gives you notice of your termination and shall be exclusive of any bonus or benefit payments. The Company will provide the Severance Pay in the form of salary
2
continuation in accordance with the normal payroll practices of the Company, beginning with the Companys next regular payroll period following the Effective Release Date (as defined below), with the first payment including any amounts that would have been paid between the termination date and the Effective Date if the payments had commenced on the termination date and with the remaining payments made proportionately over the remainder of the 12 month severance period. The receipt of any severance benefits provided for under this Section 7 or otherwise shall be dependent upon your delivery to the Company, within 60 days following the date of termination of employment, of an effective general release of claims in a form provided by the Company; provided, however, that if the last day of the 60 day period falls in the calendar year following the year of your date of termination, the severance payments shall be paid or commence on the first payroll period of such subsequent calendar year following the Effective Release Date. The date on which your release of claims becomes effective is the Effective Release Date .
(b) Effect of Change of Control . If a Change of Control (as defined below) occurs that is a 409A Change of Control Event (as defined below) and if, within one year following such Change of Control, the Company or any successor thereto terminates your employment other than for Cause, or you terminate your employment for Good Reason, then, in lieu of installments, the Severance Pay will be paid in a single lump sum in the Companys next regular payroll period following the Effective Release Date (subject to the same delay provided above where the 60 day period ends in the following year); provided, however, that the payments will instead be made in installments as provided in the preceding section if the Change of Control is not also a 409A Change of Control Event. A 409A Change of Control Event is a change in the ownership or effective control of the Company or change in the ownership of a substantial portion of the assets of the Company within the meaning of Treasury Regulation § 1.409A-3(i)(5). In addition, if a Change of Control occurs and if, within one year following such Change of Control, (a) the Company or any successor thereto terminates your employment other than for Cause or your employment ends on death or disability, or (b) you terminate your employment for Good Reason, then all stock options held by you at such time shall immediately vest in full, notwithstanding any contrary provision in any agreement evidencing any such stock option.
(c) COBRA . In addition to Severance Pay, if you are participating in the Companys group health plan and/or dental plan at the time your employment ends and you exercise the right to continue participation in those plans under the federal law known as COBRA, or any successor law and if your employment has ended for a reason other than resignation without Good Reason or termination for Cause, the Company will continue to pay the full premium for such coverage that is applicable for active and similarly-situated employees who receive the same type of coverage (single, family, or other) until the earlier of (i) the end of the 12th month after your employment ends or (ii) the date your COBRA continuation coverage expires, unless the Companys providing payments for COBRA will violate the nondiscrimination requirements of applicable law, in which case this benefit will not apply.
3
(d) Definitions .
i. For purposes of this Agreement, Cause shall include (i) your conviction or plea of guilty or nolo contendre to a crime involving moral turpitude which adversely affects your ability to perform your obligations to the Company or the business activities, reputation, goodwill or image of the Company or to a felony, (ii) your deliberate dishonesty or breach of fiduciary duty which could be reasonably expected to or does cause material loss, damage or injury to the Company, (iii) your material breach of the terms of this agreement or your failure or refusal to carry out any material tasks assigned to you by the Company in accordance with the terms hereof, which breach or failure (only as to those susceptible to cure) continues for a period of more than ten days after your receipt of written notice thereof and which could be reasonably expected to or does cause material loss, damage or injury to the Company, (iv) the commission by you of any act of fraud, embezzlement or deliberate disregard of a rule or policy of the Company known to you or contained in a policy and procedure manual provided to you which could be reasonably expected to or does cause material loss, damage or injury to the Company, or (v) the material breach or threatened breach by you of any of the provisions of the Confidentiality Agreement which could be reasonably expected to or does cause material loss, damage or injury to the Company. ( Company , for purposes of this section, shall include the Company and any Company subsidiary.)
ii. Good Reason shall mean, without your consent: (i) material diminution in the nature or scope of your responsibilities, duties or authority, provided that neither of the following (x) or (y) shall constitute Good Reason: (x) the Companys failure to continue your appointment or election as a director or officer of any of its Affiliates nor (y) any diminution in the nature or scope of your responsibilities, duties or authority that is reasonably related to a diminution of the business of the Company or any of its Affiliates, other than any such diminution resulting from the sale or transfer of any or all of the assets of the Company or any of its Affiliates; (ii) a material reduction in your base salary other than one temporary reduction of not more than 120 days and not in excess of 20% of your base salary in connection with and in proportion to a general reduction of the base salaries of the Companys executive officers; (iii) relocation of your office more than 35 miles from Lexington, Massachusetts; or (iv) material breach by the Company of any material provision of this Agreement or any other service-providing agreement between the Company or any of its Affiliates and you.
iii. Change of Control shall mean (i) the acquisition of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly by any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), of securities of the Company representing a majority or more of the combined voting power of the Companys then outstanding securities, other than an acquisition of securities for investment purposes pursuant to a bona fide financing of the Company; (ii) a merger or consolidation of the Company with
4
any other corporation in which the holders of the voting securities of the Company prior to the merger or consolidation do not own more than 50% of the total voting securities of the surviving corporation; (iii) the sale or disposition by the Company of all or substantially all of the Companys assets other than a sale or disposition of assets to an entity whose equity interests are held, directly or indirectly, entirely by the same persons and in the same proportions as the equity interests of the Company; or (iv) a change in the composition of the Board that results, during any one year period, in the Continuing Directors no longer constituting a majority of the Board (or, if applicable, the board of directors of a successor corporation to the Company), where the term Continuing Director means at any date a member of the Board (x) who was a member of the Board on the Effective Date or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however , that there shall be excluded from this clause (y) any individual whose initial assumption of office after the Effective Date occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board.
8. Withholdings; Section 409A . Anything to the contrary notwithstanding, (a) all payments required to be made by the Company hereunder to you shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation, and (b) if and to the extent any portion of any payment, compensation or other benefit provided to you in connection with your employment termination is determined to constitute nonqualified deferred compensation within the meaning of Section 409A and you are a specified employee as defined in Section 409A(a)(2)(B)(i), as determined by the Company in accordance with its procedures, by which determination you hereby agree that you are bound, such portion of the payment, compensation or other benefit shall not be paid before the earlier of (i) the expiration of the six month period measured from the date of your separation from service (as determined under Section 409A) or (ii) the tenth day following the date of your death following such separation from service (the New Payment Date ). The aggregate of any payments that otherwise would have been paid to you during the period between the date of separation from service and the New Payment Date shall be paid to you in a lump sum in the first payroll period beginning after such New Payment Date, and any remaining payments will be paid on their original schedule. For purposes of this Agreement, (i) each amount to be paid or benefit to be provided shall be construed as a separate identified payment for purposes of Section 409A, (ii) neither you nor the Company shall have the right to accelerate or defer any payment or benefit hereunder unless permitted or required by Section 409A, and (iii) any payments that are due within the short term deferral period as defined in Section 409A or paid in a manner consistent with Treas. Reg. § 1.409A-1(b)(9)(iii) shall not be treated as deferred compensation unless applicable law requires otherwise. The terms of this employment letter are intended to be compliant with, or exempt from, Section 409A; provided, however, that the Company shall have no liability to you or to any other person in the event that the employment letter terms are determined not to be so compliant or exempt.
5
9. Parachute Taxation . The Company will make any payments due to you without regard to whether Section 280G of the Code would limit or preclude the deductibility of such payments (or any other payments or benefits) and without regard to whether such payments would subject you to the federal excise tax levied on certain excess parachute payments under Section 4999 of the Code; provided, however, that if the Total After-Tax Payments (as defined below) would be increased by the reduction or elimination of any payment and/or other benefit (including the vesting of any equity awards), then the amounts payable under this Agreement or otherwise will be reduced or eliminated as follows, as determined by the Company, in the following order: (i) nonacceleration of any stock options whose exercise price is at or above the fair market value of the Companys common stock as determined in the discretion of the Compensation Committee (taking into account, as appropriate, the proceeds that would be received in connection with the event covered by Section 4999) ( Underwater Options ), (ii) nonacceleration of any stock options other than Underwater Options, (iii) any vesting or distribution of restricted stock or restricted stock units, (iv) any other taxable benefits, (v) any nontaxable benefits, and (vi) the cash severance due under Section 7(a) above. Within each category described in clauses (i), (ii), and (iii), reductions or eliminations shall be made in reverse order beginning with vesting or distributions that are to be paid the farthest in time from the date of the event covered by Section 4999. The Companys independent, certified public accounting firm will determine whether and to what extent payments or vesting under this Agreement are required to be reduced in accordance with the preceding sentence. If there is an underpayment or overpayment under this Agreement (as determined after the application of this paragraph), the amount of such underpayment or overpayment will be immediately paid to you or refunded by you, as the case may be, with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. For purposes of this Agreement, Total After-Tax Payments means the total of all parachute payments (as that term is defined in Section 280G(b)(2) of the Code) made to you or for your benefit (whether made under the Agreement or otherwise), after reduction for all applicable federal taxes (including the tax described in Section 4999 of the Code).
10. Miscellaneous .
(a) Notices . All notices required or permitted under this Agreement must be in writing and will be deemed effective upon personal delivery or three business days following deposit in a United States Post Office, by certified mail, postage prepaid, or one business day after it is sent for next-business day delivery via a reputable nationwide overnight courier service addressed in the case of notice to the Company at its then principal headquarters (with copies to the Chairman of the Board and the Companys General Counsel, which will not constitute notice), and in the case of notice to you to the current address on file with the Company. Either Party may change the address to which notices are to be delivered by giving notice of such change to the other Party in the manner set forth in this Section 10(a)
(b) No Mitigation . You are not required to seek other employment or otherwise mitigate the value of any severance benefits contemplated by this Agreement,
6
nor will any such benefits be reduced by any earnings or benefits that you may receive from any other source. Notwithstanding any other provision of this Agreement, any sum or sums paid under this Agreement will be in lieu of any amounts to which you may otherwise be entitled under the terms of any severance plan, policy, program, agreement or other arrangement sponsored by the Company or an affiliate of the Company.
(c) Waiver of Jury Trial . TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER PROCEEDING ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE RELEASE IT CONTEMPLATES, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY PARTY MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE THEIR RIGHTS TO TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR TO ANY OF THE MATTERS CONTEMPLATED UNDER THIS AGREEMENT, RELATING TO YOUR EMPLOYMENT, OR COVERED BY THE CONTEMPLATED RELEASE.
(d) Severability. Each provision of this Agreement is intended to be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Moreover, if an arbitrator or a court of competent jurisdiction determines any of the provisions contained in this Agreement to be unenforceable because the provision is excessively broad in scope, whether as to duration, activity, geographic application, subject or otherwise, it will be construed, by limiting or reducing it to the extent legally permitted, so as to be enforceable to the extent compatible with then applicable law to achieve the intent of the Parties.
(e) Assignment. This Agreement will be binding upon and will inure to the benefit of (i) your heirs, beneficiaries, executors and legal representatives upon your death and (ii) any successor of the Company. Any such successor of the Company will be treated as substituted for the Company under the terms of this Agreement for all purposes. The Company may assign this Agreement without your consent, and such an assignment will not terminate your employment for purposes of triggering your entitlement to severance. You specifically agree that any assignment may include rights under the Confidentiality Agreement without requiring your consent. As used herein, successor will mean any person, firm, corporation or other business entity that at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company and its subsidiaries. None of your rights to receive any form of compensation payable under this Agreement will be assignable or transferable except through a testamentary disposition or by the laws of
7
descent and distribution upon your death or as provided in Section 10(k). Any attempted assignment, transfer, conveyance or other disposition of any interest in your rights to receive any form of compensation hereunder, except as provided in the preceding sentence, will be null and void.
(f) No Oral Modification, Waiver, Cancellation or Discharge. This Agreement may only be amended, canceled or discharged or any obligations thereunder waived through a writing signed by you and the Board or any duly authorized executive officer of the Company.
(g) No Conflict of Interest . You confirm that you have fully disclosed to the Company and its affiliates, to the best of your knowledge, any circumstances under which you, your immediate family and other persons who reside in your household have or may have a conflict of interest with the Company. You further agree to fully disclose to the Company any such circumstances that might arise during your employment upon your becoming aware of such circumstances.
(h) Other Agreements . You hereby represent that your performance of all the terms of this Agreement and the performance of your duties as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by you in confidence or in trust prior to your employment with the Company. You also represent that you are not a party to or subject to any restrictive covenants, legal restrictions, policies, commitments or other agreements in favor of any entity or person that would in any way preclude, inhibit, impair or limit your ability to perform your obligations under this Agreement, including noncompetition agreements or nonsolicitation agreements, and you further represent that your performance of the duties and obligations under this Agreement does not violate the terms of any agreement to which you are a party. You agree that you will not enter into any agreement or commitment or agree to any policy that would prevent or unreasonably hinder your performance of duties and obligations under this Agreement.
(i) Disclosure of this Agreement . You acknowledge that the Company may provide persons or entities who may employ or engage you with a copy of the Confidentiality Agreement (or portions thereof) to highlight your continuing obligations to the Company. You also acknowledge that the Company may be obligated to disclose this Agreement or any portion thereof to satisfy applicable laws and regulations.
(j) Survivorship. The respective rights and obligations of the Company and you hereunder will survive any termination of your employment to the extent necessary to preserve the intent of such rights and obligations.
(k) Beneficiaries. You will be entitled, to the extent applicable law permits, to select and change the beneficiary or beneficiaries to receive any compensation or benefit payable hereunder upon your death by giving the Company written notice thereof in a manner consistent with the terms of any applicable plan documents. If you die, severance then due or other amounts due hereunder will be paid to your designated beneficiary or beneficiaries or, if none are designated or none survive you, your estate.
8
(l) Company Policies . References in this Agreement to Company policies and procedures are to those policies and procedures in effect at the Effective Date, as the Company may amend them from time to time.
(m) Governing Law; Dispute Resolution . This Agreement must be construed, interpreted, and governed in accordance with the laws of the Commonwealth of Massachusetts without reference to rules relating to conflict of law. The Parties agree that the Federal Arbitration Act, 9 U.S.C. §1 et seq. and the American Arbitration Associations National Rules for the Resolution of Employment Disputes (the National Rules ) apply to the interpretation and enforcement of this Agreement. In case of any controversy, dispute, or claim directly or indirectly arising out of or related to this Agreement, or the breach thereof, or relating to your employment (including claims relating to employment discrimination), except as expressly excluded herein, each Party agrees to give the other Party notice of an intent to seek arbitration under this Agreement and 10 days to reach a resolution. Should resolution of any controversy or claim not be reached following provision of notice and a reasonable opportunity to cure, then the Parties agree that any controversy or claim arising out of or relating to this Agreement, including the arbitrability of the dispute itself, shall be settled by one arbitrator in accordance with the National Rules in effect at the time the arbitration demand is filed or such other rules as may be mutually agreed to by the Parties. The dispute will be arbitrated in Boston, Massachusetts, absent mutual agreement of the Parties to another venue. Any claim or controversy not submitted to arbitration in accordance with this Section 10(m) (other than as provided under the Confidentiality Agreement) will be waived, and thereafter no arbitrator, arbitration panel, tribunal, or court will have the power to rule or make any award on any such claim or controversy. In determining a claim or controversy under this Agreement and in making an award, the arbitrator must consider the terms and provisions of this Agreement, as well as all applicable federal, state, or local laws. The award rendered in any arbitration proceeding held under this Section 10(m) will be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof. Claims for workers compensation or unemployment compensation benefits are not covered by this Section 10(m). Also not covered by this Section 10(m) are claims by the Company or by you for temporary restraining orders, preliminary injunctions or permanent injunctions ( equitable relief ) in cases in which such equitable relief would be otherwise authorized by law or pursuant to the Confidentiality Agreement. The Company will be responsible for paying any filing fee of the sponsoring organization and the fees and costs of the arbitrator; provided, however, that if you initiate the claim, you will contribute an amount equal to the filing fee you would have incurred to initiate a claim in the court of general jurisdiction in the Commonwealth of Massachusetts. Each party will pay for its own costs and attorneys fees, if any, provided that the arbitrator or court, as applicable, may award reasonable costs and expenses in favor of the prevailing party. The Company and you agree that the decision as to whether a party is the prevailing party in an arbitration, or a legal proceeding that is commenced in connection therewith, will be made in the sole discretion of the arbitrator or, if applicable, the court. Any action, suit or other legal proceeding with respect to equitable relief that is excluded from arbitration above must be commenced only in a court of the Commonwealth of Massachusetts (or, if appropriate, a federal court located within the Commonwealth of Massachusetts), and the Company
9
and you each consent to the jurisdiction of such a court. With respect to any such court action, the Parties hereto (i) submit to the personal jurisdiction of such courts; (ii) consent to service of process by the means specified under Section 10(a); and (iii) waive any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, inconvenient forum, or service of process.
(n) Interpretation. The parties agree that this Agreement will be construed without regard to any presumption or rule requiring construction or interpretation against the drafting party. References in this Agreement to include or including should be read as though they said without limitation or equivalent forms. References to day or days are to calendar days, unless the Agreement specifically refers to business days.
(o) Entire Agreement. This Agreement and any documents referred to herein represent the entire agreement of the Parties and will supersede any and all previous contracts, arrangements or understandings between the Company and you relating to matters covered by this Agreement, including specifically your prior employment agreement dated as January 30, 2008 and amended as of December 30, 2008.
Signatures on Following Page
10
Very truly yours, | ||||
/s/ Roger D. Tung |
||||
Roger D. Tung | ||||
President and Chief Executive Officer | ||||
Agreed and Accepted: | ||||
Signature: | ||||
/s/ Nancy Stuart |
1/13/2014 |
|||
Nancy Stuart | Date: |
11
Exhibit 10.11
VIA HAND DELIVERY (Delivered as amended via electronic mail)
October 2, 2013 (as amended October 8, 2013, October 14, 2013, and October 17, 2013)
James E. Shipley
1 Pheasant Lane
Bedford, MA 01730
Dear Jim:
In connection with your separation of employment from Concert Pharmaceuticals, Inc. (the Company) on October 15, 2013, you are eligible to receive the severance benefits described in paragraph 2 below if you sign and return this letter agreement to me by October 25, 2013 (but in no event earlier than October 15, 2013) and it becomes binding between you and the Company. By timely signing and returning this letter agreement and not revoking your acceptance, you will be entering into a binding agreement with the Company and will be agreeing to the terms and conditions set forth in the numbered paragraphs below, including the release of claims set forth in paragraph 3. Therefore, you are advised to consult with an attorney before signing this letter agreement and you have been given at least twenty-one (21) days to do so. If you sign this letter agreement, you may change your mind and revoke your agreement during the seven (7) day period after you have signed it by notifying me in writing. If you do not so revoke, this letter agreement will become a binding agreement between you and the Company upon the expiration of the seven (7) day period.
If you choose not to sign and return this letter agreement by October 25, 2013 or if you timely revoke your acceptance in writing, you shall not receive any severance benefits from the Company. You will, however, receive payment on your Separation Date, as defined below, for your final wages and any unused vacation time accrued through the Separation Date. You may also, if eligible, elect to continue receiving group medical insurance pursuant to the COBRA law. Please consult the COBRA materials to be provided by the Company under separate cover for details regarding these benefits.
The following numbered paragraphs set forth the terms and conditions that will apply if you timely sign and return this letter agreement and do not revoke it in writing within the seven (7) day period.
1. Separation Date; Equity Your effective date of separation from the Company will be October 15, 2013 (the Separation Date). As of the Separation Date, all prospective salary payments from the Company will cease and your participation in the Company-provided benefit plans, programs, or practices will terminate, except as required by federal or state law and except as provided in paragraphs 2 and 8 hereof. On your Separation Date the Company shall pay you any base salary that you earned through the Separation Date but did not receive, and any vacation time that you accrued but did not use (Accrued Benefits). Pursuant to the terms of the incentive stock options granted to you under the Companys Amended and Restated 2006 Stock Option Grant Plan, you will have up to one (1) year following the Separation Date to exercise any vested stock options you hold as of the Separation Date. All vesting will cease, and all unvested stock options will be cancelled, on the Separation Date. Notwithstanding anything to the contrary, if you exercise your vested stock options under your Incentive Stock Option
99 Hayden Avenue Suite 500 Lexington, MA 02421 781.860.0045 (Tel) 781 860 8923 (Fax)
- 1 -
Shipley, J. letter 02 October 2013
Agreements, dated March 24, 2011 and December 15, 2011, in either case after January 14, 2014 and before the Final Exercise Date (as defined in such Agreements), then your options will be treated as nonqualified stock options for federal tax purposes and if you exercise while the options are treated as nonqualified stock options, the Company will require that you satisfy your income and employment tax withholding obligations as a condition to your exercise of the option.
2. Description of Severance Benefits If you timely sign and return this letter agreement and do not revoke your acceptance, the Company will provide you with the following severance benefits (the severance benefits):
a. Severance Pay . The Company will continue to pay to you your current base salary rate as severance pay for the twelve (12) months following the Separation Date, ending on October 15, 2014. This severance pay will be paid in a series of separate, substantially equal installments in accordance with the Companys normal payroll practices (Severance Payments), commencing in the Companys first payroll cycle in 2013 beginning after this letter agreement becomes binding and enforceable (the Payment Commencement Date). The first Severance Payment will include a catch up payment for an amount equal to the severance pay you would have received between the Separation Date and the Payment Commencement Date had payments hereunder commenced immediately after the Separation Date.
b. COBRA Benefits . Contingent upon your timely COBRA elections, you will continue receiving family coverage under the Companys group medical and/or dental plans pursuant to the COBRA law, and the Company will, until the earlier of (x) October 15, 2014, or (y) the date on which you become eligible to enroll in the health and/or dental plan of a new employer, pay the entire premium amount for such coverage. You are required to immediately advise the Company of the date on which you become eligible to enroll in the medical and/or dental plan of a new employer. In addition, and contingent upon your timely COBRA election, the Company will, for the three-month period between October 2013 and December 2013, pay your monthly $208.34 Flexible Spending Account contribution payments. In the event you remain eligible under COBRA to continue participating in the Companys Flexible Spending Account following December 2013, you will be responsible for paying any and all contribution payments after such date.
You will not be eligible for, nor shall you have a right to receive, any payments or benefits following the Separation Date other than as described in this paragraph 2 and paragraph 8.
3. Release In consideration of the payment of the severance benefits, which you acknowledge you would not otherwise be entitled to receive, you hereby fully, forever, irrevocably and unconditionally release, remise and discharge the Company, its affiliates, subsidiaries, parent companies, predecessors, and successors, and all of their respective past and present officers, directors, stockholders, partners, members, employees, agents, representatives, plan administrators, attorneys, insurers and fiduciaries (each in their individual and corporate capacities) (collectively, the Released Parties) from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including attorneys fees and costs), of every kind and nature that you ever had or now have against any or all of the Released Parties, including, but not limited to, any and all claims arising out of or relating to your employment with and/or separation from the Company, including, but not limited to, all claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. , the Americans With Disabilities Act of 1990, 42 U.S.C. § 12101 et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Genetic Information Nondiscrimination Act of 2008, 42 U.S.C. § 2000ff et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., the
99 Hayden Avenue Suite 500 Lexington, MA 02421 781.860.0045 (Tel) 781 860 8923 (Fax)
- 2 -
Shipley, J. letter 02 October 2013
Worker Adjustment and Retraining Notification Act (WARN), 29 U.S.C. § 2101 et seq., the Rehabilitation Act of 1973,29 U.S.C. § 701 et seq., Executive Order 11246, Executive Order 11141, the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., and the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., all as amended; all claims arising out of the Massachusetts Fair Employment Practices Act., Mass. Gen, Laws ch. 151B, § 1 et seq., the Massachusetts Wage Act, Mass. Gen, Laws ch. 149, § 148 et seq., (Massachusetts law regarding payment of wages and overtime), the Massachusetts Civil Rights Act, Mass, Gen. Laws ch. 12, §§ 11H and 111, the Massachusetts Equal Rights Act, Mass. Gen. Laws. ch. 93, § 102 and Mass. Gen. Laws ch. 214, § 1C, the Massachusetts Labor and Industries Act, Mass. Gen, Laws ch. 149, § 1 et seq., Mass. Gen. Laws ch. 214, § 1B (Massachusetts right of privacy law), the Massachusetts Maternity Leave Act, Mass. Gen. Laws ch. 149, § 105D, and the Massachusetts Small Necessities Leave Act, Mass. Gen. Laws ch. 149, § 52D, all as amended; all common law claims including, but not limited to, actions in defamation, intentional infliction of emotional distress, misrepresentation, fraud, wrongful discharge, and breach of contract (including, without limitation, all claims arising out of or related to your December 10, 2010 Offer Letter); all claims to any non-vested ownership interest in the Company, contractual or otherwise; all state and federal whistleblower claims to the maximum extent permitted by law; and any claim or damage arising out of your employment with and/or separation from the Company (including a claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above; provided, however, that nothing in this letter agreement prevents you from filing a charge with, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission or a state fair employment practices agency (except that you acknowledge that you may not recover any monetary benefits in connection with any such claim, charge or proceeding).
4. Continuing Obligations You acknowledge and reaffirm your obligation to keep confidential and not to use or disclose any and all non-public information concerning the Company that you acquired during the course of your employment with the Company, including, but not limited to, any non-public information concerning the Companys business affairs, business prospects, and financial condition. You further acknowledge and reaffirm your obligations set forth in the Employee Confidentiality, Non-competition and Proprietary Information Agreement (the Non-Compete Agreement) you executed for the benefit of the Company, which remain in full force and effect.
5. Continued Assistance You agree that after the Separation Date you will assist the Company in transitioning your job duties; provided, however, that you will not be required to provide the Company with any amount of continued assistance that would require compensation under Massachusetts wage law.
6. Cooperation Subject to the terms of this paragraph, you agree to cooperate fully with the Company in the investigation, defense or prosecution of any claims or actions now in existence or that may be brought in the future against or on behalf of the Company by any third party against the Company or by the Company against any third party. You agree that your full cooperation in connection with such claims or actions will include being available to meet with the Companys counsel to prepare for discovery, any mediation, arbitration, trial, administrative hearing or other proceeding, and to act as a witness when requested by the Company at reasonable times and locations designated by the Company provided that any such service which you provide the Company shall be compensated under such terms as you and the Company shall mutually agree in a separate writing and provided further that you will not receive any compensation for time spent testifying under oath unless such testimony is in your capacity as the Companys expert witness. You agree that you will notify the Company promptly in the event that you are served with a subpoena or in the event that you are asked to provide a third party with information concerning any actual or potential complaint or claim against the Company.
Notwithstanding anything to the contrary, the terms of the Indemnification Agreement between you and the Company, dated January 4, 2011 (Indemnification Agreement), shall survive such that the Company shall continue to indemnify you as and to the extent described under the Indemnification Agreement.
99 Hayden Avenue Suite 500 Lexington, MA 02421 781.860.0045 (Tel) 781 860 8923 (Fax)
- 3 -
Shipley, J. letter 02 October 2013
7. Return of Company Property You confirm that you have returned to the Company all keys, files, records (and copies thereof), equipment (including, but not limited to, computer hardware, software and printers, wireless handheld devices, cellular phones, pagers, etc.), Company identification, and any other Company-owned property in your possession or control and have left intact all electronic Company documents, including but not limited to those that you developed or helped to develop during your employment. You further confirm that you have cancelled all accounts for your benefit, if any, in the Companys name, including but not limited to, credit cards, telephone charge cards, cellular phone and/or pager accounts, and computer accounts.
8. Business Expenses, Final Compensation and 401(k) Benefits Except as otherwise provided in this paragraph, you acknowledge that you have been reimbursed by the Company for all business expenses incurred in conjunction with the performance of your employment and that no other such reimbursements are owed to you. As soon as practicable after October 15, 2013 but in no event later than November 1, 2013, the Company shall reimburse you, or pay any invoice that you present to the Company for your mobile telephone use for the period beginning on the date for which the Company last reimbursed you for such use and ending on your Separation Date. In addition, the Company shall transfer to your Individual Retirement Account (IRA) the full vested balance of your accounts in the Concert Pharmaceuticals 401(k) Plan (401(k) Plan) as soon as practicable after your Separation Date and in accordance with the terms of the 401(k) Plan and your instructions to do so. Subject to your receipt of your Accrued Benefits, as defined in paragraph 1 hereof, you acknowledge that as of the date you receive reimbursement for the mobile phone amount described in this paragraph 8, you will have received payment in full for all services rendered in conjunction with your employment by the Company, including payment for all wages, bonuses, and accrued, unused vacation time. You further acknowledge that the Company has no further obligations to you, other than the severance benefits, COBRA continuation, and 401(k) Plan transfer obligations set forth herein.
9. Amendment and Waiver This letter agreement shall be binding upon the parties and may not be modified in any manner, except by an instrument in writing of concurrent or subsequent date signed by duly authorized representatives of the parties hereto. This letter agreement is binding upon and shall inure to the benefit of the parties and their respective agents, assigns, heirs, executors, successors and administrators. No delay or omission by the Company in exercising any right under this letter agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar to or waiver of any right on any other occasion.
10. Validity Should any provision of this letter agreement be declared or be determined by any court of competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this letter agreement.
11. Confidentiality To the extent permitted by law, you understand and agree that as a condition for payment to you of the severance benefits herein described, the terms and contents of this letter agreement, and the contents of the negotiations and discussions resulting in this letter agreement, shall be maintained as confidential by you and your agents and representatives and shall not be disclosed except as otherwise agreed to in writing by the Company.
99 Hayden Avenue Suite 500 Lexington, MA 02421 781.860.0045 (Tel) 781 860 8923 (Fax)
- 4 -
Shipley, J. letter 02 October 2013
12. Nature of Agreement You understand and agree that this letter agreement is a severance agreement and does not constitute an admission of liability or wrongdoing on the part of the Company.
13. Acknowledgments You acknowledge that you have been given at least twenty-one ( 2 1) days to consider this letter agreement, and that the Company is hereby advising you to consult with an attorney of your own choosing prior to signing this letter agreement. You further acknowledge that the changes made to the October 2, 2013, October 8, 2013, and October 14, 2013 letter agreements were made at your request and that, whether material or immaterial, such changes did not re-start the twenty-one (21) day review period. You understand that you may revoke this letter agreement for a period of seven (7) days after you sign this letter agreement by notifying me in writing, and the letter agreement shall not be effective or enforceable until the expiration of this seven (7) day revocation period. You understand and agree that by entering into this letter agreement, you are waiving any and all rights or claims you might have under the Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act, and that you have received consideration beyond that to which you were previously entitled.
14. Voluntary Assent You affirm that no other promises or agreements of any kind have been made to or with you by any person or entity whatsoever to cause you to sign this letter agreement, and that you fully understand the meaning and intent of this letter agreement. You state and represent that you have had an opportunity to fully discuss and review the terms of this letter agreement with an attorney. You further state and represent that you have carefully read this letter agreement, understand the contents herein, freely and voluntarily assent to all of the terms and conditions hereof, and sign your name of your own free act.
15. Applicable Law This letter agreement shall be interpreted and construed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions. You hereby irrevocably submit to and acknowledge and recognize the jurisdiction of the courts of the Commonwealth of Massachusetts or if appropriate, a federal court located in the Commonwealth of Massachusetts (which courts, for purposes of this letter agreement, are the only courts of competent jurisdiction), over any suit, action or other proceeding arising out of, under or in connection with this letter agreement or the subject matter hereof.
16. Entire Agreement This letter agreement contains and constitutes the entire understanding and agreement between the parties hereto with respect to your severance benefits and the settlement of claims against the Company and cancels all previous oral and written negotiations, agreements, and commitments in connection therewith. Nothing in this paragraph, however, shall modify, cancel or supersede your obligations set forth in paragraph 4 above, or the Companys obligations under the Indemnification Agreement, the 401(k) Plan and the Amended and Restated 2006 Stock Option Grant Plan.
17. Tax Acknowledgement In connection with the severance benefits provided to you pursuant to this letter agreement, the Company shall withhold and remit to the tax authorities the amounts required under applicable law, and you shall be responsible for all applicable taxes with respect to such severance benefits under applicable law. You acknowledge that you are not relying upon the advice or representation of the Company with respect to the tax treatment of any of the severance benefits set forth in paragraph 2 of this letter agreement.
18. Electronic Signature For purposes of establishing a binding contract, the Company shall accept your signing a copy of this letter agreement and submitting it by telefacsimile or electronic mail, and the date of your delivery of such document to the Company shall establish the date of your signature. You will follow any such signed document with an originally signed copy of this letter.
99 Hayden Avenue Suite 500 Lexington, MA 02421 781.860.0045 (Tel) 781 860 8923 (Fax)
- 5 -
Shipley, J. letter 02 October 2013
If you have any questions about the matters covered in this letter agreement, please call me.
Very truly yours, |
/s/ Roger D. Tung, Ph. D. |
Roger D. Tung, Ph. D. |
President and CEO |
I hereby agree to the terms and conditions set forth above. I have been given at least twenty-one (21) days to consider this letter agreement, and I have chosen to execute this on the date below. I acknowledge that the changes made to the October 2, 2013, October 8, 2013, and October 14, 2013 letter agreements were made at my request and that, whether material or immaterial, such changes did not re-start the twenty-one (21) day review period. I intend that this letter agreement will become a binding agreement between me and the Company if I do not revoke my acceptance in seven (7) days.
/s/ James E. Shipley |
18 Oct 2013 |
|||
James E. Shipley | Date |
To be returned by October 25, 2013 (but in no event earlier than October 15, 2013).
99 Hayden Avenue Suite 500 Lexington, MA 02421 781.860.0045 (Tel) 781 860 8923 (Fax)
- 6 -
Exhibit 10.12
January 10, 2014
Ian Robert Silverman
c/o
Concert Pharmaceuticals Inc.
99 Hayden Avenue, Suite 500
Lexington, MA 02421
Dear Dr. Silverman:
This agreement revises the terms of your continued employment as Senior Vice President and General Counsel of Concert Pharmaceuticals, Inc. (the Company or Concert and, with you, the Parties ) reporting to the Companys Chief Executive Officer, effective as of January 10, 2014 (the Effective Date ). You agree to continue to perform the duties of your position and such other duties as the Board may reasonably assign to you from time to time.
1. Salary . You will continue to receive annualized base salary of $299,535 per year, payable in accordance with the regular payroll practices of the Company and less applicable taxes and withholdings, as in effect from time to time. The base salary shall be subject to increase from time to time by the Compensation Committee of the Companys Board of Directors (the Compensation Committee of the Board ) in its exclusive discretion.
2. Bonus . During your employment, you may be eligible for an annual discretionary performance bonus in addition to your base salary. Bonus compensation in any year, if any, will be based on your performance and/or that of the Company, in accordance with a general bonus program to be established by the Board (and administered by the Compensation Committee) and will be payable not later than two and one-half months following the calendar year, except as the bonus program may from time to time provide.
3. Benefits; Vacation . You will be entitled to participate in all employee benefit plans from time to time in effect for employees of the Company generally. Your participation will be subject to the terms of the applicable plan documents and generally applicable Company policies. Benefits are subject to change at any time at the Companys sole discretion. You will remain eligible to accrue three weeks paid vacation in each calendar year (or such greater amount as is generally made available in accordance with the Companys policies from time to time in effect), in addition to holidays observed by the Company. Vacation may be taken at such times and intervals as you shall determine, subject to the business needs of the Company, and otherwise shall be subject to the policies of the Company, as in effect from time to time.
4. Expense Reimbursement . The Company will pay or reimburse you for all and customary reasonable out-of-pocket business expenses incurred or paid by you in the performance of your duties and responsibilities for the Company, subject to any maximum
annual limit and other restrictions on such expenses set by the Company and to such reasonable substantiation and documentation as the Company may specify. Any such reimbursement that would constitute nonqualified deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended ( Section 409A of the Code ) shall be subject to the following additional rules: (i) no reimbursement of any such expense shall affect your right to reimbursement of any other such expense in any other taxable year; (ii) reimbursement of the expense shall be made, if at all, not later than the end of the calendar year following the calendar year in which the expense was incurred; and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.
5. Confidentiality Agreement . You represent that you have complied and agree that you will continue to comply with the Employee Confidentiality, Non-Competition, and Proprietary Information Agreement between the Company and you dated November 30, 2006 (the Confidentiality Agreement ). It is understood and agreed that a breach by you of the Confidentiality Agreement would be a material breach of this Agreement.
6. At-Will; Timing for Termination; Accrued Benefits . This employment letter is not intended to create or constitute an employment agreement or contract (express or implied) between you and the Company for a fixed term. It is also important for you to understand that Massachusetts is an at will employment state. This means that you will have the right to terminate your employment relationship with the Company at any time for any reason, although you are requested to give at least two weeks notice. Similarly, the Company will have the right to terminate its employment relationship with you at any time for any reason. You may terminate your employment hereunder for Good Reason (as defined below) by providing notice to the Company of the condition giving rise to the Good Reason no later than 30 days following the occurrence of the condition, by giving the Company 30 days to remedy the condition and by terminating employment for Good Reason within 30 days thereafter if the Company fails to remedy the condition. Upon your termination, the Company will pay on the date of termination any base salary earned but not paid through the date of termination and pay for any vacation time accrued but not used to that date. In addition, the Company will pay you any bonus that has been awarded to you and earned, but not yet paid on the termination of your employment (together with the preceding sentence, the Accrued Benefits ). In the event of any termination of your employment, other than a termination under Section 7 or as provided for COBRA under Section 7(c), the Company shall have no obligation to you under this Agreement other than with respect to the Accrued Benefits.
7. Termination without Cause; Termination for Good Reason .
(a) Severance Pay . A termination by you for Good Reason, or any termination of your employment by the Company (other than for Cause, as defined below, death, or inability to perform as a result of physical or mental infirmity ( disability )) shall entitle you to 12 months of severance pay (the Severance Pay ) and the other compensation provided in this section, as well as to the Accrued Benefits. The Severance Pay shall be calculated on the basis of your base salary as of the date the Company gives you notice of your termination and shall be exclusive of any bonus or benefit payments. The Company will provide the Severance Pay in the form of salary continuation in accordance with the normal payroll practices of the Company, beginning
2
with the Companys next regular payroll period following the Effective Release Date (as defined below), with the first payment including any amounts that would have been paid between the termination date and the Effective Date if the payments had commenced on the termination date and with the remaining payments made proportionately over the remainder of the 12 month severance period. The receipt of any severance benefits provided for under this Section 7 or otherwise shall be dependent upon your delivery to the Company, within 60 days following the date of termination of employment, of an effective general release of claims in a form provided by the Company; provided, however, that if the last day of the 60 day period falls in the calendar year following the year of your date of termination, the severance payments shall be paid or commence on the first payroll period of such subsequent calendar year following the Effective Release Date. The date on which your release of claims becomes effective is the Effective Release Date .
(b) Effect of Change of Control . If a Change of Control (as defined below) occurs that is a 409A Change of Control Event (as defined below) and if, within one year following such Change of Control, the Company or any successor thereto terminates your employment other than for Cause, or you terminate your employment for Good Reason, then, in lieu of installments, the Severance Pay will be paid in a single lump sum in the Companys next regular payroll period following the Effective Release Date (subject to the same delay provided above where the 60 day period ends in the following year); provided, however, that the payments will instead be made in installments as provided in the preceding section if the Change of Control is not also a 409A Change of Control Event. A 409A Change of Control Event is a change in the ownership or effective control of the Company or change in the ownership of a substantial portion of the assets of the Company within the meaning of Treasury Regulation § 1.409A-3(i)(5). In addition, if a Change of Control occurs and if, within one year following such Change of Control, (a) the Company or any successor thereto terminates your employment other than for Cause or your employment ends on death or disability, or (b) you terminate your employment for Good Reason, then all stock options held by you at such time shall immediately vest in full, notwithstanding any contrary provision in any agreement evidencing any such stock option.
(c) COBRA . In addition to Severance Pay, if you are participating in the Companys group health plan and/or dental plan at the time your employment ends and you exercise the right to continue participation in those plans under the federal law known as COBRA, or any successor law and if your employment has ended for a reason other than resignation without Good Reason or termination for Cause, the Company will continue to pay the full premium for such coverage that is applicable for active and similarly-situated employees who receive the same type of coverage (single, family, or other) until the earlier of (i) the end of the 12th month after your employment ends or (ii) the date your COBRA continuation coverage expires, unless the Companys providing payments for COBRA will violate the nondiscrimination requirements of applicable law, in which case this benefit will not apply.
3
(d) Definitions .
i. For purposes of this Agreement, Cause shall include (i) your conviction or plea of guilty or nolo contendre to a crime involving moral turpitude which adversely affects your ability to perform your obligations to the Company or the business activities, reputation, goodwill or image of the Company or to a felony, (ii) your deliberate dishonesty or breach of fiduciary duty which could be reasonably expected to or does cause material loss, damage or injury to the Company, (iii) your material breach of the terms of this agreement or your failure or refusal to carry out any material tasks assigned to you by the Company in accordance with the terms hereof, which breach or failure (only as to those susceptible to cure) continues for a period of more than ten days after your receipt of written notice thereof and which could be reasonably expected to or does cause material loss, damage or injury to the Company, (iv) the commission by you of any act of fraud, embezzlement or deliberate disregard of a rule or policy of the Company known to you or contained in a policy and procedure manual provided to you which could be reasonably expected to or does cause material loss, damage or injury to the Company, or (v) the material breach or threatened breach by you of any of the provisions of the Confidentiality Agreement which could be reasonably expected to or does cause material loss, damage or injury to the Company. ( Company , for purposes of this section, shall include the Company and any Company subsidiary.)
ii. Good Reason shall mean, without your consent: (i) material diminution in the nature or scope of your responsibilities, duties or authority, provided that neither of the following (x) or (y) shall constitute Good Reason: (x) the Companys failure to continue your appointment or election as a director or officer of any of its Affiliates nor (y) any diminution in the nature or scope of your responsibilities, duties or authority that is reasonably related to a diminution of the business of the Company or any of its Affiliates, other than any such diminution resulting from the sale or transfer of any or all of the assets of the Company or any of its Affiliates; (ii) a material reduction in your base salary other than one temporary reduction of not more than 120 days and not in excess of 20% of your base salary in connection with and in proportion to a general reduction of the base salaries of the Companys executive officers; (iii) relocation of your office more than 35 miles from Lexington, Massachusetts; or (iv) material breach by the Company of any material provision of this Agreement or any other service-providing agreement between the Company or any of its Affiliates and you.
iii. Change of Control shall mean (i) the acquisition of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly by any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), of securities of the Company representing a majority or more of the combined voting power of the Companys then outstanding securities, other than an acquisition of securities for investment purposes pursuant to a bona fide financing of the Company; (ii) a merger or consolidation of the Company with
4
any other corporation in which the holders of the voting securities of the Company prior to the merger or consolidation do not own more than 50% of the total voting securities of the surviving corporation; (iii) the sale or disposition by the Company of all or substantially all of the Companys assets other than a sale or disposition of assets to an entity whose equity interests are held, directly or indirectly, entirely by the same persons and in the same proportions as the equity interests of the Company; or (iv) a change in the composition of the Board that results, during any one year period, in the Continuing Directors no longer constituting a majority of the Board (or, if applicable, the board of directors of a successor corporation to the Company), where the term Continuing Director means at any date a member of the Board (x) who was a member of the Board on the Effective Date or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however , that there shall be excluded from this clause (y) any individual whose initial assumption of office after the Effective Date occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board.
8. Withholdings; Section 409A . Anything to the contrary notwithstanding, (a) all payments required to be made by the Company hereunder to you shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation, and (b) if and to the extent any portion of any payment, compensation or other benefit provided to you in connection with your employment termination is determined to constitute nonqualified deferred compensation within the meaning of Section 409A and you are a specified employee as defined in Section 409A(a)(2)(B)(i), as determined by the Company in accordance with its procedures, by which determination you hereby agree that you are bound, such portion of the payment, compensation or other benefit shall not be paid before the earlier of (i) the expiration of the six month period measured from the date of your separation from service (as determined under Section 409A) or (ii) the tenth day following the date of your death following such separation from service (the New Payment Date ). The aggregate of any payments that otherwise would have been paid to you during the period between the date of separation from service and the New Payment Date shall be paid to you in a lump sum in the first payroll period beginning after such New Payment Date, and any remaining payments will be paid on their original schedule. For purposes of this Agreement, (i) each amount to be paid or benefit to be provided shall be construed as a separate identified payment for purposes of Section 409A, (ii) neither you nor the Company shall have the right to accelerate or defer any payment or benefit hereunder unless permitted or required by Section 409A, and (iii) any payments that are due within the short term deferral period as defined in Section 409A or paid in a manner consistent with Treas. Reg. § 1.409A-1(b)(9)(iii) shall not be treated as deferred compensation unless applicable law requires otherwise. The terms of this employment letter are intended to be compliant with, or exempt from, Section 409A; provided, however, that the Company shall have no liability to you or to any other person in the event that the employment letter terms are determined not to be so compliant or exempt.
5
9. Parachute Taxation . The Company will make any payments due to you without regard to whether Section 280G of the Code would limit or preclude the deductibility of such payments (or any other payments or benefits) and without regard to whether such payments would subject you to the federal excise tax levied on certain excess parachute payments under Section 4999 of the Code; provided, however, that if the Total After-Tax Payments (as defined below) would be increased by the reduction or elimination of any payment and/or other benefit (including the vesting of any equity awards), then the amounts payable under this Agreement or otherwise will be reduced or eliminated as follows, as determined by the Company, in the following order: (i) nonacceleration of any stock options whose exercise price is at or above the fair market value of the Companys common stock as determined in the discretion of the Compensation Committee (taking into account, as appropriate, the proceeds that would be received in connection with the event covered by Section 4999) ( Underwater Options ), (ii) nonacceleration of any stock options other than Underwater Options, (iii) any vesting or distribution of restricted stock or restricted stock units, (iv) any other taxable benefits, (v) any nontaxable benefits, and (vi) the cash severance due under Section 7(a) above. Within each category described in clauses (i), (ii), and (iii), reductions or eliminations shall be made in reverse order beginning with vesting or distributions that are to be paid the farthest in time from the date of the event covered by Section 4999. The Companys independent, certified public accounting firm will determine whether and to what extent payments or vesting under this Agreement are required to be reduced in accordance with the preceding sentence. If there is an underpayment or overpayment under this Agreement (as determined after the application of this paragraph), the amount of such underpayment or overpayment will be immediately paid to you or refunded by you, as the case may be, with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. For purposes of this Agreement, Total After-Tax Payments means the total of all parachute payments (as that term is defined in Section 280G(b)(2) of the Code) made to you or for your benefit (whether made under the Agreement or otherwise), after reduction for all applicable federal taxes (including the tax described in Section 4999 of the Code).
10. Miscellaneous .
(a) Notices . All notices required or permitted under this Agreement must be in writing and will be deemed effective upon personal delivery or three business days following deposit in a United States Post Office, by certified mail, postage prepaid, or one business day after it is sent for next-business day delivery via a reputable nationwide overnight courier service addressed in the case of notice to the Company at its then principal headquarters (with copies to the Chairman of the Board, which will not constitute notice), and in the case of notice to you to the current address on file with the Company. Either Party may change the address to which notices are to be delivered by giving notice of such change to the other Party in the manner set forth in this Section 10(a)
(b) No Mitigation . You are not required to seek other employment or otherwise mitigate the value of any severance benefits contemplated by this Agreement,
6
nor will any such benefits be reduced by any earnings or benefits that you may receive from any other source. Notwithstanding any other provision of this Agreement, any sum or sums paid under this Agreement will be in lieu of any amounts to which you may otherwise be entitled under the terms of any severance plan, policy, program, agreement or other arrangement sponsored by the Company or an affiliate of the Company.
(c) Waiver of Jury Trial . TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER PROCEEDING ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE RELEASE IT CONTEMPLATES, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY PARTY MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE THEIR RIGHTS TO TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR TO ANY OF THE MATTERS CONTEMPLATED UNDER THIS AGREEMENT, RELATING TO YOUR EMPLOYMENT, OR COVERED BY THE CONTEMPLATED RELEASE.
(d) Severability. Each provision of this Agreement is intended to be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Moreover, if an arbitrator or a court of competent jurisdiction determines any of the provisions contained in this Agreement to be unenforceable because the provision is excessively broad in scope, whether as to duration, activity, geographic application, subject or otherwise, it will be construed, by limiting or reducing it to the extent legally permitted, so as to be enforceable to the extent compatible with then applicable law to achieve the intent of the Parties.
(e) Assignment. This Agreement will be binding upon and will inure to the benefit of (i) your heirs, beneficiaries, executors and legal representatives upon your death and (ii) any successor of the Company. Any such successor of the Company will be treated as substituted for the Company under the terms of this Agreement for all purposes. The Company may assign this Agreement without your consent, and such an assignment will not terminate your employment for purposes of triggering your entitlement to severance. You specifically agree that any assignment may include rights under the Confidentiality Agreement without requiring your consent. As used herein, successor will mean any person, firm, corporation or other business entity that at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company and its subsidiaries. None of your rights to receive any form of compensation payable under this Agreement will be assignable or transferable except through a testamentary disposition or by the laws of
7
descent and distribution upon your death or as provided in Section 10(k). Any attempted assignment, transfer, conveyance or other disposition of any interest in your rights to receive any form of compensation hereunder, except as provided in the preceding sentence, will be null and void.
(f) No Oral Modification, Waiver, Cancellation or Discharge. This Agreement may only be amended, canceled or discharged or any obligations thereunder waived through a writing signed by you and the Board or any duly authorized executive officer of the Company.
(g) No Conflict of Interest . You confirm that you have fully disclosed to the Company and its affiliates, to the best of your knowledge, any circumstances under which you, your immediate family and other persons who reside in your household have or may have a conflict of interest with the Company. You further agree to fully disclose to the Company any such circumstances that might arise during your employment upon your becoming aware of such circumstances.
(h) Other Agreements . You hereby represent that your performance of all the terms of this Agreement and the performance of your duties as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by you in confidence or in trust prior to your employment with the Company. You also represent that you are not a party to or subject to any restrictive covenants, legal restrictions, policies, commitments or other agreements in favor of any entity or person that would in any way preclude, inhibit, impair or limit your ability to perform your obligations under this Agreement, including noncompetition agreements or nonsolicitation agreements, and you further represent that your performance of the duties and obligations under this Agreement does not violate the terms of any agreement to which you are a party. You agree that you will not enter into any agreement or commitment or agree to any policy that would prevent or unreasonably hinder your performance of duties and obligations under this Agreement.
(i) Disclosure of this Agreement . You acknowledge that the Company may provide persons or entities who may employ or engage you with a copy of the Confidentiality Agreement (or portions thereof) to highlight your continuing obligations to the Company. You also acknowledge that the Company may be obligated to disclose this Agreement or any portion thereof to satisfy applicable laws and regulations.
(j) Survivorship. The respective rights and obligations of the Company and you hereunder will survive any termination of your employment to the extent necessary to preserve the intent of such rights and obligations.
(k) Beneficiaries. You will be entitled, to the extent applicable law permits, to select and change the beneficiary or beneficiaries to receive any compensation or benefit payable hereunder upon your death by giving the Company written notice thereof in a manner consistent with the terms of any applicable plan documents. If you die, severance then due or other amounts due hereunder will be paid to your designated beneficiary or beneficiaries or, if none are designated or none survive you, your estate.
8
(l) Company Policies . References in this Agreement to Company policies and procedures are to those policies and procedures in effect at the Effective Date, as the Company may amend them from time to time.
(m) Governing Law; Dispute Resolution . This Agreement must be construed, interpreted, and governed in accordance with the laws of the Commonwealth of Massachusetts without reference to rules relating to conflict of law. The Parties agree that the Federal Arbitration Act, 9 U.S.C. §1 et seq. and the American Arbitration Associations National Rules for the Resolution of Employment Disputes (the National Rules ) apply to the interpretation and enforcement of this Agreement. In case of any controversy, dispute, or claim directly or indirectly arising out of or related to this Agreement, or the breach thereof, or relating to your employment (including claims relating to employment discrimination), except as expressly excluded herein, each Party agrees to give the other Party notice of an intent to seek arbitration under this Agreement and 10 days to reach a resolution. Should resolution of any controversy or claim not be reached following provision of notice and a reasonable opportunity to cure, then the Parties agree that any controversy or claim arising out of or relating to this Agreement, including the arbitrability of the dispute itself, shall be settled by one arbitrator in accordance with the National Rules in effect at the time the arbitration demand is filed or such other rules as may be mutually agreed to by the Parties. The dispute will be arbitrated in Boston, Massachusetts, absent mutual agreement of the Parties to another venue. Any claim or controversy not submitted to arbitration in accordance with this Section 10(m) (other than as provided under the Confidentiality Agreement) will be waived, and thereafter no arbitrator, arbitration panel, tribunal, or court will have the power to rule or make any award on any such claim or controversy. In determining a claim or controversy under this Agreement and in making an award, the arbitrator must consider the terms and provisions of this Agreement, as well as all applicable federal, state, or local laws. The award rendered in any arbitration proceeding held under this Section 10(m) will be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof. Claims for workers compensation or unemployment compensation benefits are not covered by this Section 10(m). Also not covered by this Section 10(m) are claims by the Company or by you for temporary restraining orders, preliminary injunctions or permanent injunctions ( equitable relief ) in cases in which such equitable relief would be otherwise authorized by law or pursuant to the Confidentiality Agreement. The Company will be responsible for paying any filing fee of the sponsoring organization and the fees and costs of the arbitrator; provided, however, that if you initiate the claim, you will contribute an amount equal to the filing fee you would have incurred to initiate a claim in the court of general jurisdiction in the Commonwealth of Massachusetts. Each party will pay for its own costs and attorneys fees, if any, provided that the arbitrator or court, as applicable, may award reasonable costs and expenses in favor of the prevailing party. The Company and you agree that the decision as to whether a party is the prevailing party in an arbitration, or a legal proceeding that is commenced in connection therewith, will be made in the sole discretion of the arbitrator or, if applicable, the court. Any action, suit or other legal proceeding with respect to equitable relief that is excluded from arbitration above must be commenced only in a court of the Commonwealth of Massachusetts (or, if appropriate, a federal court located within the Commonwealth of Massachusetts), and the Company
9
and you each consent to the jurisdiction of such a court. With respect to any such court action, the Parties hereto (i) submit to the personal jurisdiction of such courts; (ii) consent to service of process by the means specified under Section 10(a); and (iii) waive any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, inconvenient forum, or service of process.
(n) Interpretation. The parties agree that this Agreement will be construed without regard to any presumption or rule requiring construction or interpretation against the drafting party. References in this Agreement to include or including should be read as though they said without limitation or equivalent forms. References to day or days are to calendar days, unless the Agreement specifically refers to business days.
(o) Entire Agreement. This Agreement and any documents referred to herein represent the entire agreement of the Parties and will supersede any and all previous contracts, arrangements or understandings between the Company and you relating to matters covered by this Agreement, including specifically your prior employment agreement dated as February 14, 2008 and amended as of December 30, 2008.
Signatures on Following Page
10
Very truly yours, | ||||
/s/ Roger D. Tung |
||||
Roger D. Tung | ||||
President and Chief Executive Officer | ||||
Agreed and Accepted: | ||||
Signature: | ||||
/s/ Ian Robert Silverman |
1/13/2014 |
|||
Ian Robert Silverman | Date: |
11
Exhibit 10.13
I NDEMNIFICATION A GREEMENT
This Agreement, made and entered into this day of (Agreement), by and between Concert Pharmaceuticals, Inc., a Delaware corporation (the Company), and [ ] (the [Officer] [Director]; collectively with such [Officers] [Directors] Affiliated Persons (as defined in Section 19(a) hereof), Indemnitee or Indemnitees):
WHEREAS, it is reasonable, prudent and necessary for the Company to obligate itself to indemnify, and to advance expenses on behalf of, its directors and executive officers to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve the Company as a director and/or executive officer and to take on additional service for or on its behalf on the condition that he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
1. | Services by Indemnitee . Indemnitee agrees to serve as a director and/or executive officer of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law). |
2. | Indemnification - General . The Company shall indemnify, and advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this Agreement and (b) (subject to the provisions of this Agreement) to the fullest extent permitted by applicable law in effect on the date hereof and as amended from time to time. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Agreement. |
3. | Proceedings Other Than Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section 3 if, by reason of Indemnitees Corporate Status (as hereinafter defined), Indemnitee is, or is threatened to be made, a party to or a participant in any threatened, pending or completed Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Company. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, penalties, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on behalf of Indemnitee in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal Proceeding, had no reasonable cause to believe Indemnitees conduct was unlawful. |
4. |
Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reason of Indemnitees Corporate |
Status, Indemnitee is, or is threatened to be made, a party to or a participant in any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section, Indemnitee shall be indemnified against all Expenses (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses) actually and reasonably incurred by Indemnitee or on behalf of Indemnitee in connection with such Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided , however , that indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company if and only to the extent that the Court of Chancery of the State of Delaware, or the court in which such Proceeding shall have been brought or is pending, shall determine that such indemnification may be made. |
5. | Partial Indemnification . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of Indemnitees Corporate Status, a party to (or a participant in) and is successful, on the merits or otherwise, in defense of any Proceeding, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on behalf of Indemnitee in connection therewith. If Indemnitee is not wholly successful in defense of such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on behalf of Indemnitee in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. If Indemnitee is entitled under any provision of this agreement to indemnification by the Company for some or a portion of the Expenses, judgments, penalties, fines and amounts paid in settlement (including all interest, assessments and Other charges paid or payable in connection with or in respect of such Expenses, judgments, penalties, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on behalf of Indemnitee in connection with such Proceeding or any claim, issue or matter therein, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion to which Indemnitee is entitled. |
6. | Indemnification for Additional Expenses. |
a. | The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within five (5) business days of such request) advance such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or by-law of the Company now or hereafter in effect; or (ii) recovery under any directors and officers liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. |
b. | Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of Indemnitees Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on behalf of Indemnitee in connection therewith. |
7. | Advancement of Expenses . The Company shall advance all reasonable Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding within five (5) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Notwithstanding the foregoing, the obligation of the Company to advance Expenses pursuant to this Section 7 shall be subject to the condition that, if, when and to the extent that the Company determines that Indemnitee would not be permitted to be indemnified under applicable law, the Company shall be entitled to be reimbursed, within thirty (30) days of such determination, by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided , however , that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Company that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any advance of Expenses until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). |
8. | Procedure for Determination of Entitlement to Indemnification. |
a. | To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. |
b. |
Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 8(a) hereof, a determination, if required by applicable law, with respect to Indemnitees entitlement thereto shall be made in the specific case: (i) if a Change in Control (as hereinafter defined) shall have occurred, by Independent Counsel (as hereinafter defined) in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control shall not have occurred, (A) by a majority vote of the Disinterested Directors (as hereinafter defined), even though less than a quorum of the Board, or (B) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (C) if so directed by the Board, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within seven (7) days after such determination. The Company and Indemnitee shall each cooperate with the person, persons or entity making such determination with respect to 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 Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitees entitlement to indemnification), and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. |
c. | In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) hereof, the Independent Counsel shall be selected as provided in this Section 8(c). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change of Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in Section 19 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 8(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware for resolution of any objection which shall have been made by the Company or Indemnitee to the others selection of Independent Counsel and/or for the appointment as 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 all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 8(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 8(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 8(c), regardless of the manner in which such Independent Counsel was selected or appointed, and if such Independent Counsel was selected or appointed by Indemnitee or the Court, shall provide such Independent Counsel with such retainer as may requested by such counsel. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). |
d. | The Company shall not be required to obtain the consent of Indemnitee to the settlement of any Proceeding which the Company has undertaken to defend if the Company assumes full and sole responsibility for such settlement and the settlement grants Indemnitee a complete and unqualified release in respect of the potential liability. The Company shall not be liable for any amount paid by Indemnitee in settlement of any Proceeding that is not defended by the Company, unless the Company has consented to such settlement, which consent shall not be unreasonably withheld. |
9. | Presumptions and Effect of Certain Proceedings. |
a. | In making a determination with respect to entitlement to indemnification or the advancement of expenses hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification or advancement of expenses under this Agreement if Indemnitee has submitted a request for indemnification or the advancement of expenses in accordance with Section 8(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including its board of directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its board of directors or independent legal counsel) 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. |
b. |
If the person, persons or entity empowered or selected under Section 8 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided , further , that the foregoing provisions of this Section 9(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 8(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board of Directors has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose |
within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) of this Agreement. |
c. | The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. |
d. | Reliance as Safe Harbor . For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitees action is based on the records or books of account of the Company or relevant enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Company or relevant enterprise in the course of their duties, or on the advice of legal counsel for the Company or relevant enterprise or on information or records given in reports made to the Company or relevant enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Company or relevant enterprise. The provisions of this Section 9(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement. |
e. | Actions of Others . The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Company or relevant enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. |
10. | Remedies of Indemnitee. |
a. | In the event that (i) a determination is made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 8(b) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5 or 6 of this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Court of Chancery of the State of Delaware, or any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. |
b. | In the event that a determination shall have been made pursuant to Section 8(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 10 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding or arbitration commenced pursuant to this Section 10, the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. |
c. | If a determination shall have been made pursuant to Section 8(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statement not materially misleading in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law. |
d. | In the event that Indemnitee, pursuant to this Section 10, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 19 of this Agreement) actually and reasonably incurred by him in such judicial adjudication or arbitration, but only if he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefor) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors or officers liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be. |
e. | The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 10 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. |
11. | Non-Exclusivity; Survival of Rights; Insurance; Subrogation . |
a. |
The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the |
Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in Indemnitees Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the General Corporation Law of the State of Delaware, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Companys Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. |
b. | To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees or agents of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. |
c. | In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of 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 Company to bring suit or enforce such rights. |
d. | The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. |
e. | The Companys obligation to indemnify or advance expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. |
12. | Period of Limitations . No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against any Indemnitee, such Indemnitees estate, spouse, heirs, executors or personal or legal representatives after the expiration of two (2) years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two (2)-year period; provided , however , that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. |
13. | Liability Insurance . To the extent the Company maintains liability insurance applicable to directors, officers, employees, control persons, fiduciaries or other agents and affiliates, each Indemnitee shall be covered by such policies in such a manner as to provide to the Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Companys directors, if such Indemnitee is a director, or of the Companys officers, if such Indemnitee is not a director of the Company but is an officer. |
14. | Duration of Agreement. |
a. | This Agreement shall continue until and terminate upon the later of: (i) twenty (20) years after the date that Indemnitee shall have ceased to serve as a director and/or executive officer of the Company (or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company); or (ii) the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10 of this Agreement relating thereto. |
b. | This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that Indemnitees employment with the Company (or any of its subsidiaries), if any, is at will, and Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Company (or any of its subsidiaries), other applicable formal severance policies duly adopted by the Board, or, with respect to service as a director or officer of the Company, by the Companys Certificate of Incorporation, Bylaws, and the General Corporation Law of the State of Delaware. The foregoing notwithstanding, this Agreement shall continue in force as provided above after Indemnitee has ceased to serve as a director and/or executive officer of the Company. |
c. | This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his heirs, executors and administrators. |
15. | Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. |
16. | Exception to Right of Indemnification or Advancement of Expenses . Except as provided in Section 6(a) of this Agreement, Indemnitee shall not be entitled to indemnification or advancement of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee (other than a Proceeding by Indemnitee to enforce his rights under this Agreement), or any claim therein, unless the bringing of such Proceeding or making of such claim shall have been approved by the Board of Directors or is otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether such Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. |
17. | Identical Counterparts . This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. |
18. | 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. |
19. | Definitions . For purposes of this Agreement: |
a. | Affiliated Person of an Indemnitee shall include any director, officer, employee, controlling person (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), agent or fiduciary of such Indemnitee, and any stockholder, partner, partnership, corporation, limited liability company, association, joint stock company, trust or joint venture, or similar entity controlling, controlled by or under common control with the entity or person that such Indemnitee represents in connection with such Indemnitees service to the Company. For these purposes, control means the possession, directly or indirectly, of the power to direct management and policies of a person or entity, whether through the ownership of voting securities, contract or otherwise. |
b. | Change in Control means: |
i. |
The acquisition by any person, corporation, partnership, limited liability company or other entity (a Person, which term shall include a group within the meaning of Section 13(d) of the Exchange Act) of ultimate beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly of 20% or more of either (i) the then outstanding shares of common stock of the Company (the Outstanding Company Common Stock) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the Outstanding Company Voting Securities); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any such acquisition directly from the Company, except for acquisition of securities upon conversion of other securities of the Company (ii) any such acquisition by the Company, (iii) any such acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the |
Company or (iv) any such acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (iii) of this Section 19(a); or |
ii. | Individuals who, as of the date hereof, constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election, by the Companys stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or |
iii. | Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a Business Combination), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, immediately following such Business Combination more than 50% of, respectively, the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Companys assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) ultimately beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or |
iv. | approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. |
c. | Corporate Status describes the status of a person who is or was a director, officer, employee, fiduciary or agent of the Company, or any subsidiary of the Company, or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company. |
d. | Disinterested Director means a director of the company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. |
e. | Effective Date means . |
f. | Expenses shall include all reasonable attorneys fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness, in, or otherwise participating in, a Proceeding. |
g. | Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or 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 Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. |
h. |
Proceeding includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is, may be or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director or officer of the Company, or any subsidiary of the Company, by reason of any action taken by him or of any inaction on his part while acting as director or officer of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including, without limitation, any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, |
investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, that arises or may arise, under the Securities Act of 1933, as amended (the Securities Act), the Exchange Act or any other federal or state statutory law or regulation, at common law or otherwise, which relate directly or indirectly (i) to the registration, purchase, sale or ownership of any securities of the Company or(ii) to any fiduciary obligation owed with respect to the Company and its stockholders; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification or advancement of expenses can be provided under this Agreement; except one (i) initiated by an Indemnitee pursuant to Section 10 of this Agreement to enforce his right under this Agreement or (ii) pending on or before the Effective Date. |
20. | Enforcement . |
a. | The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director and/or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director and/or officer of the Company. |
b. | This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof. |
21. | Modification and Waiver . 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 provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. |
22. | Attorneys Fees . In the event that any action is instituted by an Indemnitee under this Agreement, or under any liability insurance policies maintained by the Company, to enforce or interpret any of the terms hereof or thereof, any Indemnitee shall be entitled to be paid all Expenses incurred by such Indemnitee with respect to such action, regardless of whether such Indemnitee is ultimately successful in such action, and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court of competent jurisdiction over such action determines that each of the material assertions made by such Indemnitee as a basis for such action was not made in good faith or was frivolous. |
23. | Notice by Indemnitee . Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise. |
24. | Notices . All notices, requests, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been direct, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: |
a. | If to Indemnitee to: |
[INDEMNITEE CONTACT INFORMATION]
b. | If to the Company to: |
Concert Pharmaceuticals, Inc.
99 Hayden Avenue
Lexington, MA 02421
or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
25. | Contribution . |
a. | To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s), as well as any other relevant equitable considerations. In connection with the registration of the Companys securities, the relative benefits received by the Company and any Indemnitee shall be deemed to be in the same respective proportions that the net proceeds from the offering (before deducting expenses) received by the Company and Indemnitee, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the securities so offered. The relative fault of the Company and any Indemnitee 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 Company or Indemnitee and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. |
b. |
The Company and each Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 25 were determined by pro rata or per |
capita allocation or by any other method of allocation which does not take account of the equitable considerations referred to in Section 25(a) hereof. In connection with the registration of the Companys securities, in no event shall an Indemnitee be required to contribute any amount under this Section 25 in excess of the net proceeds received by such Indemnitee from its sale of securities under such registration statement. No person found 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 found guilty of such fraudulent misrepresentation. |
26. | Governing Law; Submission to Jurisdiction; Appointment of Agent for Service of Process . This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 10(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the Delaware Court), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not a resident of the State of Delaware, irrevocably [ ] as its agent in the State of Delaware for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or otherwise inconvenient forum. |
27. | Miscellaneous . Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. |
[Remainder of Page Intentionally Blank]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
C ONCERT P HARMACEUTICALS , I NC . | ||
By: |
|
|
Name: | ||
Title: | ||
INDEMNITEE: | ||
|
||
Name: | ||
Title: |
Exhibit 10.14
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made and dated as of December 22, 2011 and is entered into by and between CONCERT PHARMACEUTICALS, INC. , a Delaware corporation, and each of its subsidiaries other than Concert Pharmaceuticals Securities Corporation, (hereinafter collectively referred to as the Borrower), and HERCULES TECHNOLOGY GROWTH CAPITAL, INC. , a Maryland corporation (Lender).
RECITALS
A. Borrower has requested Lender to make available to Borrower a loan in an aggregate principal amount of up to $20,000,000 (the Term Loan); and
B. Lender is willing to make the Term Loan on the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, Borrower and Lender agree as follows:
SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION
1.1 Unless otherwise defined herein, the following capitalized terms shall have the following meanings:
Account Control Agreement(s) means any agreement entered into by and among the Lender, Borrower and a third party Bank or other institution (including a Securities Intermediary) in which Borrower maintains a Deposit Account or an account holding Investment Property and which grants Lender a perfected first priority security interest in the subject account or accounts.
ACH Authorization means the ACH Debit Authorization Agreement in substantially the form of Exhibit H.
Advance(s) means a Term Advance.
Advance Date means the funding date of any Advance.
Advance Request means a request for an Advance submitted by Borrower to Lender in substantially the form of Exhibit A.
Agreement means this Loan and Security Agreement, as amended from time to time.
Assignee has the meaning given to it in Section 11.13.
1
Borrower Products means all products, technical data or technology currently being developed, manufactured or sold by Borrower or which Borrower intends to sell, manufacture, license, or distribute in the future including any products or service offerings under development, collectively, together with all products, technical data or technology that have been sold, developed, licensed or distributed by Borrower since its incorporation.
Cash means all cash and liquid funds.
Change in Control means any (i) reorganization, recapitalization, consolidation or merger (or similar transaction or series of related transactions) of Borrower in which the holders of Borrowers outstanding shares immediately before consummation of such transaction or series of related transactions (together with any affiliates of such holders) do not, immediately after consummation of such transaction or series of related transactions, retain shares representing more than fifty percent (50%) of the voting power of the surviving entity of such transaction or series of related transactions (or the parent of such surviving entity if such surviving entity is wholly owned by such parent), in each case without regard to whether Borrower is the surviving entity, or (ii) sale or issuance by Borrower of new shares of Preferred Stock of Borrower to investors, none of whom are current investors in Borrower (or their affiliates), representing more than fifty percent (50%) of the voting power of the surviving entity (or the parent of such surviving entity if such surviving entity is wholly owned by such parent); provided, however, none of (a) an Initial Public Offering or (b) a bona fide equity financing for the purpose of raising capital from institutional investors reasonably acceptable to Lender, shall not constitute a Change in Control.
Claims has the meaning given to it in Section 11.10.
Closing Date means the date of this Agreement.
Collateral means the property described in Section 3.
Commitment Fee means $20,000, which fee Lender received prior to the Closing Date, and shall be deemed fully earned on such date regardless of the early termination of this Agreement.
Confidential Information has the meaning given to it in Section 11.12.
Contingent Obligation means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any Indebtedness of another, including any such obligation guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term Contingent Obligation shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount
2
equal to the stated or determined amount of the primary obligation described in clauses (i) and (ii) above in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.
Copyright License means any written agreement granting any right to use any Copyright or Copyright registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
Copyrights means all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof, or of any other country.
Deposit Accounts means any deposit accounts, as such term is defined in the UCC, and includes any checking account, savings account, or certificate of deposit.
ERISA is the Employee Retirement Income Security Act of 1974, and its regulations, as amended and in effect from time to time.
Event of Default has the meaning given to it in Section 9.
Facility Charge means 0.75% of the Maximum Term Loan Amount.
Financial Statements has the meaning given to it in Section 7.1.
GAAP means generally accepted accounting principles in the United States of America, as in effect from time to time, provided that the parties agree that GAAP as in effect on the date of this Agreement shall be applicable for the interpretation of capital lease obligations in the definition of Indebtedness, unless the parties otherwise agree in writing.
Grant Document means an instrument or agreement providing that the Borrower or another Person or both shall provide funding for or share the costs of programs identified in such instruments or agreements entered into in the OCB.
Grant Requirements means all obligations of Borrower to provide funding for or share the costs of, programs identified in Grant Documents or to perform other obligations thereunder.
GSK Agreement means that certain Research and Development Collaboration and License Agreement by and between Glaxo Group Limited and Concert Pharmaceuticals dated May 29, 2009, as amended.
Indebtedness means (a) all indebtedness for borrowed money or the deferred purchase price of property or services (excluding trade credit entered into in the ordinary course of business due within ninety (90) days), including reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.
3
Initial Public Offering means an initial firm commitment underwritten offering of Borrowers common stock pursuant to a registration statement under the Securities Act of 1933 filed with and declared effective by the Securities and Exchange Commission.
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 of all or substantially all of a Persons assets for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other similar relief.
Intellectual Property means all of Borrowers Copyrights; Trademarks; Patents; Licenses; trade secrets, proprietary information (including pre-clinical, clinical and other data) and inventions; mask works; Borrowers applications therefor and reissues, extensions, or renewals thereof; and Borrowers goodwill associated with any of the foregoing, together with Borrowers rights to sue for past, present and future infringement of Intellectual Property and the goodwill associated therewith.
Interest Rate means for any day a per annum rate of interest equal to the greater of either (i) 8.50% plus the United States Prime Rate as reported in The Wall Street Journal minus 5.25%, and (ii) 8.50%; provided, however, the Interest Rate shall in no case exceed 11.0% per annum.
Investment means any beneficial ownership (including stock, partnership or limited liability company interests) of or in any Person, or any loan, advance or capital contribution to any Person or the acquisition of all, or substantially all, of the assets of another Person.
Joinder Agreements means for each Subsidiary (other than Concert Pharmaceuticals Securities Corp.), a completed and executed Joinder Agreement in substantially the form attached hereto as Exhibit G.
Lender has the meaning given to it in the preamble to this Agreement.
License means any Copyright License, Patent License, Trademark License or other license of rights or interests from a third party.
Lien means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, and any lease in the nature of a security interest.
Loan means the Advances made under this Agreement.
4
Loan Documents means this Agreement, the Notes, the ACH Authorization, the Account Control Agreements, the Joinder Agreements, all UCC Financing Statements and any other documents executed in connection with the Secured Obligations or the transactions contemplated hereby (excluding the Warrant), as the same may from time to time be amended, modified, supplemented or restated.
Material Adverse Effect means an occurrence, on or after the date of the last set of audited financials, that has a material adverse effect upon: (i) the business, operations, properties, assets or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole, other than an effect in and of itself reasonably attributable to (a) adverse results or delays in any nonclinical or clinical trial, including without limitation failure to demonstrate the desired safety or efficacy of any biologic or drug; (b) the denial, delay or limitation of approval of, or taking of any other regulatory action by, the United States Food and Drug Administration or any other governmental entity with respect to any biologic or drug; (c) a change in or discontinuation of a strategic partnership or other collaboration or license arrangement; or (d) a going concern qualification in a financial statement or audit report resulting solely from Borrower and its Subsidiaries having less than twelve months of cash; or (ii) the ability of Borrower to perform the Secured Obligations when due in accordance with the terms of the Loan Documents, or the ability of Lender to enforce any of its rights or remedies with respect to the Secured Obligations; or (iii) the Collateral or Lenders Liens on the Collateral or the priority of such Liens, in each case, in the aggregate; it being understood that in the case of each of items (ii) and (iii) the effects listed in clauses (i)(a) through (d) of this definition shall be disregarded.
Maturity Date means July 1, 2015, provided Maturity Date will mean October 1, 2015 if the interest-only period is extended pursuant to Section 2.1(d).
Maximum Term Loan Amount means $20,000,000.
Maximum Rate shall have the meaning assigned to such term in Section 2.3.
Note(s) means a Term Note.
OCB means in the ordinary course of business and shall include collaboration or licensing transactions that are customary in the Borrowers industry such as, or comparable with or lesser in scope than, the Borrowers existing collaboration with GlaxoSmithKline.
Patent License means any written agreement granting any right with respect to any invention on which a Patent is in existence or a Patent application is pending, in which agreement Borrower now holds or hereafter acquires any interest.
Patents means all letters patent of, or rights corresponding thereto, in the United States or in any other country, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto, in the United States or any other country.
Permitted Indebtedness means: (i) Indebtedness of Borrower arising under this Agreement or any other Loan Document; (ii) Indebtedness existing on the Closing Date which is disclosed in Schedule 1A; (iii) Indebtedness in the principal amount of up to $200,000
5
outstanding at any time secured by a lien described in clause (vii) of the defined term Permitted Liens,; (iv) Indebtedness to trade creditors incurred in the ordinary course of business, including Indebtedness incurred in the ordinary course of business with corporate credit cards; (v) Indebtedness that also constitutes a Permitted Investment; (vi) Subordinated Indebtedness; (vii) reimbursement obligations in connection with letters of credit that are secured by cash or cash equivalents and issued on behalf of the Borrower or a Subsidiary thereof in an amount not to exceed $906,000 at any time outstanding; (viii) other Indebtedness in an amount not to exceed $250,000 at any time outstanding; (ix) Contingent Obligations of up to $200,000 described on clause (iii) of the definition of Contingent Obligations entered into to mitigate risk and not for speculative purposes; (x) Grant Requirements; (xi) Indebtedness among Borrowers or of Borrower to any non-Borrower Subsidiary; and (xii) extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose materially more burdensome terms upon Borrower or its Subsidiary, as the case may be.
Permitted Investment means: (i) Investments existing on the Closing Date which are disclosed in Schedule 1B; (ii) (a) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within twenty four months from the date of acquisition thereof, (b) commercial paper maturing no more than 270 days from the date of creation thereof and at the time of the Investment having a rating of at least A-2 or P-2 from either Standard & Poors Corporation or Moodys Investors Service, (c) certificates of deposit issued by any bank with assets of at least $500,000,000 maturing no more than twenty four months from the date of investment therein, (d) money market accounts; and (e) corporate debt obligations maturing no more than 24 months from the date of acquisition thereof and at the time of investment having a rating of at least A3 or A- from either Standard & Poors or Moodys Investor Service; (iii) repurchases of stock from former employees, directors, or consultants of Borrower under agreements approved by the Borrowers board of directors in an aggregate amount not to exceed $250,000 in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases; (iv) Investments accepted in connection with Permitted Transfers; (v) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrowers business; (vi) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not affiliates, in the ordinary course of business, provided that this subparagraph (vi) shall not apply to Investments of Borrower in any Subsidiary; (vii) Investments consisting of loans not involving the net transfer on a substantially contemporaneous basis of cash proceeds to employees, officers or directors relating to the purchase of capital stock of Borrower pursuant to employee stock purchase plans or other similar agreements approved by Borrowers Board of Directors; (viii) Investments consisting of travel advances or moving expenses in the ordinary course of business; (ix) Investments in existing or newly-formed Subsidiaries organized in the United States, provided that such Subsidiaries enter into a Joinder Agreement and execute such other documents as shall be reasonably requested by Lender and de minimis Investments in Concert Pharmaceuticals Securities Corporation in connection with its liquidation or dissolution; (x) Investments in subsidiaries organized outside of the United States approved in advance in writing by Lender; (xi) licenses, joint ventures, collaboration agreements, strategic alliances and
6
similar arrangements in the OCB providing for the exclusive or nonexclusive licensing of technology, Intellectual Property, or Borrower Products, the development of technology, Intellectual Property or Borrower Products, the assignment of ownership or co-ownership rights in connection with the foregoing, or the providing of technical support, provided that any cash Investments by Borrower in another Person (other than a Subsidiary that has entered into a Joinder pursuant to the terms hereof) as part of the foregoing do not exceed $100,000 in the aggregate in any fiscal year; (xii) Investments made pursuant to any investment policy adopted by a Borrower after the Closing Date and approved by Lender; (xiii) Investments of up to $200,000 in the aggregate at any time outstanding in connection with Grant Requirements; (xiv) Investments by Borrower in another Borrower; and (xv) additional Investments that do not exceed $250,000 in the aggregate per fiscal year.
Permitted Liens means any and all of the following: (i) Liens in favor of Lender; (ii) Liens existing on the Closing Date which are disclosed in Schedule 1C; (iii) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings; provided, that Borrower maintains adequate reserves therefor in accordance with GAAP; (iv) Liens securing claims or demands of materialmen, artisans, mechanics, carriers, warehousemen, landlords and other like Persons arising in the ordinary course of Borrowers business and imposed without action of such parties; provided, that the payment thereof is not yet required; (v) Liens arising from judgments, decrees or attachments in circumstances which do not constitute an Event of Default hereunder; (vi) the following deposits, to the extent made in the ordinary course of business: deposits under workers compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations (other than liens arising under ERISA or environmental liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds; (vii) Liens on Equipment or software, other intellectual property, or other capital assets, constituting purchase money liens and liens in connection with capital leases securing Indebtedness permitted in clause (iii) of Permitted Indebtedness; (viii) Liens incurred in connection with Subordinated Indebtedness; (ix) leasehold interests in leases or subleases and licenses granted in the OCB and not interfering in any material respect with the business of the licensor; (x) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties that are promptly paid on or before the date they become due; (xi) Liens on insurance proceeds securing the payment of financed insurance premiums that are promptly paid on or before the date they become due (provided that such Liens extend only to such insurance proceeds and not to any other property or assets); (xii) statutory, common law and contractual rights of set-off and other similar rights as to deposits of cash and securities in favor of banks, other depository institutions and brokerage firms; (xiii) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business so long as they do not materially impair the value or marketability of the related property; (xiv) Liens on cash or cash equivalents securing obligations permitted under clause (vii) of the definition of Permitted Indebtedness; (xv) Liens in connection with operating leases in the Equipment that is the subject of such leases; (xvi) Permitted Transfers; and (xvii) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in
7
clauses (i) through (xvi) above; provided, that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced (as may have been reduced by any payment thereon) does not increase.
Permitted Transfers means (i) sales of Inventory in the normal course of business, (ii) exclusive or non-exclusive licenses, joint ventures, collaboration agreements, strategic alliances and similar arrangements in the OCB providing for the exclusive or nonexclusive licensing of technology, Intellectual Property or Borrower Products, the development of technology, Intellectual Property or Borrower Products, the assignment of ownership or co-ownership rights in connection with the foregoing, or the providing of technical support, (iii) dispositions of worn-out, obsolete or surplus Equipment at fair market value in the ordinary course of business, (iv) Permitted Investments, (v) Permitted Liens, (vi) dispositions of Copyright rights in connection with publications in scientific journals, and (vii) other Transfers of assets having a fair market value of not more than $250,000 in the aggregate in any fiscal year.
Person means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, other entity or government.
Preferred Stock means at any given time any equity security issued by Borrower that has any rights, preferences or privileges senior to Borrowers common stock.
Prepayment Charge shall have the meaning assigned to such term in Section 2.5.
Receivables means all of Borrowers Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, letters of credit, proceeds of any letter of credit, and Letter of Credit Rights.
Secured Obligations means Borrowers obligations under this Agreement and any Loan Document, including any obligation to pay any amount now owing or later arising.
Subordinated Indebtedness means Indebtedness subordinated to the Secured Obligations in amounts and on terms and conditions satisfactory to Lender in its sole discretion.
Subsidiary means an entity, whether corporate, partnership, limited liability company, joint venture or otherwise, in which Borrower owns or controls more than 50% of the outstanding voting securities, including each entity listed on Schedule 1 hereto.
Term Advance means any Term Loan funds advanced under this Agreement.
Term Note means a Promissory Note in substantially the form of Exhibit B-1.
8
Trademark License means any written agreement granting any right to use any Trademark or Trademark registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
Trademarks means all trademarks (registered, common law or otherwise) and any applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof.
UCC means the Uniform Commercial Code as the same is, from time to time, in effect in the Commonwealth of Massachusetts; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Lenders Lien on any Collateral is governed by the Uniform Commercial Code as the same is, from time to time, in effect in a jurisdiction other than the Commonwealth of Massachusetts, then the term UCC shall mean the Uniform Commercial Code as in effect, from time to time, in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.
Warrant means the warrant entered into in connection with the Loan.
Unless otherwise specified, all references in this Agreement or any Annex or Schedule hereto to a Section, subsection, Exhibit, Annex, or Schedule shall refer to the corresponding Section, subsection, Exhibit, Annex, or Schedule in or to this Agreement. Unless otherwise specifically provided herein, any accounting term used in this Agreement or the other Loan Documents shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed in accordance with GAAP, consistently applied. Unless otherwise defined herein or in the other Loan Documents, terms that are used herein or in the other Loan Documents and defined in the UCC shall have the meanings given to them in the UCC.
SECTION 2. THE LOAN
2.1 Term Loan.
(a) Advances. Subject to the terms and conditions of this Agreement, Lender will make, and Borrower agrees to draw, a Term Advance of $7,500,000 (the First Tranche) on the Closing Date. Beginning on the Closing Date, and continuing through March 31, 2012, Borrower may request one additional Term Advance in an aggregate amount up to $12,500,000 (the Second Tranche). The aggregate outstanding Term Advances may be up to the Maximum Term Loan Amount.
(b) Advance Request. To obtain a Term Advance, Borrower shall complete, sign and deliver an Advance Request (which, as to the Second Tranche, shall be at least five business days before the Advance Date) and Term Note to Lender. Lender shall fund the Term Advance in the manner requested by the Advance Request provided that each of the conditions precedent in Section 4 of this Agreement applicable to such Term Advance is satisfied as of the requested Advance Date.
9
(c) Interest. The principal balance of each Term Advance shall bear interest thereon from such Advance Date at the Interest Rate based on a year consisting of 360 days, with interest computed daily based on the actual number of days elapsed. The Interest Rate will float and change on the day the Prime Rate changes from time to time.
(d) Payment. Borrower will pay interest on each Term Advance in arrears on the first business day of each month, beginning the month after the Advance Date and ending on January 3, 2013 (the Interest Only Period). Borrower shall repay the aggregate Term Loan principal balance that is outstanding on the first anniversary of the Closing Date in 30 equal monthly installments of principal and interest beginning February 1, 2013 and continuing on the first business day of each month thereafter. Notwithstanding the foregoing, Borrower may elect to postpone the date on which the first such installment is due until May 1, 2013, (and the last payment date of the Interest Only Period shall be April 1, 2013), provided Borrower has begun the Proof of Concept study for CTP-499, meaning that the first patient has been enrolled in a clinical study in which subjects with diabetes and reduced kidney function are randomly assigned to receive either placebo or CTP-499 treatment. The entire Term Loan principal balance and all accrued but unpaid interest hereunder, shall be due and payable on Maturity Date. Borrower shall make all payments under this Agreement without setoff, recoupment or deduction and regardless of any counterclaim or defense. Lender will initiate debit entries to the Borrowers account as authorized on the ACH Authorization on each payment date of all periodic obligations payable to Lender under each Term Note or Term Advance.
2.2 Maximum Interest. Notwithstanding any provision in this Agreement, the Notes, or any other Loan Document, it is the parties intent not to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law that a court of competent jurisdiction shall deem applicable hereto (which under the laws of the Commonwealth of Massachusetts shall be deemed to be the laws relating to permissible rates of interest on commercial loans) (the Maximum Rate). If a court of competent jurisdiction shall finally determine that Borrower has actually paid to Lender an amount of interest in excess of the amount that would have been payable if all of the Secured Obligations had at all times borne interest at the Maximum Rate, then such excess interest actually paid by Borrower shall be applied as follows: first, to the payment of principal outstanding on the Notes; second, after all principal is repaid, to the payment of Lenders accrued interest, costs, expenses, professional fees and any other Secured Obligations; and third, after all Secured Obligations are repaid, the excess (if any) shall be refunded to Borrower.
2.3 Default Interest. In the event any payment is not paid on the scheduled payment date, an amount equal to five percent (5%) of the past due amount shall be payable on demand. Upon the occurrence and during the continuation of an Event of Default hereunder, all Secured Obligations, including principal, interest, compounded interest, and professional fees, shall bear interest at a rate per annum equal to the rate set
10
forth in Section 2.1(c) plus five percent (5%) per annum. In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in Section 2.1(c).
2.4 Prepayment. At its option upon at least 7 business days prior notice to Lender, Borrower may prepay all, but not less than all, of the outstanding Advances by paying the entire principal balance, all accrued and unpaid interest, together with a prepayment charge equal to the following percentage of the Advance amount being prepaid: if such Advance amounts are prepaid in any of the first twelve (12) months following the Closing Date, 3.0%; after twelve (12) months but prior to twenty four (24) months, 2.0%; and thereafter, 1.0% (each, a Prepayment Charge). Borrower agrees that the Prepayment Charge is a reasonable calculation of Lenders lost profits in view of the difficulties and impracticality of determining actual damages resulting from an early repayment of the Advances. Borrower shall prepay the outstanding amount of all principal and accrued interest through the prepayment date and the Prepayment Charge upon demand of the Lender made no later than 30 days following a Change in Control.
SECTION 3. SECURITY INTEREST
3.1 As security for the prompt and complete payment when due (whether on the payment dates or otherwise) of all the Secured Obligations, Borrower grants to Lender a security interest in all of Borrowers personal property now owned or hereafter acquired, including the following (collectively, the Collateral): (a) Receivables; (b) Equipment; (c) Fixtures; (d) General Intangibles (other than Intellectual Property); (e) Inventory; (f) Investment Property (but excluding thirty-five percent (35%) of the capital stock of any foreign Subsidiary that constitutes a Permitted Investment); (g) Deposit Accounts; (h) Cash; (i) Goods; and other tangible and intangible personal property of Borrower whether now or hereafter owned or existing, or acquired by, Borrower and wherever located; and, to the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing. Notwithstanding any of the foregoing, the Collateral shall not under any circumstance include, and no security interest is granted in (i) Borrowers Intellectual Property, provided , however, that the Collateral shall include all Accounts and General Intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the Borrowers Intellectual Property (the Rights to Payment); (ii) any capital stock of any foreign subsidiary that constitutes a Permitted Investment in excess of 65% of such capital stock, provided that Lenders taking a security interest in more than 65% of such stock would be reasonably expected to cause Borrower to incur adverse tax consequences; (iii) any assets of Borrower that both (x) consist of compounds and raw materials used to manufacture biopharmaceuticals or which are used for preclinical testing or clinical trials, and (y) are located outside of the United States, if and for so long as the grant of such security interest is prohibited by or requires a consent under any applicable requirement of law of a jurisdiction other than the United States or any state or other subdivision thereof, provided that the Borrower shall not be required to undertake any steps under the laws of any applicable foreign jurisdiction with respect to the creation, perfection or priority of the Secured Partys security interests in such assets; (iv) equipment
11
financed by capital leases or purchase money financing and all Borrowers books and records relating to the foregoing, and any and all claims, rights and interest in such assets 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; and (v) any cash or cash equivalents described in clause (vii) of the definition of Permitted Indebtedness. Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the date of this Agreement, include the Intellectual Property to the extent necessary to permit perfection of Lenders security interest in the Rights to Payment, except to the extent that such inclusion as Collateral could be inconsistent with or conflict with the GSK Agreement or any agreement entered into in connection with a Permitted Transfer or interfere with the parties rights and remedies thereunder.
SECTION 4. CONDITIONS PRECEDENT TO LOAN
The obligations of Lender to make the Loan hereunder are subject to the satisfaction by Borrower of the following conditions:
4.1 Initial Advance. On or prior to the Closing Date, Borrower shall have delivered to Lender the following:
(a) executed originals of the Loan Documents, Account Control Agreements, a legal opinion of Borrowers counsel, and all other documents and instruments reasonably required by Lender to effectuate the transactions contemplated hereby or to create and perfect the Liens of Lender with respect to all Collateral, in all cases in form and substance reasonably acceptable to Lender;
(b) certified copy of resolutions of Borrowers board of directors evidencing approval of (i) the Loan and other transactions evidenced by the Loan Documents; and (ii) the Warrant and transactions evidenced thereby;
(c) certified copies of the Certificate of Incorporation and the Bylaws, as amended through the Closing Date, of Borrower;
(d) a certificate of good standing for Borrower from its state of incorporation and similar certificates from all other jurisdictions in which it does business and where the failure to be qualified would have a Material Adverse Effect;
(e) payment of the Facility Charge and reimbursement of Lenders current expenses reimbursable pursuant to this Agreement, which amounts may be deducted from the initial Advance; and
(f) such other documents as Lender may reasonably request.
12
4.2 All Advances. On each Advance Date:
(a) Lender shall have received an Advance Request and a Note for the relevant Advance as required by Section 2.1(b), as applicable, each duly executed by Borrowers Chief Executive Officer, Chief Operating Officer or Chief Financial Officer.
(b) The representations and warranties set forth in this Agreement and in Section 5 of this Agreement shall be true and correct in all material respects on and as of the Advance Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date.
(c) Borrower shall be in compliance in all material respects with all the terms and provisions set forth herein and in each other Loan Document on its part to be observed or performed, and at the time of and immediately after such Advance no Event of Default shall have occurred and be continuing.
(d) Each Advance Request shall be deemed to constitute a representation and warranty by Borrower on the relevant Advance Date as to the matters specified in paragraphs (b) and (c) of this Section 4.2 and as to the matters set forth in the Advance Request.
4.3 No Default. As of the Closing Date and each Advance Date, as applicable, (i) no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute an Event of Default and (ii) no Material Adverse Effect has occurred and is continuing.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower represents and warrants that:
5.1 Corporate Status. Borrower is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign corporation in all jurisdictions in which the nature of its business or location of its properties require such qualifications and where the failure to be qualified could reasonably be expected to have a Material Adverse Effect. Borrowers present name, former names (if any), owned and leased locations, place of formation, tax identification number, organizational identification number and other information are correctly set forth in Exhibit C, as may be updated by Borrower in a written notice (including any Compliance Certificate) provided to Lender after the Closing Date.
5.2 Collateral. Borrower owns its property, free of all Liens, except for Permitted Liens. Borrower has the corporate power and authority to grant to Lender a Lien in the Collateral as security for the Secured Obligations.
5.3 Consents. Borrowers execution, delivery and performance of the Notes, this Agreement and all other Loan Documents, and Borrowers execution of the Warrant, (i) have been duly authorized by all necessary corporate action of Borrower, (ii) will not result in the creation or imposition of any Lien upon the Collateral, other than Permitted
13
Liens and the Liens created by this Agreement and the other Loan Documents, (iii) do not violate any provisions of Borrowers Certificate of Incorporation, bylaws, or any material law, regulation, order, injunction, judgment, decree or writ to which Borrower is subject and (iv) except as described on Schedule 5.3, do not violate any material contract or agreement or require the consent or approval of any other Person that has not been obtained. The individual or individuals executing the Loan Documents and the Warrant on behalf of the Borrower are duly authorized to do so.
5.4 Material Adverse Effect. No Material Adverse Effect has occurred and is continuing.
5.5 Actions Before Governmental Authorities. Except as described on Schedule 5.5, there are no actions, suits or proceedings at law or in equity by or before any governmental authority now pending or, to the knowledge of Borrower, threatened in writing against or affecting Borrower or its property as to which there is a reasonable likelihood of an adverse determination and which, if adversely determined, would reasonably be expected to, individually or in the aggregate, result in a Material Adverse Effect.
5.6 Laws; Agreements. Borrower is not in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any governmental authority, where such violation or default is reasonably expected to result in a Material Adverse Effect. Borrower is not in default in any manner under any provision of any agreement or instrument evidencing Indebtedness, or any other material agreement to which it is a party or by which it is bound, and which default would reasonably be expected to have a Material Adverse Effect.
5.7 Information Correct and Current. No report, Advance Request, financial statement, exhibit or schedule furnished, by or on behalf of Borrower to Lender in connection with any Loan Document or included therein or delivered pursuant thereto, when taken together with all such other reports, statements or other documents or writings, contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading at the time such statement was made or deemed made. Additionally, any and all financial or business projections provided by Borrower to Lender shall be at the time delivered (i) provided in good faith and based on the most current data and information available to Borrower, and (ii) the most current of such projections provided to Borrowers Board of Directors.
5.8 Tax Matters. Except as described on Schedule 5.8, (a) Borrower has filed all material federal, state and local tax returns that it is required to file (or extensions thereof), (b) Borrower has duly paid or fully reserved (if required under GAAP) for all material taxes or installments thereof (including any interest or penalties) as and when due, which have or may become due pursuant to such returns, and (c) Borrower has paid or fully reserved for any material tax assessment received by Borrower for the three (3) years preceding the Closing Date, if any (including any taxes being contested in good faith and by appropriate proceedings).
14
5.9 Intellectual Property Claims. Except for Permitted Liens, Borrower is the sole owner of, or otherwise has the right to use, the Intellectual Property material to its business. Except as described on Schedule 5.9,(i) to Borrowers knowledge, each of the material issued Copyrights, Trademarks and Patents is valid and enforceable, (ii) no material Intellectual Property of Borrower has been judged by a decision of a court of competent jurisdiction, invalid or unenforceable, in whole or in part, and (iii) no claim has been made to Borrower in writing that any material Intellectual Property of Borrower violates the rights of any third party except to the extent such claim would not reasonably be expected to cause a Material Adverse Effect. Exhibit D is a true, correct and complete list of each of Borrowers Patents, registered Trademarks, registered Copyrights, and material agreements under which Borrower licenses Intellectual Property from third parties (shrink-wrap software licenses and click on license agreements, open source code and other licenses available to the public without customization shall not be considered a material License or agreement), together with application or registration numbers, as applicable, owned by Borrower or any Subsidiary, in each case as of the Closing Date. Borrower is not in material breach of, nor has Borrower failed to perform any material obligations under, any of the foregoing contracts, licenses or agreements and, to Borrowers knowledge, no third party to any such contract, license or agreement is in material breach thereof or has failed to perform any material obligations thereunder in each case which would reasonably be expected to have a Material Adverse Effect.
5.10 Intellectual Property. Except as described on Schedule 5.10, Borrower has, or in the case of any proposed business, will have, all material rights with respect to Intellectual Property necessary in the operation or conduct of Borrowers business as currently conducted and proposed to be conducted by Borrower. Without limiting the generality of the foregoing, other than in connection with Permitted Transfers, and in the case of material in-bound Licenses, except for restrictions that are unenforceable under Division 9 of the UCC and except as provided in the GSK Agreement, Borrower has the right, to the extent required to operate Borrowers business, to freely transfer, license or assign the Intellectual Property licensed pursuant to such material License without condition, restriction or payment of any kind (other than payments in the ordinary course of business) to any third party, Borrower owns or has the right to use, pursuant to valid licenses, all material software development tools, library functions, compilers and other third-party software and other items that are necessary for the design, development, promotion, sale, license, manufacture, import, export, use or distribution of Borrower Products that are currently being clinically developed, manufactured or sold by Borrower. For the avoidance of doubt, shrink-wrap licenses, click on license agreements, open source code and other licenses available to the public without customization shall not be considered a material License.
5.11 Borrower Products. Except as described on Schedule 5.11, no material Intellectual Property owned by Borrower or Borrower Product has been or is subject to any actual or, to the knowledge of Borrower, threatened (in writing) litigation, inter-party proceeding (including any proceeding in the United States Patent and Trademark Office or any corresponding foreign office or agency) or outstanding decree, order, judgment, settlement agreement or stipulation that restricts in any material respect Borrowers use,
15
transfer or licensing thereof or that may affect the validity, use or enforceability thereof. To Borrowers knowledge, there is no decree, order, judgment, agreement, stipulation, arbitral award or other provision entered into in connection with any litigation or proceeding that obligates Borrower to grant licenses or ownership interest in any future material Intellectual Property related to the operation or conduct of the business of Borrower or Borrower Products. Borrower has not received any written notice or claim challenging Borrowers ownership in any material Intellectual Property (or written notice of any claim challenging the ownership in any material licensed Intellectual Property of the owner thereof) or suggesting that any third party has any claim of legal or beneficial ownership with respect thereto. To Borrowers knowledge, neither Borrowers use of its material Intellectual Property nor the production and sale of Borrower Products infringes in any material respect the Intellectual Property or other rights of others.
5.12 Financial Accounts. Exhibit E, as may be updated by the Borrower in a written notice provided to Lender after the Closing Date, is a true, correct and complete list of (a) all banks and other financial institutions at which Borrower or any Subsidiary maintains Deposit Accounts and (b) all institutions at which Borrower or any Subsidiary maintains an account holding Investment Property, and such exhibit correctly identifies in all material respects the name, address and telephone number of each bank or other institution, the name in which the account is held, and the complete account number therefor.
5.13 Employee Loans. Except as permitted as a Permitted Investment, Borrower has no outstanding loans to any employee, officer or director of the Borrower nor has Borrower guaranteed the payment of any loan made to an employee, officer or director of the Borrower by a third party.
5.14 Capitalization and Subsidiaries. Borrowers capitalization as of the Closing Date is set forth on Schedule 5.14 annexed hereto. Borrower does not own any stock, partnership interest or other securities of any Person, except for Permitted Investments. Attached as Schedule 5.14, as may be updated by Borrower in a written notice provided after the Closing Date, is a true, correct and complete list of each Subsidiary.
SECTION 6. INSURANCE; INDEMNIFICATION
6.1 Coverage. Borrower shall cause to be carried and maintained commercial general liability insurance, on an occurrence form, against risks customarily insured against in Borrowers line of business. Such risks shall include the risks of bodily injury, including death, property damage, personal injury, advertising injury, and contractual liability per the terms of the indemnification agreement found in Section 6.3. Borrower must maintain a minimum of $2,000,000 of commercial general liability insurance (including umbrella coverage) for each occurrence. Borrower has and agrees to maintain a minimum of $2,000,000 of directors and officers insurance for each occurrence and $5,000,000 in the aggregate. So long as there are any Secured Obligations outstanding, Borrower shall also cause to be carried and maintained insurance upon the Collateral, insuring against all risks of physical loss or damage howsoever caused, in an amount not less than the full replacement cost of the Collateral, provided that such insurance may be subject to standard exceptions and deductibles. Borrower shall also carry and maintain a fidelity insurance policy in an amount not less than $100,000.
16
6.2 Certificates. Borrower shall deliver to Lender certificates of insurance that evidence Borrowers compliance with its insurance obligations in Section 6.1 and the obligations contained in this Section 6.2. Borrowers insurance certificate shall state Lender is an additional insured for commercial general liability, an additional insured and a loss payee for all risk property damage insurance, subject to the insurers approval, a loss payee for fidelity insurance, and a loss payee for property insurance and additional insured for liability insurance for any future insurance that Borrower may acquire from such insurer. Attached to the certificates of insurance will be additional insured endorsements for liability and lenders loss payable endorsements for all risk property damage insurance and fidelity. All certificates of insurance will provide for a minimum of thirty (30) days advance written notice to Lender of cancellation (except for 10 days for non payment). Any failure of Lender to scrutinize such insurance certificates for compliance is not a waiver of any of Lenders rights, all of which are reserved.
6.3 Indemnity. Borrower agrees to indemnify and hold Lender and its officers, directors, employees, agents, in-house attorneys, representatives and shareholders harmless from and against any and all claims, costs, expenses, damages and liabilities (including such claims, costs, expenses, damages and liabilities based on liability in tort, including strict liability in tort), including reasonable attorneys fees and disbursements and other costs of investigation or defense (including those incurred upon any appeal), that may be instituted or asserted against or incurred by Lender or any such Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents or the administration of such credit, or in connection with or arising out of the transactions contemplated hereunder and thereunder, or any actions or failures to act in connection therewith, or arising out of the disposition or utilization of the Collateral, excluding in all cases claims resulting from Lenders or any indemnitees gross negligence or willful misconduct. Borrower agrees to pay, and to save Lender harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes (excluding taxes imposed on or measured by the net income of Lender) that may be payable or determined to be payable with respect to any of the Collateral or this Agreement; provided, however, that (i) with respect to such liabilities imposed originally and independently on Lender, Lender shall notify a Borrower of any such liabilities within 180 days of the initial date Lender had actual knowledge of Lenders direct exposure to such liabilities, and (ii) with respect to all other such liabilities not described in subsection (i), Lender shall notify Borrower of any such liabilities within 180 days of the initial date Lender has actual knowledge of its direct exposure to such liabilities.
SECTION 7. COVENANTS OF BORROWER
Borrower agrees as follows:
7.1 Financial Reports. Borrower shall furnish to Lender the financial statements and reports listed hereinafter (the Financial Statements):
(a) as soon as practicable (and in any event within 30 days) after the end of each month, unaudited interim and year-to-date financial statements as of the end of such month (prepared on a consolidated basis, if applicable), including balance sheet and related statements of income and cash flows, all certified on behalf of Borrower by Borrowers Chief Executive Officer, Chief Operating Officer or Chief Financial Officer to the effect that they have been prepared in accordance with GAAP, except (i) for the absence of footnotes, (ii) that they are subject to normal year end adjustments, (iii) they do not contain certain non-cash items, and (iv) that they are subject to adjustment with respect to revenue recognition for upfront and milestone payments.
17
(b) as soon as practicable (and in any event within 45 days) after the end of each of the first three calendar quarters of each year (I) unaudited interim and year-to-date financial statements as of the end of such calendar quarter (prepared on a consolidated basis, if applicable), including balance sheet and related statements of income and cash flows, certified on behalf of Borrower by Borrowers Chief Executive Officer, Chief Operating Officer or Chief Financial Officer to the effect that they have been prepared in accordance with GAAP, except (i) for the absence of footnotes, (ii) that they are subject to normal year end adjustments, (iii) they do not contain certain non-cash items, and (iv) that they are subject to adjustment with respect to revenue recognition for upfront and milestone payments; and (II) before an Initial Public Offering, the most recent capitalization table for Borrower, including the weighted average exercise price of employee stock options.
(c) (I) as soon as practicable and in any event within sixty (60) days after the end of each fiscal year, preliminary financial statements as of the end of such fiscal year (prepared on a consolidated basis, if applicable), including balance sheet and related statements of income and cash flows, certified on behalf of Borrower by Borrowers Chief Executive Officer, Chief Operating Officer or Chief Financial Officer to the effect that they have been prepared in accordance with GAAP, except (i) for the absence of footnotes, (ii) that they are subject to normal year end adjustments, (iii) they do not contain certain non-cash items, and (iv) that they are subject to adjustment with respect to revenue recognition for upfront and milestone payments; (II) before an Initial Public Offering, as soon as practicable and in any event within sixty (60) days after the end of each fiscal year, the most recent capitalization table for Borrower, including the weighted average exercise price of employee stock options; and (III) as soon as practicable and in any event within one hundred eighty (180) days) after the end of each fiscal year, audited financial statements as of the end of such year (prepared on a consolidated basis, if applicable), including balance sheet and related statements of income and cash flows, and setting forth in comparative form the corresponding figures for the preceding fiscal year, certified by a firm of independent certified public accountants selected by Borrower and reasonably acceptable to Lender, accompanied by an audit report from such accountants which is unqualified as to scope of audit;
(d) as soon as practicable (and in any event within 30 days) after the end of each month, a Compliance Certificate in the form of Exhibit F;
18
(e) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports that Borrower has made available generally to holders of its Preferred Stock and copies of any regular, periodic and special reports or registration statements that Borrower files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or any national securities exchange;
(f) Before an Initial Public Offering, at the same time and in the same manner as it gives to its Board of Directors, copies of all notices, minutes, consents and other materials that Borrower provides to its Board of Directors in connection with meetings of the Board of Directors, and minutes of such meetings, provided Borrower may exclude from such delivery any materials, the disclosure of which would reasonably be expected to constitute or effect a waiver of the attorney-client privilege;
(g) financial and business projections promptly following their approval by Borrowers Board of Directors, as well as budgets, operating plans; and
(h) other financial information reasonably requested by Lender.
Borrower shall not make any change in its fiscal years or fiscal quarters or, without notice to Lender, any change in its accounting policies or reporting practices. The fiscal year of Borrower shall end on December 31.
The executed Compliance Certificate may be sent via facsimile to Lender at (650) 473-9194 or via e-mail to jbourque @herculestech.com. All Financial Statements required to be delivered pursuant to clauses (a), (b) and (c) shall be sent via e-mail to financialstatements@herculestech.com with a copy to jbourque@herculestech.com provided, that if e-mail is not available or sending such Financial Statements via e-mail is not possible, they shall be sent via facsimile to Lender at: (866) 468-8916, attention Chief Credit Officer.
7.2 Management Rights. Borrower shall permit any representative that Lender authorizes, including its attorneys and accountants, to inspect the Collateral and examine and make copies and abstracts of the books of account and records of Borrower at reasonable times and upon reasonable notice during normal business hours (but in any event no more than once in any12-month period unless an Event of Default has occurred and is continuing). In addition, any such representative shall have the right to meet with management and officers of Borrower to discuss such books of account and records. In addition, Lender shall be entitled at reasonable times and intervals to consult with and advise the management and officers of Borrower concerning significant business issues affecting Borrower. Such consultations shall not unreasonably interfere with Borrowers business operations. The parties intend that the rights granted Lender shall constitute management rights within the meaning of 29 C.F.R Section 2510.3-101(d)(3)(ii), but that any advice, recommendations or participation by Lender with respect to any business issues shall not be deemed to give Lender, nor be deemed an exercise by Lender of, control over Borrowers management or policies.
19
7.3 Further Assurances. Borrower shall from time to time execute, deliver and file, alone or with Lender, any financing statements, security agreements, collateral assignments, notices, control agreements, or other necessary documents to perfect or give to Lender a first priority Lien on the Collateral (subject to Permitted Liens). Borrower shall from time to time procure any instruments or documents as may be reasonably requested by Lender, and take all further action that may be necessary or desirable, or that Lender may reasonably request, to perfect and protect the Liens granted hereby and thereby. In addition, and for such purposes only, Borrower hereby authorizes Lender to execute and deliver on behalf of Borrower and to file such financing statements, collateral assignments, notices, control agreements, security agreements and other documents without the signature of Borrower either in Lenders name or in the name of Lender as agent and attorney-in-fact for Borrower. Borrower shall in its reasonable business judgment protect and defend Borrowers title to the Collateral and Lenders Lien thereon against all Persons claiming any interest adverse to Borrower or Lender other than Permitted Liens.
7.4 Indebtedness. Borrower shall not create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness at any time before the Maturity Date, except for the conversion of Indebtedness into equity securities and the payment of cash in lieu of fractional shares in connection with such conversion.
7.5 Encumbrances. Borrower shall at all times keep its property free and clear from any Liens whatsoever (except for Permitted Liens), and shall give Lender prompt written notice when the Borrower knows of any legal process affecting such property, or any Liens thereon. Borrower shall cause its Subsidiaries to protect and defend such Subsidiarys title to its property from and against all Persons claiming any interest adverse to such Subsidiary, and Borrower shall cause its Subsidiaries at all times to keep such Subsidiarys property free and clear from any Liens whatsoever (except for Permitted Liens), and shall give Lender prompt written notice when the Borrower knows of any legal process affecting such Subsidiarys property. Borrower shall not enter into any agreement with any Person other than Lender (other than in connection with Permitted Liens and Permitted Transfers) that has the effect of restricting Borrower from granting a Lien on its Intellectual Property to Lender.
7.6 Investments. Borrower shall not directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments.
7.7 Distributions. Borrower shall not, and shall not allow any Subsidiary to, (a) repurchase or redeem any class of stock or other equity interest other than (i) pursuant to employee, director or consultant repurchase plans or other similar agreements, in an aggregate amount not to exceed $250,000, or (ii) pursuant to Section 4 of the Third Amended and Restated Right of First Refusal and Co-Sale Agreement dated as of June 1, 2009 provided that any such repurchase is approved by the Borrowers Board of Directors, in an aggregate amount not to exceed $500,000, (b) declare or pay any cash dividend or
20
make a cash distribution on any class of stock or other equity interest, except that a Subsidiary may pay dividends or make distributions to Borrower, or (c) lend money to any employees, officers or directors or guarantee the payment of any such loans granted by a third party other than Permitted Investments.
7.8 Transfers. Except for Permitted Transfers, Permitted Investments and Permitted Liens, Borrower shall not voluntarily or involuntarily transfer, sell, lease, license, lend or in any other manner convey any equitable, beneficial or legal interest in any material portion of their assets.
7.9 Mergers or Acquisitions. (a) Borrower shall not merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower), (b) Borrower shall not acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person other than Permitted Investments. Borrower may dissolve any Subsidiary as long as the assets of that Subsidiary are promptly distributed to such Subsidiarys shareholder.
7.10 Taxes. Borrower and its Subsidiaries shall pay when due all material taxes, fees or other charges of any nature whatsoever (together with any related interest or penalties) now or hereafter imposed or assessed against Borrower, Lender or the Collateral or upon Borrowers ownership, possession, use, operation or disposition thereof or upon Borrowers rents, receipts or earnings arising therefrom. Borrower shall file on or before the due date therefor all personal property tax returns (or extensions) in respect of the Collateral. Notwithstanding the foregoing, Borrower may contest, in good faith and by appropriate proceedings, taxes for which Borrower maintains adequate reserves therefor in accordance with GAAP.
7.11 Corporate Changes.
(a) Neither Borrower nor any Subsidiary shall change its corporate name, legal form or jurisdiction of formation without twenty (20) days prior written notice to Lender.
(b) The Borrower shall not suffer a Change in Control.
(c) Neither Borrower nor any Subsidiary shall relocate its chief executive office or its principal place of business unless: (i) it has provided prior written notice to Lender; and (ii) such relocation shall be within the continental United States.
(d) Neither Borrower nor any Subsidiary shall relocate any item of Collateral (other than (v) Borrower Products, including compounds and raw materials used to manufacture biopharmaceuticals or which are used for preclinical testing or clinical trials, in the ordinary course of business, (w) Permitted Transfers, (x) sales of Inventory in the ordinary course of business, (y) relocations of Equipment having an aggregate value of up to $150,000 in any fiscal year, and (z) relocations of Collateral from a location described on Exhibit C to another location described on Exhibit C) unless (i) it has
21
provided prompt written notice to Lender, (ii) such relocation is within the continental United States and, (iii) if such relocation is to a third party bailee, and the Collateral has a value in excess of $250,000, it has delivered a bailee agreement in form and substance reasonably acceptable to Lender.
7.12 Deposit Accounts. Neither Borrower nor any Subsidiary shall maintain any Deposit Accounts constituting Collateral (other than payroll accounts or accounts holding trust fund taxes), or accounts holding Investment Property constituting Collateral, except with respect to which Lender has an Account Control Agreement, if applicable.
7.13 Subsidiaries. Borrower shall notify Lender of each Subsidiary formed subsequent to the Closing Date and, within 15 days of formation, shall cause any such Subsidiary organized under the laws of any State within the United States to execute and deliver to Lender a Joinder Agreement.
SECTION 8. RESERVED
8.1 Reserved.
SECTION 9. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall be an Event of Default:
9.1 Payments. Borrower fails to pay any amount due under this Agreement, the Notes or any of the other Loan Documents on the due date, and in each case such default continues for more than 3 business days after the due date thereof; or
9.2 Covenants. Borrower breaches or defaults in the performance of any covenant under any of the Loan Documents, and (a) with respect to a default under any such covenant under this Agreement (other than under Sections 6.1, 7.5, 7.6, 7.7, 7.8, 7.9 or 7.11) such default continues for more than ten (10) business days after the earlier of the date on which (i) Lender has given notice of such default to Borrower and (ii) Borrower has actual knowledge of such default, or (b) with respect to a default under any of Sections 6.1, 7.5, 7.6, 7.7, 7.8 or 7.9, (b) the occurrence of such default, or (c) with respect to a default under any of Sections 7.9(a) and 7.11(b), the Lender has given notice of such default to Borrower no later than 30 days after a Change of Control; or
9.3 Material Adverse Effect. An event has occurred that would reasonably be expected to have a Material Adverse Effect; or
9.4 Other Loan Documents. The occurrence of any default under any Loan Document, the Warrant or any other agreement between Borrower and Lender and such default continues for more than ten business (10) days after the earlier of (a) Lender has given notice of such default to Borrower, or (b) Borrower has actual knowledge of such default; or
22
9.5 Representations. Any representation or warranty made by Borrower in any Loan Document or in the Warrant shall have been false or misleading in any material respect; or
9.6 Insolvency. Borrower (A) (i) shall make an assignment for the benefit of creditors; or (ii) shall be unable to pay its debts as they become due, or be unable to pay the Secured Obligations under the Loan Documents, or shall become insolvent; or (iii) shall file a voluntary petition in bankruptcy; or (iv) shall file any petition, answer, or document seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation pertinent to such circumstances; or (v) shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of Borrower or of all or any substantial part (i.e., 33-1/3% or more) of the assets or property of Borrower; or (vi) shall cease operations of its business as its business has normally been conducted for 3 consecutive business days, or terminate substantially all of its employees; or (vii) Borrower or its directors or majority shareholders shall take any action initiating any of the foregoing actions described in clauses (i) through (vi); or (B) either (i) sixty (60) days shall have expired after the commencement of an involuntary action against Borrower seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, without such action being dismissed or all orders or proceedings thereunder affecting the operations or the business of Borrower being stayed; or (ii) a stay of any such order or proceedings shall thereafter be set aside and the action setting it aside shall not be timely appealed; or (iii) Borrower shall file any answer admitting or not contesting the material allegations of a petition filed against Borrower in any such proceedings; or (iv) the court in which such proceedings are pending shall enter a decree or order granting the relief sought in any such proceedings; or (v) forty five (45) days shall have expired after the appointment, without the consent or acquiescence of Borrower, of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower without such appointment being vacated; or
9.7 Attachments; Judgments. Any portion of Borrowers assets having a value in excess of $350,000 is attached or seized, or a levy is filed against any such assets, or a judgment or judgments (not covered by insurance as to which an insurer not affiliated with Borrower has acknowledged coverage) is/are entered for the payment of money, individually or in the aggregate, of at least $350,000, and remains unstayed, unbonded and unsatisfied for more than 30 days, or Borrower is enjoined or in any way prevented by court order from conducting any material part of its business; or
9.8 Other Obligations. The occurrence of any default under any agreement or obligation of Borrower involving any Indebtedness in excess of $175,000.
SECTION 10. REMEDIES
10.1 General. Upon and during the continuance of any one or more Events of Default, (i) Lender may, at its option, accelerate and demand payment of all or any part of the Secured Obligations together with a Prepayment Charge and declare them to be immediately due and payable (provided, that upon the occurrence of an Event of Default of
23
the type described in Section 9.6, the Notes and all of the Secured Obligations shall automatically be accelerated and made due and payable, in each case without any further notice or act), and (ii) Lender may notify any of Borrowers account debtors to make payment directly to Lender, compromise the amount of any such account on Borrowers behalf and endorse Lenders name without recourse on any such payment for deposit directly to Lenders account. Lender may exercise all rights and remedies with respect to the Collateral under the Loan Documents or otherwise available to it under the UCC and other applicable law, including the right to release, hold, sell, lease, liquidate, collect, realize upon, or otherwise dispose of all or any part of the Collateral and the right to occupy, utilize, process and commingle the Collateral. All Lenders rights and remedies shall be cumulative and not exclusive.
10.2 Collection; Foreclosure. Upon the occurrence and during the continuance of any Event of Default, Lender may, at any time or from time to time, apply, collect, liquidate, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as Lender may elect. Any such sale may be made either at public or private sale at its place of business or elsewhere. Borrower agrees that any such public or private sale may occur upon ten (10) calendar days prior written notice to Borrower. Lender may require Borrower to assemble the Collateral and make it available to Lender at a place designated by Lender that is reasonably convenient to Lender and Borrower. The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be applied by Lender in the following order of priorities:
First, to Lender in an amount sufficient to pay in full Lenders costs and professionals and advisors fees and expenses as described in Section 11.11;
Second, to Lender in an amount equal to the then unpaid amount of the Secured Obligations (including principal, interest, and the Default Rate interest), in such order and priority as Lender may choose in its sole discretion; and
Finally, after the full and final payment in Cash of all of the Secured Obligations, to any creditor holding a junior Lien on the Collateral, or to Borrower or its representatives or as a court of competent jurisdiction may direct.
Lender shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under the UCC.
10.3 The Lender agrees not to issue a notice of exclusive control or any other instruction under any Account Control Agreement unless an Event of Default has occurred and is continuing.
10.4 No Waiver. Lender shall be under no obligation to marshal any of the Collateral for the benefit of Borrower or any other Person, and Borrower expressly waives all rights, if any, to require Lender to marshal any Collateral.
10.5 Cumulative Remedies. The rights, powers and remedies of Lender hereunder shall be in addition to all rights, powers and remedies given by statute or rule of
24
law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of or election of remedies with respect to any other rights, powers and remedies of Lender.
SECTION 11. MISCELLANEOUS
11.1 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent and duration of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
11.2 Notice. Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication (including the delivery of Financial Statements) (a Notification) that is required, contemplated, or permitted under the Loan Documents or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the day of transmission by facsimile or hand delivery or delivery by an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, in each case addressed to the party to be notified as follows:
(a) If to Lender:
HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
Legal Department
Attention: Chief Legal Officer and Janice Bourque
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
Facsimile: 650-473-9194
Telephone: 650-289-3060
With a copy to:
HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
31 St. James Ave., Suite 790
Boston, MA 02116
Attention: Janice Bourque
Facsimile: 617-
Telephone: 617-314-9992
(b) If to Borrower:
CONCERT PHARMACEUTICALS, INC.
99 Hayden Ave., Suite 500
Lexington, MA 02421
Attention: Nancy Stuart
Chief Operating Officer
Facsimile:
Telephone:
25
With a copy (that shall not constitute notice) to:
Wilmer Cutler Pickering Hale and Dorr LLP.
60 State Street
Boston, MA 02446
Attention: David E. Redlick
Facsimile: 617-526-5000
Telephone: 617-526-6000
or to such other address as each party may designate for itself by like notice. Any notification delivered to a party to this Agreement in accordance with this Section shall be valid notwithstanding any failure to deliver a copy thereof to a Person not party to this Agreement.
11.3 Entire Agreement; Amendments. This Agreement, the Notes, and the other Loan Documents constitute the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and thereof, and supersede and replace in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof or thereof (including Lenders revised proposal letter dated October 12, 2011). None of the terms of this Agreement, the Notes or any of the other Loan Documents may be amended except by an instrument executed by each of the parties hereto.
11.4 No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.
11.5 No Waiver. The powers conferred upon Lender by this Agreement are solely to protect its rights hereunder and under the other Loan Documents and its interest in the Collateral and shall not impose any duty upon Lender to exercise any such powers. No omission or delay by Lender at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by Borrower at any time designated, shall be a waiver of any such right or remedy to which Lender is entitled, nor shall it in any way affect the right of Lender to enforce such provisions thereafter.
11.6 Survival. All agreements, representations and warranties contained in this Agreement, the Notes and the other Loan Documents or in any document delivered pursuant hereto or thereto shall be for the benefit of Lender and shall survive the execution and delivery of this Agreement and Section 6.3 and any provisions that, by their express terms are to survive the expiration or other termination of this Agreement shall survive such expiration or termination.
26
11.7 Successors and Assigns. The provisions of this Agreement and the other Loan Documents shall inure to the benefit of and be binding on Borrower and its permitted assigns (if any). Borrower shall not assign its obligations under this Agreement, the Notes or any of the other Loan Documents without Lenders express prior written consent, and any such attempted assignment shall be void and of no effect. Lender may assign, transfer, or endorse its rights hereunder and under the other Loan Documents to an Assignee (defined in Section 11.13) without prior notice to Borrower or Borrowers consent, and all of such rights shall inure to the benefit of Lenders successors and assigns.
11.8 Governing Law. This Agreement, the Notes and the other Loan Documents have been negotiated and delivered to Lender in the Commonwealth of Massachusetts, and shall have been accepted by Lender in the Commonwealth of Massachusetts. Payment to Lender by Borrower of the Secured Obligations is due in the Commonwealth of Massachusetts. This Agreement, the Notes and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Massachusetts, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.
11.9 Consent to Jurisdiction and Venue. All judicial proceedings (to the extent that the reference requirement of Section 11.10 is not applicable) arising in or under or related to this Agreement, the Notes or any of the other Loan Documents may be brought in any state or federal court located in the Commonwealth of Massachusetts. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to exclusive personal jurisdiction in Suffolk County, Commonwealth of Massachusetts; (b) waives any objection as to jurisdiction or venue in the Business Litigation Session of the Suffolk Superior Court, Suffolk County, Commonwealth of Massachusetts; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement, the Notes or the other Loan Documents. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 11.2, and shall be deemed effective and received as set forth in Section 11.2. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.
11.10 Mutual Waiver of Jury Trial / Judicial Reference.
(a) Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM,
27
COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, CLAIMS) ASSERTED BY BORROWER AGAINST LENDER OR ITS ASSIGNEE OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiver extends to all such Claims, including Claims that involve Persons other than Borrower and Lender; Claims that arise out of or are in any way connected to the relationship between Borrower and Lender; and any Claims for damages, breach of contract, tort, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement, any other Loan Document.
11.11 Professional Fees. Borrower promises to pay Lenders fees and expenses necessary to finalize the loan documentation, including but not limited to reasonable attorneys fees, UCC searches, filing costs, and other reasonable miscellaneous expenses. In addition, Borrower promises to pay any and all reasonable attorneys and other reasonable professionals fees and expenses incurred by Lender after the Closing Date in connection with or related to: (a) the Loan; (b) the administration, collection, or enforcement of the Loan; (c) the amendment or modification of the Loan Documents; (d) any waiver, consent, release, or termination under the Loan Documents; (e) the protection, preservation, sale, lease, liquidation, or disposition of Collateral or the exercise of remedies with respect to the Collateral; (f) any legal, litigation, administrative, arbitration, or out of court proceeding in connection with or related to Borrower or the Collateral, and any appeal or review thereof; and (g) any bankruptcy, restructuring, reorganization, assignment for the benefit of creditors, workout, foreclosure, or other action related to Borrower, the Collateral, the Loan Documents, including representing Lender in any adversary proceeding or contested matter commenced or continued by or on behalf of Borrowers estate, and any appeal or review thereof.
11.12 Confidentiality. Lender acknowledges that certain items of Collateral and information provided to Lender by Borrower are confidential or proprietary information of Borrower, if and to the extent such information either (x) is marked as confidential, proprietary or secret by Borrower at the time of disclosure, or (y) should reasonably be understood to be confidential, proprietary or secret (the Confidential Information). Accordingly, Lender agrees that any Confidential Information it may obtain in the course of acquiring, administering, perfecting or enforcing Lenders security interest in the Collateral or otherwise shall not be disclosed to any other person or entity in any manner whatsoever, in whole or in part, without the prior written consent of Borrower, except that Lender may disclose any such information: (a) to its own directors, officers, employees, accountants, counsel and other professional advisors and to its controlled affiliates if Lender in its sole discretion determines that any such party should have access to such information in connection with such partys responsibilities in connection with the Loan or this Agreement and, provided that such recipient of such Confidential Information either (i) agrees to be bound by the confidentiality provisions of this paragraph or (ii) is otherwise subject to confidentiality restrictions that reasonably protect against the disclosure of Confidential Information; (b) if such information is generally available to the public without any disclosure by Lender or breach of this Section 11.12; (c) if required or appropriate in any report, statement or testimony submitted to any governmental authority having or claiming to have jurisdiction over Lender; (d) if required or appropriate in
28
response to any summons or subpoena or in connection with any litigation, to the extent permitted or deemed advisable by Lenders counsel; (e) to comply with any legal requirement or law applicable to Lender; (f) to the extent reasonably necessary in connection with the exercise of any right or remedy under any Loan Document, including Lenders sale, lease, or other disposition of Collateral during the continuation of an Event of Default; (g) to any participant or assignee of Lender or any prospective participant or assignee; provided, that such participant or assignee or prospective participant or assignee agrees in writing to be bound by this Section prior to disclosure; or (h) otherwise with the prior written consent of Borrower; provided, that any disclosure made in violation of this Agreement shall not affect the obligations of Borrower or any of its affiliates or any guarantor under this Agreement or the other Loan Documents.
11.13 Assignment of Rights. Borrower acknowledges and understands that Lender may sell and assign all or part of its interest hereunder and under the Note(s) and Loan Documents (an Assignment) to any person or entity provided that (a) no such Assignment shall be made to a competitor of the Borrower, and (b) Lender will not make any Assignment to a Person organized or resident outside the United States without Borrowers consent which shall not be unreasonably withheld (such assignee, an Assignee or assignee). After such assignment the term Lender as used in the Loan Documents shall mean and include such Assignee, and such Assignee shall be vested with all rights, powers and remedies of Lender hereunder with respect to the interest so assigned; but with respect to any such interest not so transferred, Lender shall retain all rights, powers and remedies hereby given. No such assignment by Lender shall relieve Borrower of any of its obligations hereunder. No such Assignment shall release the Lender from its obligations to fund the Term Advance subject to the terms and conditions contained in Section 2.1 hereof. Lender agrees that in the event of any transfer by it of the Note(s), it will endorse thereon a notation as to the portion of the principal of the Note(s), which shall have been paid at the time of such transfer and as to the date to which interest shall have been last paid thereon.
11.14 Revival of Secured Obligations. This Agreement and the Loan Documents shall remain in full force and effect and continue to be effective if any petition is filed by or against Borrower for liquidation or reorganization, if Borrower becomes insolvent or makes an assignment for the benefit of creditors, if a receiver or trustee is appointed for all or any significant part of Borrowers assets, or if any payment or transfer of Collateral is recovered from Lender. The Loan Documents and the Secured Obligations and Collateral security shall continue to be effective, or shall be revived or reinstated, as the case may be, if at any time payment and performance of the Secured Obligations or any transfer of Collateral to Lender, or any part thereof is rescinded, avoided or avoidable, reduced in amount, or must otherwise be restored or returned by, or is recovered from, Lender or by any obligee of the Secured Obligations, whether as a voidable preference, fraudulent conveyance, or otherwise, all as though such payment, performance, or transfer of Collateral had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, avoided, avoidable, restored, returned, or recovered, the Loan Documents and the Secured Obligations shall be deemed, without any further action or documentation, to have been revived and reinstated except to the extent of the full, final, and indefeasible payment to Lender in Cash.
29
11.15 Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.
11.16 No Third Party Beneficiaries. No provisions of the Loan Documents are intended, nor will be interpreted, to provide or create any third-party beneficiary rights or any other rights of any kind in any person other than Lender and Borrower unless specifically provided otherwise herein, and, except as otherwise so provided, all provisions of the Loan Documents will be personal and solely between the Lender and the Borrower.
11.17 Publicity. Subject to applicable law, Lender may use Borrowers name and logo, and include a brief description of the relationship between Borrower and Lender, in Lenders marketing materials, provided that the Borrower shall have the right to review such use prior to publication.
(SIGNATURES TO FOLLOW)
30
IN WITNESS WHEREOF, Borrower and Lender have duly executed and delivered this Loan and Security Agreement as of the day and year first above written.
BORROWER: | ||
CONCERT PHARMACEUTICALS, INC. | ||
Signature: | /s/ Roger D. Tung | |
|
||
Print Name: | Roger D. Tung | |
Title: | Chief Executive Officer |
Accepted in Boston, Massachussets:
LENDER: | ||
HERCULES TECHNOLOGY GROWTH CAPITAL, INC. | ||
By: |
|
|
Name: |
|
|
Its: |
|
IN WITNESS WHEREOF, Borrower and Lender have duly executed and delivered this Loan and Security Agreement as of the day and year first above written.
BORROWER: | ||||||
CONCERT PHARMACEUTICALS, INC. | ||||||
Signature: |
|
|||||
Print Name: |
|
|||||
Title: |
|
|||||
Accepted in Boston, Massachussets: |
LENDER: | ||
HERCULES TECHNOLOGY GROWTH CAPITAL, INC. | ||
By: | /s/ K. Nicholas Martitsch | |
|
||
Name: |
K. Nicholas Martitsch |
|
Its: |
Associate General Counsel |
31
Table of Exhibits and Schedules
Exhibit A: | Advance Request | |
Attachment to Advance Request | ||
Exhibit B-1: | Term Note | |
Exhibit C: | Name, Locations, and Other Information for Borrower | |
Exhibit D: | Borrowers Patents, Trademarks, Copyrights and Licenses | |
Exhibit E: | Borrowers Deposit Accounts and Investment Accounts | |
Exhibit F: | Compliance Certificate | |
Exhibit G: | Joinder Agreement | |
Exhibit H: | ACH Debit Authorization Agreement | |
Schedule 1 | Subsidiaries | |
Schedule 1A | Existing Permitted Indebtedness | |
Schedule 1B | Existing Permitted Investments | |
Schedule 1C | Existing Permitted Liens | |
Schedule 5.3 | Consents, Etc. | |
Schedule 5.5 | Actions Before Governmental Authorities | |
Schedule 5.8 | Tax Matters | |
Schedule 5.9 | Intellectual Property Claims | |
Schedule 5.10 | Intellectual Property | |
Schedule 5.11 | Borrower Products | |
Schedule 5.14 | Capitalization |
1
EXHIBIT A
ADVANCE REQUEST
To: | Date: , 201 |
Hercules Technology Growth Capital, Inc.
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
Facsimile: 650-473-9194
Attn: Janice Bourque
CONCERT PHARMACEUTICALS, INC. (Borrower) hereby requests from Hercules Technology Growth Capital, Inc. (Lender) an Advance in the amount of Dollars ($ ) on , (the Advance Date) pursuant to the Loan and Security Agreement between Borrower and Lender (the Agreement). Capitalized words and other terms used but not otherwise defined herein are used with the same meanings as defined in the Agreement.
Please:
(a) | Issue a check payable to Borrower |
|
||||||
or | ||||||||
(b) | Wire Funds to Borrowers account |
|
||||||
Bank: |
|
|||||||
Address: |
|
|||||||
|
||||||||
ABA Number: |
|
|||||||
Account Number: |
|
|||||||
Account Name: |
|
Borrower represents that the conditions precedent to the Advance set forth in the Agreement are satisfied and shall be satisfied upon the making of such Advance, including but not limited to: (i) that no Material Adverse Effect has occurred and is continuing; (ii) No Material Adverse Effect has occurred and is continuing; (iii) that the representations and warranties set forth in the Agreement are true and correct in all material respects on and as of the Advance Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date; (iv) that Borrower is in compliance in all material respects with all the terms and provisions set forth in each Loan Document on its part to be observed or performed; and (v) that as of the Advance Date, no fact or condition exists that constitutes (or would, with the passage of time, the giving of notice, or both) constitute an Event of Default under the Loan Documents. Borrower understands and acknowledges that Lender has the right to review the financial information supporting this representation and, based upon such review in its sole discretion, Lender may decline to fund the requested Advance if such representation is not true and correct in all material respects.
2
Borrower hereby represents that the information described in Exhibit C to the Loan Agreement have not changed since the date of the Agreement or, if the Attachment to this Advance Request is completed, are as set forth in the Attachment to this Advance Request.
Borrower agrees to notify Lender promptly before the funding of the Loan if any of the matters which have been represented above shall not be true and correct on the Borrowing Date and if Lender has received no such notice before the Advance Date then the statements set forth above shall be deemed to have been made and shall be deemed to be true and correct as of the Advance Date.
Executed as of , 201 .
BORROWER: | ||
CONCERT PHARMACEUTICALS, INC. | ||
SIGNATURE: |
|
TITLE: |
|
PRINT NAME: |
|
3
ATTACHMENT TO ADVANCE REQUEST
Dated:
Borrower hereby represents and warrants to Lender that Borrowers current name and organizational status is as follows:
Name: | CONCERT PHARMACEUTICALS, INC. | |
Type of organization: | Corporation | |
State of organization: | Delaware | |
Organization file number: | 4141420 |
Borrower hereby represents and warrants to Lender that the street addresses, cities, states and postal codes of its current owned and leased locations are as follows:
4
EXHIBIT B-1
SECURED TERM PROMISSORY NOTE
$ | Advance Date: , 201 | |
Maturity Date: July 1, 2015 |
FOR VALUE RECEIVED, CONCERT PHARMACEUTICALS, INC. , a Delaware corporation (the Borrower) hereby promises to pay to the order of Hercules Technology Growth Capital, Inc. or the holder of this Note (the Lender) at 400 Hamilton Avenue, Suite 310, Palo Alto, CA 94301 or such other place of payment as the holder of this Secured Term Promissory Note (this Promissory Note) may specify from time to time in writing, in lawful money of the United States of America, the principal amount of ($ ) or such other principal amount as Lender has advanced to Borrower, together with interest at a floating rate equal to the greater of (a) 8.50% per annum and (b) 8.50% plus the United States Prime Rate as reported in The Wall Street Journal minus 5.25%, not in any case to exceed 11.0% per annum, based upon a year consisting of 360 days, with interest computed daily based on the actual number of days in each month.
This Promissory Note is the Note referred to in, and is executed and delivered in connection with, that certain Loan and Security Agreement dated December , 2011, by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the Loan Agreement), and is entitled to the benefit and security of the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement), to which reference is made for a statement of all of the terms and conditions thereof. All payments shall be made in accordance with the Loan Agreement. All terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. An Event of Default under the Loan Agreement shall constitute a default under this Promissory Note.
Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest under the UCC or any applicable law. Borrower agrees to make all payments under this Promissory Note without setoff, recoupment or deduction and regardless of any counterclaim or defense. This Promissory Note has been negotiated and delivered to Lender and is payable in the Commonwealth of Massachusetts. This Promissory Note shall be governed by and construed and enforced in accordance with, the laws of the Commonwealth of Massachusetts, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction.
BORROWER: | CONCERT PHARMACEUTICALS, INC. | |||||
By: |
|
|||||
Title: |
|
EXHIBIT C
NAME, LOCATIONS, AND OTHER INFORMATION FOR BORROWER
1. Borrower represents and warrants to Lender that Borrowers current name and organizational status as of the Closing Date is as follows:
Name: | CONCERT PHARMACEUTICALS, INC. | |
Type of organization: | Corporation | |
State of organization: | Delaware | |
Organization file number: | 4141420 |
2. Borrower represents and warrants to Lender that for five (5) years prior to the Closing Date, Borrower did not do business under any other name or organization or form except the following:
Name: Concert Pharmaceuticals, Inc.
Used during dates of: Five (5) years prior to the Closing
Type of Organization: Corporation
State of organization: Delaware
Organization file Number: 4141420
Borrowers fiscal year ends on: December 31
Borrowers federal employer tax identification number is: 20-4839882
3. Borrower represents and warrants to Lender that its chief executive office is located at 99 Hayden Avenue, Suite 400 & 500, Lexington, MA 02421.
EXHIBIT D
BORROWERS PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
See attached.
Title | Application Number | Filing Date | ||||
1 | 4-Hydroxybutyric Acid Analogs | |||||
United States of America |
61/442451 | February 14, 2011 | ||||
United States of America |
61/484296 | May 10, 2011 | ||||
Canada |
2740247 | May 13, 2011 | ||||
Australia |
2011200745 | February 22, 2011 | ||||
Canada |
2732479 | February 23, 2011 | ||||
Australia |
2011202741 | June 8, 2011 | ||||
2 | 4-Hydroxybutyric Acid Analogs | |||||
Patent Cooperation Treaty |
PCT/US2010/031981 | April 22, 2010 | ||||
Australia |
2010239244 |
October 23, 2011 | ||||
European Patent Convention |
10716196 | October 23, 2011 | ||||
United States of America |
13/265609 |
October 23, 2011 | ||||
Canada |
NEW APPLICATION | October 23, 2011 | ||||
India |
8456/DELNP/2011 |
October 23, 2011 | ||||
3 | Alpha 1A-adrenoceptor antagonists | |||||
United States of America |
12/072,501 | February 26, 2008 | ||||
United States of America |
12/550864 | February 26, 2008 | ||||
United States of America |
13/189080 | July 22, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2008/002513 | February 26, 2008 | ||||
European Patent Convention |
8726096.4 | February 26, 2008 | ||||
4 | Analogues of cilostazol | |||||
United States of America |
12/150107 | April 24, 2008 | ||||
United States of America |
12/644758 | December 22, 2009 | ||||
Patent Cooperation Treaty |
PCT/US2008/005301 | April 24, 2008 | ||||
European Patent Convention |
8743256.3 | April 24, 2008 | ||||
5 | Carbamoylpyridone derivatives | |||||
United States of America |
61/481977 | May 3, 2011 | ||||
6 | Derivatives of dimethylcurcumin | |||||
United States of America |
13/049481 | March 16, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2011/028631 | March 16, 2011 | ||||
7 | Deuterated 2-amino-3-hydroxypropanoic acid derivatives | |||||
United States of America |
13/119318 | March 16, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2009/057001 | September 15, 2009 | ||||
European Patent Convention |
9792561.4 | September 15, 2009 | ||||
8 | Deuterated Benzo[D][1,3]-dioxol derivatives | |||||
United States of America |
12/688466 | January 15, 2010 |
Page 1 of 16
Title | Application Number | Filing Date | ||||
9 | Deuterated CFTR potentiators | |||||
United States of America |
61/487497 | May 18, 2011 | ||||
10 | Deuterated fingolimod | |||||
United States of America |
12/290645 | October 31, 2008 | ||||
Patent Cooperation Treaty |
PCT/US2008/012390 | October 31, 2008 | ||||
European Patent Convention |
8847117.2 | October 31, 2008 | ||||
Hong Kong |
11101551.6 | |||||
Japan |
2010-532064 | October 31, 2008 | ||||
United States of America |
13/311171 | 05-Dec-2011 | ||||
11 | Deuterated isoindoline-1,3-dione derivatives as PDE4 and TNF-alpha inhibitors | |||||
Patent Cooperation Treaty |
PCT/US2010/038577 | June 15, 2010 | ||||
Australia |
instructions to file sent | December 6, 2011 | ||||
Brazil |
instructions to file sent | December 6, 2011 | ||||
Canada |
instructions to file sent | December 6, 2011 | ||||
China (Peoples Republic) |
201010620532.7 | December 22, 2010 | ||||
Eurasian Patent Organization |
instructions to file sent | December 6, 2011 | ||||
European Patent Convention |
instructions to file sent | December 6, 2011 | ||||
India |
instructions to file sent | December 6, 2011 | ||||
Japan |
instructions to file sent | December 6, 2011 | ||||
Korea, Republic of |
10-2010-0132933 | December 22, 2010 | ||||
12 | Substituted isoindoline-1,3-dione derivatives | |||||
United States of America |
12/816295 | June 15, 2010 | ||||
Korea, Republic of |
10-2010-0132933 | December 22, 2010 | ||||
China (Peoples Republic) |
2.01011E+11 | December 22, 2010 | ||||
13 | Deuterated pyridinones | |||||
United States of America |
13/132784 | December 3, 2009 | ||||
Patent Cooperation Treaty |
PCT/US2009/066606 | December 3, 2009 | ||||
14 | Fluorinated diaryl urea derivatives | |||||
United States of America |
13/320646 | 15-Nov-2011 | ||||
Patent Cooperation Treaty |
PCT/US2010/035655 | May 20, 2010 | ||||
15 | Fluorouracil derivatives | |||||
Patent Cooperation Treaty |
PCT/US2011/026436 | February 28, 2011 | ||||
16 | Method of utilizing recycled deuterium oxide in the synthesis of deuterated compounds | |||||
Patent Cooperation Treaty |
PCT/US2011/050134 | September 1, 2011 |
Page 2 of 16
Title | Application Number | Filing Date | ||||
17 | Niacin prodrugs and deuterated versions thereof | |||||
United States of America |
12/948484 | November 17, 2010 | ||||
Patent Cooperation Treaty |
PCT/US2010/057051 | November 17, 2010 | ||||
18 | Novel benzo[D][1,3]-dioxol derivatives | |||||
Patent Cooperation Treaty |
PCT/US2006/029599 | July 28, 2006 | ||||
Australia |
2006275595 | July 28, 2006 | ||||
Brazil |
PI0615973-7 | July 28, 2006 | ||||
Canada |
2616383 | July 28, 2006 | ||||
China (Peoples Republic) |
2.0068E+11 | July 28, 2006 | ||||
Eurasian Patent Organization |
200800490 | July 28, 2006 | ||||
European Patent Convention |
6813250.5 | July 28, 2006 | ||||
Hong Kong |
8111437 | July 28, 2006 | ||||
India |
607/DELNP/2008 | July 28, 2006 | ||||
Japan |
2008-524227 | July 28, 2006 | ||||
Korea, Republic of |
10-2008-7004867 | July 28, 2006 | ||||
Mexico |
MX/a/2008/001193 | July 28, 2006 | ||||
Philippines |
1-2008-500121 | July 28, 2006 | ||||
South Africa |
2008/00785 | July 28, 2006 | ||||
United States of America |
11/704554 | February 8, 2007 | ||||
19 | Novel tetrahydro-1H-pyrido[4,3-B]indoles | |||||
United States of America |
12/625059 | November 24, 2009 | ||||
Patent Cooperation Treaty |
PCT/US2009/065872 | November 25, 2009 | ||||
20 | Oxazolidinone derivatives and methods of use | |||||
United States of America |
12/214260 | June 17, 2008 | ||||
Patent Cooperation Treaty |
PCT/US2007/022516 | October 23, 2007 | ||||
Hong Kong |
10102539.2 | October 23, 2007 | ||||
Japan |
2009-533406 | October 23, 2007 | ||||
21 | Polymorphs of (S)-1-(4,4,6,6,6-pentadeutero-5-hydroxyhexyl)-3-7-dimethyl-1H-purine-2,6(3H,7H)-dione | |||||
Patent Cooperation Treaty |
PCT/US2011/050229 | September 1, 2011 | ||||
22 | Process for preparing an enantiomerically enriched, deuterated secondary alcohol from a corresponding ketone without reducing deuterium incorporation | |||||
Patent Cooperation Treaty |
PCT/US2011/050138 | September 1, 2011 |
Page 3 of 16
Title | Application Number | Filing Date | ||||
23 | Process for preparing an enantiomerically enriched, deuterated secondary alcohol from a corresponding ketone without reducing deuterium incorporation | |||||
Patent Cooperation Treaty |
PCT/US2011/050139 | September 1, 2011 | ||||
24 | Prostacyclin analogs | |||||
Patent Cooperation Treaty |
PCT/US2009/003801 | June 26, 2009 | ||||
United States of America |
13/001543 | March 31, 2011 | ||||
25 | Prostacyclin analogs | |||||
Patent Cooperation Treaty |
PCT/US2007/026264 | December 21, 2007 | ||||
United States of America |
12/520493 | December 21, 2007 | ||||
United States of America |
12/489425 | June 22, 2009 | ||||
Japan |
2009-542961 | December 21, 2007 | ||||
Australia |
2007338701 | December 21, 2007 | ||||
Brazil |
PI0719463-3 | December 21, 2007 | ||||
Canada |
2672904 | December 21, 2007 | ||||
China (Peoples Republic) |
2.0078E+11 | December 21, 2007 | ||||
Eurasian Patent Organization |
200900862 | December 21, 2007 | ||||
European Patent Convention |
7863238.7 | December 21, 2007 | ||||
India |
4730/DELNP/2009 | December 21, 2007 | ||||
Korea, Republic of |
10-2009-7015336 | December 21, 2007 | ||||
Mexico |
MX/a/2009/006692 | December 21, 2007 | ||||
South Africa |
2009/04722 | December 21, 2007 | ||||
26 | Prostacyclin analogs | |||||
Patent Cooperation Treaty |
PCT/US2010/040891 | July 2, 2010 | ||||
27 | Pyrazinoisoquinoline compounds | |||||
United States of America |
61/449312 | March 4, 2011 | ||||
28 | Pyrazinoisoquinoline compounds | |||||
United States of America |
61/210279 | March 17, 2009 | ||||
United States of America |
13/256787 | September 15, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2010/027476 | March 16, 2010 | ||||
African Union Territories (OAPI) |
NEW APPLICATION | September 15, 2011 | ||||
Brazil |
NEW APPLICATION | September 19, 2011 | ||||
European Patent Convention |
10709147.2 | October 14, 2011 | ||||
India |
7022/DELNP/2011 | September 14, 2011 | ||||
African Regional Industrial Property Organization |
AP/P/2011/005932 |
|||||
29 | Pyridineamine derivatives | |||||
United States of America |
13/120455 | August 26, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2009/058212 | September 24, 2009 |
Page 4 of 16
Title | Application Number | Filing Date | ||||
30 | Pyridineamine derivatives | |||||
Patent Cooperation Treaty |
PCT/US2008/011417 | October 2, 2008 | ||||
Hong Kong |
11100851.5 | October 2, 2008 | ||||
Japan |
2010-527991 | October 2, 2008 | ||||
31 | Substituted derivatives of bicyclic [4.3.0] heteroaryl compounds | |||||
Patent Cooperation Treaty |
PCT/US2010/047557 | September 1, 2010 | ||||
32 | Substituted dioxopiperidinyl phthalimide derivatives | |||||
Patent Cooperation Treaty |
PCT/US11/064409 | December 12, 2011 | ||||
33 | Substituted dioxopiperidinyl phthalimide derivatives | |||||
Patent Cooperation Treaty |
PCT/US11/064238 | December 9, 2011 | ||||
34 | Substituted diphenylpyrazine derivatives | |||||
Patent Cooperation Treaty |
PCT/US2010/044704 | August 6, 2010 | ||||
35 | Substituted oxazolidinone derivatives | |||||
United States of America |
12/228662 | August 14, 2008 | ||||
United States of America |
13/189003 | July 22, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2008/009704 | August 14, 2008 | ||||
China (Peoples Republic) |
200880107169.X | August 14, 2008 | ||||
European Patent Convention |
8795304.8 | August 14, 2008 | ||||
Japan |
2010-521032 | August 14, 2008 | ||||
36 | Substituted xanthine derivatives | |||||
United States of America |
12/380579 | February 27, 2009 | ||||
Patent Cooperation Treaty |
PCT/US2009/001305 | February 27, 2009 | ||||
Patent Cooperation Treaty |
PCT/US2009/001294 | February 27, 2009 | ||||
Argentina |
P090103281 | August 26, 2009 | ||||
Australia |
2009217680 | February 27, 2009 | ||||
Brazil |
PI0908107-0 | February 27, 2009 | ||||
Canada |
2716788 | February 27, 2009 | ||||
China (Peoples Republic) |
February 27, 2009 | |||||
Eurasian Patent Organization |
201001391 | February 27, 2009 | ||||
European Patent Convention |
9715566.7 | February 27, 2009 | ||||
Hong Kong |
11104595.8 | May 9, 2011 | ||||
India |
6533/DELNP/2010 | February 27, 2009 | ||||
Japan |
2010-548745 | February 27, 2009 | ||||
Korea, Republic of |
10-2010-7021407 | February 27, 2009 | ||||
Mexico |
MX/a/2010/009300 | February 27, 2009 | ||||
Pakistan |
787/2009 | August 25, 2009 | ||||
South Africa |
2010/06104 | February 27, 2009 | ||||
Taiwan |
98128631 | August 26, 2009 | ||||
Venezuela |
2009-001574 | August 25, 2009 |
Page 5 of 16
Title | Application Number | Filing Date | ||||
37 | Pharmaceutically acceptable salt of a substituted oxo(or hydroxy)hexyl-1H-purine-2,6(3H,7H)-dione compound | |||||
Pakistan |
390/2010 | August 25, 2009 | ||||
38 | Substituted xanthine derivatives | |||||
United States of America |
12/874049 | September 1, 2010 | ||||
Patent Cooperation Treaty |
PCT/US2010/047574 | September 1, 2010 | ||||
39 | Substituted xanthine derivatives | |||||
United States of America |
12/873991 | September 1, 2010 | ||||
United States of America |
12/874783 | September 2, 2010 | ||||
Patent Cooperation Treaty |
PCT/US2010/047708 | September 2, 2010 | ||||
40 | Substituted xanthine derivatives | |||||
Hong Kong |
11104593 | May 9, 2011 | ||||
Philippines |
1-2010-501961 | February 27, 2009 | ||||
Japan |
2010-548747 | February 27, 2009 | ||||
European Patent Convention |
9714926.4 | February 27, 2009 | ||||
41 | Substituted xanthine derivatives | |||||
United States of America |
61/509343 | July 19, 2011 | ||||
42 | Synthesis of deuterated catechols and benzo[D][1,3] dioxoles and derivatives thereof | |||||
Patent Cooperation Treaty |
PCT/US2008/010643 | September 12, 2008 | ||||
Australia |
2008299921 | September 12, 2008 | ||||
Canada |
2698808 | September 12, 2008 | ||||
China (Peoples Republic) |
2.0088E+11 | September 12, 2008 | ||||
European Patent Convention |
8830527.1 | September 12, 2008 | ||||
Hong Kong |
10112245.6 | December 30, 2010 | ||||
India |
2015/DELNP/2010 | September 12, 2008 | ||||
Japan |
2010-524866 | September 12, 2008 | ||||
Mexico |
MX/a/2010/002692 | September 12, 2008 | ||||
United States of America |
12/283621 | September 12, 2008 | ||||
43 | Synthesis of deuterated morpholine derivatives | |||||
United States of America |
12/456507 | June 17, 2009 | ||||
Patent Cooperation Treaty |
PCT/US2009/003628 | June 17, 2009 |
Page 6 of 16
Title | Application Number | Filing Date | ||||
44 | Substituted dioxopiperidinyl phthalimide derivatives | |||||
United States of America |
13/107873 | May 13, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2011/045629 | July 27, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2009/006105 | November 13, 2009 | ||||
Australia |
2009314568 | May 17, 2011 | ||||
Brazil |
PI0915267-9 | May 12, 2011 | ||||
Canada |
2743902 | May 13, 2011 | ||||
China (Peoples Republic) |
2.0098E+11 | November 13, 2009 | ||||
Eurasian Patent Organization |
201100750 | June 10, 2011 | ||||
European Patent Convention |
9826438.5 | June 9, 2011 | ||||
India |
1038/MUMNP/2011 | May 23, 2011 | ||||
Japan |
2011-536328 | May 13, 2011 | ||||
Korea, Republic of |
10-2011-7013575 | June 14, 2011 | ||||
Mexico |
MX/a/2011/005112 | May 13, 2011 | ||||
Philippines |
1-2011-500901 | November 13, 2009 | ||||
South Africa |
2011/04361 | June 10, 2011 | ||||
45 | Azapeptide derivatives | |||||
Patent Cooperation Treaty |
PCT/US2008/007331 | June 12, 2008 | ||||
European Patent Convention |
08252023.0 | June 12, 2008 | ||||
Argentina |
P080102501 | June 12, 2008 | ||||
Pakistan |
6842008 | June 12, 2008 | ||||
Taiwan |
97122018 | June 12, 2008 | ||||
Venezuela |
2008001156 | June 12, 2008 | ||||
Hong Kong |
09105433.5 | June 17, 2009 | ||||
European Patent Convention |
09075359.1 | June 12, 2008 | ||||
Australia |
2008267048 | June 12, 2008 | ||||
Brazil |
PI08139113 | June 12, 2008 | ||||
Canada |
2692028 | June 12, 2008 | ||||
China (Peoples Republic) |
200880021601.3 | June 12, 2008 | ||||
Colombia |
09141805 | June 12, 2008 | ||||
India |
8182DELNP2009 | June 12, 2008 | ||||
Japan |
2010512186 | June 12, 2008 | ||||
Mexico |
MXa2009013565 | June 12, 2008 | ||||
South Africa |
200909079 | June 12, 2008 | ||||
Korea, Republic of |
1020107000675 | June 12, 2008 | ||||
Switzerland |
08252023.0 | June 12, 2008 | ||||
Germany |
08252023.0 | June 12, 2008 | ||||
Spain |
08252023.0 | June 12, 2008 | ||||
France |
08252023.0 | June 12, 2008 | ||||
United Kingdom |
08252023.0 | June 12, 2008 | ||||
Italy |
08252023.0 | June 12, 2008 | ||||
Hong Kong |
10104316.7 | April 30, 2010 | ||||
United States of America |
12/755,184 | April 6, 2010 | ||||
European Patent Convention |
11155667.6 | June 12, 2008 | ||||
Hong Kong |
11109198.8 | August 31, 2011 | ||||
China (Peoples Republic) |
2.0111E+11 |
June 12, 2008 | ||||
Brazil |
(divisional) instructions to file sent |
Page 7 of 16
Title | Application Number | Filing Date | ||||
46 | 4-oxoquinoline derivatives | |||||
United States of America |
12/283,620 | September 12, 2008 | ||||
Patent Cooperation Treaty |
PCT/US2008/010662 | September 12, 2008 | ||||
Australia |
2008299931 | September 12, 2008 | ||||
Canada |
2698825 | September 12, 2008 | ||||
European Patent Convention |
08830735.0 | September 12, 2008 | ||||
India |
2377DELNP2010 | September 12, 2008 | ||||
Mexico |
MXA2010002679 | September 12, 2008 | ||||
United States of America |
13/153,952 | June 6, 2011 | ||||
47 | Deuterated darunavir | |||||
Patent Cooperation Treaty |
PCT/US2008/012079 | October 24, 2008 | ||||
United States of America |
12/387,327 | April 28, 2009 | ||||
Australia |
2008317375 | October 24, 2008 | ||||
Canada |
2703591 | October 24, 2008 | ||||
European Patent Convention |
08843302.4 | October 24, 2008 | ||||
48 | Peptides for the treatment of HCV infections | |||||
Patent Cooperation Treaty |
PCT/US2008/012949 | November 20, 2008 | ||||
European Patent Convention |
08851195.1 | November 20, 2008 | ||||
Japan |
2010534960 | November 20, 2008 | ||||
Hong Kong |
11101960.1 | February 28, 2011 | ||||
49 | Endothelin receptor antagonists | |||||
United States of America |
12/008,698 | January 11, 2008 | ||||
Patent Cooperation Treaty |
PCT/US2008/000384 | January 11, 2008 | ||||
United States of America |
12/460,575 | July 20, 2009 | ||||
50 | Selective endothelin type-A antagonists | |||||
Patent Cooperation Treaty |
PCT/US2008/001358 | February 1, 2008 | ||||
European Patent Convention |
8713376.5 | February 1, 2008 | ||||
51 | Deuterated piperazine derivatives as anti-anginal compounds | |||||
United States of America |
12/075,107 | March 7, 2008 | ||||
Patent Cooperation Treaty |
PCT/US2008/003183 | March 7, 2008 | ||||
European Patent Convention |
08726679.7 | March 7, 2008 | ||||
Japan |
2009552765 | March 7, 2008 | ||||
Belgium |
08726679.7 | March 7, 2008 | ||||
France |
08726679.7 | March 7, 2008 | ||||
Germany |
08726679.7 | March 7, 2008 | ||||
United Kingdom |
08726679.7 | March 7, 2008 | ||||
Italy |
08726679.7 | March 7, 2008 | ||||
Spain |
08726679.7 | March 7, 2008 | ||||
Switzerland |
08726679.7 | March 7, 2008 |
Page 8 of 16
Title | Application Number | Filing Date | ||||
52 | Tricyclic benzo[5,6]cyclonepta[1, 2- B]pyridine derivatives and uses thereof | |||||
Patent Cooperation Treaty |
PCT/US2009/002372 | April 16, 2009 | ||||
United States of America |
12/937,933 | April 16, 2009 | ||||
53 | Piperazine derivatives | |||||
United States of America |
12/386,492 | April 17, 2009 | ||||
Patent Cooperation Treaty |
PCT/US2009/002424 | April 17, 2009 | ||||
United States of America |
12/603,380 | October 21, 2009 | ||||
54 | Xanthenone-4-acetic acid derivatives | |||||
Patent Cooperation Treaty |
PCT/US2009/060996 | October 16, 2009 | ||||
United States of America |
13/124,626 | October 16, 2009 | ||||
55 | Hydroxyethlamino sulfonamide derivatives | |||||
Patent Cooperation Treaty |
PCT/US2009/005773 | October 23, 2009 | ||||
United States of America |
13/125,464 | October 23, 2009 | ||||
European Patent Convention |
09822333.2 | October 23, 2009 | ||||
56 | Hydroxyethylamino sulfonamide derivatives | |||||
United States of America |
12/771,551 | April 30, 2010 | ||||
Patent Cooperation Treaty |
PCT/US2010/033206 | April 30, 2010 | ||||
57 | Deuterium modified benzimidazoles | |||||
Patent Cooperation Treaty |
PCT/US2010/034962 | May 14, 2010 | ||||
United States of America |
13/320,653 | November 15, 2011 | ||||
58 | Peptides for the treatment of HCV infections | |||||
Patent Cooperation Treaty |
PCT/US2010/036682 | May 28, 2010 | ||||
United States of America |
13/321,785 | November 21, 2011 | ||||
59 | Aminoquinoline derivatives | |||||
Patent Cooperation Treaty |
PCT/US2011/021715 | January 19, 2011 | ||||
60 | Tetrahydroisoquinoline derivatives | |||||
United States of America |
12/338,754 | December 18, 2008 | ||||
Patent Cooperation Treaty |
PCT/US2008/087477 | December 18, 2008 | ||||
European Patent Convention |
08862459.8 | December 18, 2008 | ||||
61 | Inhibitors of cholesterol ester transfer protein | |||||
United States of America |
12/049,074 | March 14, 2008 | ||||
Patent Cooperation Treaty |
PCT/US2008/003449 | March 14, 2008 | ||||
Canada |
2681628 | March 14, 2008 | ||||
European Patent Convention |
08742105.3 | March 14, 2008 | ||||
Hong Kong |
10105723.1 | June 9, 2010 |
Page 9 of 16
Title | Application Number | Filing Date | ||||
62 | Synthetic triterpenoid derivatives | |||||
Patent Cooperation Treaty |
PCT/US2011/049163 | August 25, 2011 | ||||
63 | Atazanavir metabolite derivatives | |||||
United States of America |
61/495,877 | June 10, 2011 | ||||
64 | Atazanavir metabolite derivatives | |||||
United States of America |
61/495,870 | June 10, 2011 | ||||
65 | Deuterated 18-methoxycoronadidine | |||||
United States of America |
61/505,361 | July 7, 2011 | ||||
66 | Substituted diphenylpyrazine derivatives | |||||
Patent Cooperation Treaty |
PCT/US2010/044704 | August 6, 2010 | ||||
67 | Niacin prodrugs and deuterated versions thereof | |||||
United States of America |
12/948,484 | November 17, 2010 | ||||
Patent Cooperation Treaty |
PCT/US2010/057051 | November 17, 2010 | ||||
68 | Pharmaceutical calcimimetics | |||||
United States of America |
12/975,464 | December 22, 2010 | ||||
Canada |
2701638 | April 1, 2008 | ||||
Patent Cooperation Treaty |
PCT/US2008/059023 | April 1, 2008 | ||||
69 | 1,2-benzisoxazol-3-yl compounds | |||||
United States of America |
12/102,164 | April 14, 2008 | ||||
Patent Cooperation Treaty |
PCT/US2008/060210 | April 14, 2008 | ||||
70 | Naphthyl(ethyl)acetamides | |||||
United States of America |
12/112,722 | April 30, 2008 | ||||
Canada |
2685924 | April 30, 2008 | ||||
European Patent Convention |
08769252.1 | April 30, 2008 | ||||
Japan |
2009-551067 | April 30, 2008 | ||||
Patent Cooperation Treaty |
PCT/US2008/062039 | April 30, 2008 | ||||
71 | Morphinan compounds | |||||
United States of America |
12/112,936 | April 30, 2008 | ||||
United States of America |
13/118,912 | May 31, 2011 | ||||
United States of America |
13/118,935 | May 31, 2011 | ||||
Australia |
2008247818 | April 30, 2008 | ||||
Australia |
(divisional) instructions to file sent | |||||
Brazil |
PI0811478-1 | April 30, 2008 | ||||
Canada |
2685723 | April 30, 2008 |
Page 10 of 16
Title | Application Number | Filing Date | ||||
China (Peoples Republic) |
200880017768.2 | April 30, 2008 | ||||
European Patent Convention |
08747238.7 | April 30, 2008 | ||||
European Patent Convention |
11000763.0 | April 30, 2008 | ||||
European Patent Convention |
11000764.8 | April 30, 2008 | ||||
Hong Kong |
1010707.6 | August 9, 2010 | ||||
Hong Kong |
11109618.0 | September 12, 2011 | ||||
Hong Kong |
11109620.6 | September 12, 2011 | ||||
India |
7533/DELNP/2009 | April 30, 2008 | ||||
Japan |
2010-506617 | April 30, 2008 | ||||
Mexico |
2009/011958 | April 30, 2008 | ||||
Mexico |
MX/a/2011/010560 | October 6, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2008/062089 | April 30, 2008 | ||||
72 | N-phenyl-2-pyrimidineamine derivatives | |||||
United States of America |
12/539,091 | August 11, 2009 | ||||
Patent Cooperation Treaty |
PCT/US2009/053384 | August 11, 2009 | ||||
73 | Deuterated etravirine | |||||
United States of America |
12/288,186 | October 17, 2008 | ||||
European Patent Convention |
08839230.3 | October 17, 2008 | ||||
Hong Kong |
11101126.2 | October 17, 2008 | ||||
Patent Cooperation Treaty |
PCT/US2008/011856 | October 17, 2008 | ||||
74 | Deuterated morpholinyl compounds | |||||
United States of America |
12/106,127 | April 18, 2008 | ||||
Australia |
2008242703 | April 18, 2008 | ||||
Brazil |
P10810362-3 | April 18, 2008 | ||||
Canada |
2686545 | April 18, 2008 | ||||
China (Peoples Republic) |
200880012551.2 | April 18, 2008 | ||||
European Patent Convention |
08746315.4 | April 18, 2008 | ||||
India |
7500/DELNP/2009 | April 18, 2008 | ||||
Japan |
2010-504289 | April 18, 2008 | ||||
Japan |
2011-18410 | January 31, 2011 | ||||
South Korea |
10-2009-7024119 | April 18, 2008 | ||||
South Korea |
10-2010-7020029 | September 8, 2010 | ||||
Patent Cooperation Treaty |
PCT/US2008/060877 | April 18, 2008 | ||||
75 | Deuterated 2-propylpentanoic acid compounds | |||||
European Patent Convention |
09744570.4 | October 28, 2009 | ||||
United States of America |
13/126,384 | April 27, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2009/062397 | October 28, 2009 | ||||
76 | Novel pyrimidinecarboxamide derivatives | |||||
United States of America |
12/169,367 | July 8, 2008 | ||||
United States of America |
12/712,399 | February 25, 2010 | ||||
Canada |
2702317 | July 8, 2008 | ||||
Patent Cooperation Treaty |
PCT/US2008/069425 | July 8, 2008 |
Page 11 of 16
Title | Application Number | Filing Date | ||||
77 | Deuterated tizanidine | |||||
United States of America |
12/993,530 | February 10, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2009/045245 | May 27, 2009 | ||||
78 | Analogs of d-dextromethorphan | |||||
Australia |
2009293123 | September 18, 2009 | ||||
Brazil |
PI0918760-0 | September 18, 2009 | ||||
Canada |
2737811 | September 18, 2009 | ||||
China |
200980142670.4 | September 18, 2009 | ||||
Eurasia |
201170473 | September 18, 2009 | ||||
European Patent Convention |
09792714.9 | September 18, 2009 | ||||
European Patent Convention |
11188848.3 | September 18, 2009 | ||||
Hong Kong |
N/A | September 18, 2009 | ||||
India |
2116/DELNP/2011 | September 18, 2009 | ||||
India |
(divisional) instructions to file sent | |||||
Japan |
2011-527994 | September 18, 2009 | ||||
South Korea |
10-2011-7008130 | September 18, 2009 | ||||
South Korea |
10-2011-7027474 | November 18, 2011 | ||||
Mexico |
N/MX/a/2011/002994 | September 18, 2009 | ||||
Philipines |
1-2011-500574 | September 18, 2009 | ||||
United States of America |
13/119,905 | July 1, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2009/057476 | September 18, 2009 | ||||
South Africa |
2011/02113 | September 18, 2009 | ||||
79 | Morphinan compounds | |||||
United States of America |
13/155,827 | June 8, 2011 | ||||
80 | Combination of morphinan compounds and antidepressant for the treatment of pseudobulbar affect, neurological diseases, intractable and chronic pain and brain injury | |||||
European Patent Convention |
09744582.9 | October 30, 2009 | ||||
European Patent Convention |
11180603.0 | October 30, 2009 | ||||
United States of America |
13/126,397 | April 27, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2009/062783 | October 30, 2009 | ||||
81 | Methods for the treatment of neurological diseases and conditions | |||||
European Patent Convention |
09744581.1 | October 30, 2009 | ||||
European Patent Convention |
11180608.9 | October 30, 2009 | ||||
United States of America |
13/126,447 | April 27, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2009/062779 | October 30, 2009 |
Page 12 of 16
Title | Application Number | Filing Date | ||||
82 | Substituted azaindoles | |||||
Patent Cooperation Treaty |
PCT/US2010/056447 | November 12, 2010 | ||||
83 | Pyrimidine derivatives | |||||
Patent Cooperation Treaty |
PCT/US2011/025472 | February 18, 2011 | ||||
84 | Deuterated tetrahydronaphthalene derivatives | |||||
United States of America |
13/038,533 | March 2, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2011/026787 | March 2, 2011 | ||||
85 | Tetrahydronaphthalene derivatives | |||||
United States of America |
13/227,047 | September 7, 2011 | ||||
86 | Novel pyrimidinecarboxamide derivatives | |||||
Patent Cooperation Treaty |
PCT/US2011/043872 | July 13, 2011 | ||||
87 | Substituted azaindoles | |||||
United States of America |
13/230,970 | September 13, 2011 | ||||
Patent Cooperation Treaty |
PCT/US2011/051297 | September 13, 2011 | ||||
88 | Substituted tetracyclines | |||||
Patent Cooperation Treaty |
PCT/US2011/060310 | November 11, 2011 | ||||
89 | Deuterated chlophedianol | |||||
United States of America |
61/436,634 | January 27, 2011 | ||||
90 | 2-amino-naphthyridine derivatives | |||||
United States of America |
61/446,733 | February 25, 2011 | ||||
91 | Deuterated prelandenant | |||||
United States of America |
61/466,310 | March 22, 2011 | ||||
92 | Deuterated N-butyl bumetanide | |||||
United States of America |
61/484,412 | May 10, 2011 | ||||
93 | Synthetic triterpenoid derivatives | |||||
Patent Cooperation Treaty |
US11/34984 | May 3, 2011 | ||||
94 | [5,6]-dihydro-2H-pyran-2-one derivatives | |||||
Patent Cooperation Treaty |
US11/40731 | June 16, 2011 | ||||
95 | Derivatives of pyrazole-substituted amino-heteroaryl compounds | |||||
United States of America |
61/448,887 | March 3, 2011 |
Page 13 of 16
Title | Application Number | Filing Date | ||||
96 | Novel pharmaceutical compounds | |||||
Australia |
2006275702 | July 28, 2006 | ||||
China (Peoples Republic) |
200680036393.50 | July 28, 2006 | ||||
Japan |
2008-524206 | July 28, 2006 | ||||
United States of America |
11/704,555 | February 8, 2007 | ||||
United States of America |
12/954,591 | November 24, 2010 | ||||
European Patent Convention |
11155798.9 | July 28, 2006 | ||||
97 | Biphenyl-pyrazolecarboxamide compounds | |||||
United States of America |
11/521,926 | September 14, 2006 | ||||
98 | Novel 1,2,3,4-tetrahydroquinoline derivatives | |||||
United States of America |
12/296,927 | September 30, 2009 | ||||
99 | 3-(dihydro-1H-pyrazolo[4,3-D]pyrimidin-5-YL)-4-propoxybenzenesulfonamide derivatives and methods of use | |||||
Korea, Republic of |
10-2009-7010321 | October 22, 2007 | ||||
United States of America |
11/876,754 | October 22, 2007 | ||||
Japan |
2009-533595 | October 22, 2007 | ||||
India |
868/MUMNP/2009 | October 22, 2007 | ||||
Mexico |
MX/a/2009/003941 | October 22, 2007 | ||||
100 | Dibenzothiazepine derivatives | |||||
United States of America |
12/425,957 | April 17, 2009 | ||||
101 | Triazolyl tropane derivatives | |||||
United States of America |
11/941,925 | November 16, 2007 | ||||
United States of America |
13/044,534 | March 9, 2011 | ||||
102 | Heterocyclic kinase inhibitors | |||||
European Patent Convention |
8859849.5 | December 9, 2008 | ||||
Hong Kong |
11102019 | December 9, 2008 | ||||
United States of America |
12/331,431 | December 9, 2008 | ||||
103 | Vandetanib derivatives | |||||
United States of America |
12/864,219 | November 16, 2010 | ||||
104 | Derivatives of gefitinib | |||||
European Patent Convention |
9703515.8 | January 22, 2009 | ||||
Hong Kong |
10111408.1 | January 22, 2009 | ||||
United States of America |
12/358,238 | January 22, 2009 | ||||
Japan |
2010-544356 | January 22, 2009 | ||||
United States of America |
12/946,856 | November 15, 2010 |
Page 14 of 16
Title | Application Number | Filing Date | ||||
105 | Quinazoline derivatives and methods of treatment | 11/957,442 | December 15, 2007 | |||
United States of America |
12/694,249 | January 26, 2010 | ||||
106 | Derivatives of 3-(2-hydroxy-5-methyphenyl)-N,N-diisopropyl-3- phenylpropylamine and methods of use thereof | |||||
China (Peoples Republic) |
200980121626.50 | April 9, 2009 | ||||
Korea, Republic of |
10-2010-7025129 | April 9, 2009 | ||||
United States of America |
12/937,262 | January 26, 2011 | ||||
Japan |
2011-504185 | April 9, 2009 | ||||
107 | Substituted triazolo-pyridazine derivatives | |||||
Canada |
2735549 | August 28, 2009 | ||||
European Patent Convention |
9810685.9 | August 28, 2009 | ||||
Eurasian Patent Organization |
201100409 | August 28, 2009 | ||||
Australia |
2009285533 | August 28, 2009 | ||||
Brazil |
PI0912928-6 | August 28, 2009 | ||||
China (Peoples Republic) |
200980140350.50 | August 28, 2009 | ||||
Korea, Republic of |
10-2011-7006632 | August 28, 2009 | ||||
Philippines |
1-2011-500500 | August 28, 2009 | ||||
South Africa |
2011/02123 | August 28, 2009 | ||||
India |
438/MUMNP/2011 | August 28, 2009 | ||||
Japan |
2011-525250 | August 28, 2009 | ||||
Mexico |
MX/a/2011/002278 | August 28, 2009 | ||||
United States of America |
12/550,346 | February 4, 2009 | ||||
United States of America |
13/174,662 | June 30, 2011 | ||||
108 | 3-(dihydro-1H-pyrazolo[4,3-D]pyrimidin-5-YL)-4-propoxybenzenesulfonamide derivatives and methods of use | |||||
United States of America |
12/365,883 | February 4, 2009 | ||||
109 | Quinazoline derivatives and methods of treatment | |||||
China (Peoples Republic) |
200980118829.90 | March 27, 2009 | ||||
Korea, Republic of |
10-2010-7024204 | March 27, 2009 | ||||
Japan |
2011-502126 | March 27, 2009 | ||||
Hong Kong |
11108819.9 | March 27, 2009 | ||||
110 | 4-aminoquinazoline prodrugs | |||||
United States of America |
12/986,135 | January 6, 2011 |
Page 15 of 16
Title | Application Number | Filing Date | ||||
111 | Deuterated macrocyclic inhibitors of viral NS3 protease | |||||
United States of America |
13/092,801 | April 22, 2011 | ||||
112 | Substituted triazolophthalazine derivatives | |||||
Patent Cooperation Treaty |
PCT/US2010/045508 | August 13, 2010 | ||||
United States of America |
12/856,360 | August 13, 2010 | ||||
113 | Substituted benzimidazoles | |||||
Patent Cooperation Treaty |
PCT/US2010/052915 | October 15, 2010 | ||||
United States of America |
12/905,835 | October 15, 2010 | ||||
114 | Substituted imidazotriazines | |||||
Patent Cooperation Treaty |
PCT/US2010/043097 | July 23, 2010 | ||||
United States of America |
12/842,589 | July 23, 2010 | ||||
115 | Substituted triazolo-pyridazine derivatives | |||||
Patent Cooperation Treaty |
PCT/US2010/039497 | June 22, 2010 | ||||
United States of America |
12/820,570 | June 22, 2010 | ||||
116 | 2-oxo-1-pyrrolidine derivatives | |||||
United States of America |
13/002,267 | June 30, 2009 | ||||
Patent Cooperation Treaty |
PCT/US09/49224 | June 30, 2009 | ||||
117 | Deuterated Tivozanib | |||||
United States of America |
61/496,201 | June 13, 2011 | ||||
118 | Analogues of cilostazol | |||||
United States of America |
12/150,107 | April 24, 2008 | ||||
United States of America |
12/644,758 | December 22, 2009 | ||||
EP |
8743256.3 | November 25, 2009 | ||||
Patent Cooperation Treaty |
PCT/US08/05301 | April 24, 2008 | ||||
119 | 4-aminoquinazolines | |||||
Australia |
2007288204 | August 22, 2007 | ||||
Canada |
2,661,223 | August 22, 2007 | ||||
United States of America |
12/879,905 | September 10, 2010 | ||||
China (Peoples Republic) |
200780093901.3 | August 22, 2007 | ||||
European Union |
EP07811504.5 | August 22, 2007 | ||||
India |
423/MUMNP/2009 | August 22, 2007 | ||||
Japan |
2009-525631 | August 22, 2007 | ||||
Mexico |
MX/a/2009/001814 | August 22, 2007 | ||||
United States of America |
11/895,174 | August 22, 2007 | ||||
Patent Cooperation Treaty |
PCT/US2007/018655 | August 22, 2007 | ||||
Korea |
2009-0042994 | August 22, 2007 |
Page 16 of 16
Concert Pharmaceuticals, Inc. Trademarks
COUNTRY |
MARK |
REG. NO./
|
ISSUED/
|
GOOD/SERVICES WITH CLASS |
NOTES/ CURRENT STATUS |
|||||
Argentina | CONCERT PHARMACEUTICALS INC. | 2210582 | 01/29/2008 | Full line of pharmaceutical and biopharmaceutical preparations in Class 5 | Registered, expires 1/29/2018 | |||||
Australia | CONCERT PHARMACEUTICALS INC. | 1157917 | 1/25/2007 | A full line of pharmaceutical and biopharmaceutical preparations in Class 5 | Registered, expires 1/25/2017 | |||||
Australia | CONCERT PHARMACEUTICALS INC. (stylized) | 1157926 | 1/25/2007 | A full line of pharmaceutical and biopharmaceutical preparations in Class 5 | Registered, expires 1/25/2017 | |||||
Canada | CONCERT PHARMACEUTICALS INC. | 1,332,456 | 1/24/2007 | A full line of pharmaceutical and biopharmaceutical preparations in Class 5 | Pending | |||||
Canada | CONCERT PHARMACEUTICALS INC. (stylized) | 1,332,461 | 1/24/2007 | A full line of pharmaceutical and bio pharmaceutical preparations namely, pharmaceutical compounds for use in treating diseases and health conditions namely, pharmaceuticals for the treatment of inflammatory diseases, infectious diseases, diseases and conditions of the central nervous system, cancer, and cardiovascular disease. | Pending | |||||
China | CONCERT PHARMACEUTICALS INC. | 5,868,162 | 3/7/2011 | Medical nutriment | Registered, expires 3/6/2021 | |||||
China | CONCERT PHARMACEUTICALS INC. (stylized) | 5,868,163 | 3/7/2011 | Medical nutriment | Registered, expires 3/6/2021 |
Concert Pharmaceuticals, Inc. Trademarks
COUNTRY |
MARK |
REG. NO./
|
ISSUED/
|
GOOD/SERVICES WITH CLASS |
NOTES/ CURRENT STATUS |
|||||
European Community | CONCERT PHARMACEUTICALS INC. | 5641204 | 1/30/2008 |
Pharmaceutical and veterinary preparations; biopharmaceutical preparations; full line of pharmaceutical and biopharmaceutical preparations in Class 5.
Pharmaceutical research and development services in Class 42. |
Registered, expires 1/25/2017 | |||||
European Community | CONCERT PHARMACEUTICALS INC. (stylized) | 5641295 | 1/23/2008 | Pharmaceutical and veterinary preparations; biopharmaceutical preparations; full line of pharmaceutical and biopharmaceutical preparations in Class 5. | Registered, expires 1/25/2017 | |||||
Pharmaceutical research and development services in Class 42. | ||||||||||
India | CONCERT PHARMACEUTICALS INC. | 1526295 | 1/25/2007 | Full line of pharmaceutical and biopharmaceutical preparations | Pending | |||||
Israel | CONCERT PHARMACEUTICALS INC. | 197279 | 5/10/2009 | Full line of pharmaceutical and biopharmaceutical preparations in Class 5 | Registered, expires 1/25/2017 | |||||
Japan | CONCERT PHARMACEUTICALS INC. (stylized) | 5060415 | 7/6/2007 | Pharmaceuticals in Class 5 | Registered, expires 7/6/2017 | |||||
Japan | CONCERT PHARMACEUTICALS INC. | 5060416 | 7/6/2007 | Pharmaceuticals in Class 5 | Registered, expires 7/6/2017 |
Concert Pharmaceuticals, Inc. Trademarks
COUNTRY |
MARK |
REG. NO./
NO. |
ISSUED/
|
GOOD/SERVICES WITH CLASS |
NOTES/ CURRENT STATUS |
|||||
New Zealand | CONCERT PHARMACEUTICALS INC. | 762543 | 7/25/2006 | Pharmaceutical and biopharmaceutical preparations but not including pharmaceutical preparations to treat hyperactivity and attention deficit disorder in children in Class 5 | Registered, expires 7/25/2016 | |||||
Norway | CONCERT PHARMACEUTICALS INC. | 239760 | 6/20/2007 | Complete set of pharmaceutical and biopharmaceutical preparations in Class 5 | Registered, expires 6/20/17 | |||||
Russian Federation | CONCERT PHARMACEUTICALS INC. | 346050 | 3/20/2008 | Full line of pharmaceutical and biopharmaceutical preparations in Class 5 | Registered, expires 1/25/2017 | |||||
Singapore | CONCERT PHARMACEUTICALS INC. | T07/017771 | 1/25/2007 | Full line of pharmaceutical and biopharmaceutical preparations in Class 5 | Registered, Renewal due 1/25/2017 | |||||
South Africa | CONCERT PHARMACEUTICALS INC. | 2007/01346 | 4/22/2010 | Full line of pharmaceutical and biopharmaceutical preparations in Class 5 | Registered, expires 1/25/2017 | |||||
Switzerland | CONCERT PHARMACEUTICALS INC. | 559007 | 6/1/2007 | Pharmaceutical and biopharmaceutical preparations in Class 5 | Registered, expires 1/25/2017 | |||||
Taiwan | CONCERT PHARMACEUTICALS | 1297040 | 1/16/2008 | Western medicine, biological medicine preparations in Class 5 | Registered, Renewal due 1/15/2018 | |||||
United States | CONCERT PHARMACEUTICALS INC. | 78937102 | 7/25/2006 | Prescription pharmaceutical and biopharmaceutical preparations, namely, pharmaceutical preparations for use in treating inflammatory diseases, infectious diseases, cancer and cardiovascular disease in Class 5 | Published |
Concert Pharmaceuticals, Inc. Trademarks
COUNTRY |
MARK |
REG. NO./
|
ISSUED/
|
GOOD/SERVICES WITH CLASS |
NOTES/ CURRENT STATUS |
|||||
Pharmaceutical research and development services in Class 42 | ||||||||||
United States | CONCERT PHARMACEUTICALS INC. (stylized) | 78937142 | 7/25/2006 | Prescription pharmaceutical and biopharmaceutical preparations, namely, pharmaceutical preparations for use in treating inflammatory diseases, infectious diseases, cancer and cardiovascular disease in Class 5 | Published | |||||
Pharmaceutical research and development services in Class 42 |
Concert Pharmaceuticals, Inc. Trademarks
COUNTRY |
MARK |
REG. NO./
|
ISSUED/
|
GOOD/SERVICES WITH CLASS |
NOTES/ CURRENT STATUS |
|||||
United States | DCE PLATFORM | 77907107 | 1/7/2010 | Pharmaceutical compounds for clinical study use in drug research, namely, deuterium-based compounds for research use; chemical compounds for making and studying pharmaceutical compounds, namely, deuterium-based compounds wherein each chemical compound contains one or more deuterium atoms for use in the manufacture of pharmaceutical preparations; pharmaceutical compounds for clinical study for research purposes and laboratory use in drug research, namely, deuterium-based compounds in Class 1 | Allowed | |||||
Pharmaceutical compounds for use in treating diseases and health conditions, namely, pharmaceuticals for the treatment of treatment of inflammatory and fibrotic diseases, infectious diseases, diseases and conditions of the central nervous system, cancer, and cardiovascular and renal disease; pharmaceutical compounds for clinical study for therapeutic purposes, namely, deuterium-based compounds in Class 5 | ||||||||||
Scientific and medical research services; medical testing services for research purposes; conducting early evaluations in the field of new pharmaceuticals; drug discovery services; pharmaceutical research services in Class 42 |
EXHIBIT E
BORROWERS DEPOSIT ACCOUNTS AND INVESTMENT ACCOUNTS
Bank Name |
Account Number |
Branch Address |
Company/Subsidiary |
|||
Silicon Valley Bank | 3300530507 | 3003 Tasman Drive Santa Clara, CA 95054 | Company x OR Name of Sub | |||
Silicon Valley Bank | 3300580848 | 3003 Tasman Drive Santa Clara, CA 95054 | Company x OR Name of Sub | |||
State Street Bank | DE3085 | 1200 Crown Colony Drive Quincy, MA 02169 | Company x OR Name of Sub | |||
State Street Bank
Note: All cash/investments moved to DE3085. Concert requested on 12/9/11 that the DE3086 be closed. |
DE3086 | 1200 Crown Colony Drive Quincy, MA 02169 |
Company ¨ OR Name of Sub Concert Pharmaceuticals Securities Corporation |
|||
SVB Securities | 486-04255 | 3003 Tasman Drive Santa Clara, CA 95054 | Company x OR Name of Sub | |||
SVB Securities | 486-05241 | 3003 Tasman Drive Santa Clara, CA 95054 | Company x OR Name of Sub |
EXHIBIT F
COMPLIANCE CERTIFICATE
Hercules Technology Growth Capital, Inc.
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
Reference is made to that certain Loan and Security Agreement dated December , 2011 and all ancillary documents entered into in connection with such Loan and Security Agreement all as may be amended from time to time, (hereinafter referred to collectively as the Loan Agreement) between Hercules Technology Growth Capital, Inc. (Hercules) as Lender and CONCERT PHARMACEUTICALS, INC. (the Company) as Borrower. All capitalized terms not defined herein shall have the same meaning as defined in the Loan Agreement.
The undersigned is an Officer of the Company, knowledgeable of all Company financial matters, and is authorized to provide certification of information regarding the Company; hereby certifies, in such capacity, that in accordance with the terms and conditions of the Loan Agreement, the Company is in compliance for the period ending of all covenants, conditions and terms and hereby reaffirms that all representations and warranties contained therein are true and correct in all material respects on and as of the date of this Compliance Certificate. Attached are the required documents supporting the above certification. The undersigned further certifies on behalf of the Company that these are prepared in accordance with GAAP, except (i) for the absence of footnotes, (ii) that they are subject to normal year end adjustments, (iii) they do not contain certain non-cash items, and (iv) that they are subject to adjustment with respect to revenue recognition for upfront and milestone payments, and are consistent from one period to the next except as explained below.
REPORTING REQUIREMENT | REQUIRED |
CHECK IF ATTACHED |
||
Interim Financial Statements | Monthly within 30 days | |||
Interim Financial Statements | Quarterly within 45 days | |||
Audited Financial Statements | FYE within 180 days |
Very Truly Yours, | ||
CONCERT PHARMACEUTICALS, INC. | ||
By: |
|
|
Name: |
|
|
Its: |
|
EXHIBIT G
FORM OF JOINDER AGREEMENT
This Joinder Agreement (the Joinder Agreement) is made and dated as of , 201 , and is entered into by and between , a corporation (Subsidiary), and Hercules Technology Growth Capital, Inc. as a Lender.
RECITALS
A. Subsidiarys Affiliate, CONCERT PHARMACEUTICALS, INC. (Company) has entered into that certain Loan and Security Agreement dated December , 2011, with Lender, as such agreement may be amended (the Loan Agreement), together with the other agreements executed and delivered in connection therewith;
B. Subsidiary acknowledges and agrees that it will benefit both directly and indirectly from Companys execution of the Loan Agreement and the other agreements executed and delivered in connection therewith;
AGREEMENT
NOW THEREFORE, Subsidiary and Lender agree as follows:
1. | The recitals set forth above are incorporated into and made part of this Joinder Agreement. Capitalized terms not defined herein shall have the meaning provided in the Loan Agreement. |
2. | By signing this Joinder Agreement, Subsidiary shall be bound by the terms and conditions of the Loan Agreement the same as if it were the Borrower (as defined in the Loan Agreement) under the Loan Agreement, mutatis mutandis, provided however, that Lender shall have no duties, responsibilities or obligations to Subsidiary arising under or related to the Loan Agreement or the other agreements executed and delivered in connection therewith. Rather, to the extent that Lender has any duties, responsibilities or obligations arising under or related to the Loan Agreement or the other agreements executed and delivered in connection therewith, those duties, responsibilities or obligations shall flow only to Company and not to Subsidiary or any other person or entity. By way of example (and not an exclusive list): (a) Lenders providing notice to Company in accordance with the Loan Agreement or as otherwise agreed between Company and Lender shall be deemed provided to Subsidiary; (b) a Lenders providing an Advance to Company shall be deemed an Advance to Subsidiary; and (c) Subsidiary shall have no right to request an Advance or make any other demand on Lender. |
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE TO JOINDER AGREEMENT]
SUBSIDIARY: | ||
|
||
By: |
|
|
Name: |
|
|
Title: |
|
|
Address: |
|
|
Telephone: |
|
|
Facsimile: |
|
LENDER: | HERCULES TECHNOLOGY GROWTH CAPITAL, INC. | |||||
By: |
|
|||||
Name: |
|
|||||
Its: |
|
EXHIBIT H
ACH DEBIT AUTHORIZATION AGREEMENT
Hercules Technology Growth Capital, Inc.
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
Re: Loan and Security Agreement dated December , 2011 between CONCERT PHARMACEUTICALS, INC. (Borrower) and Hercules Technology Growth Capital, Inc. (Company) (the Agreement)
In connection with the above referenced Agreement, the Borrower hereby authorizes the Company to initiate debit entries for the periodic payments due under the Agreement to the Borrowers account indicated below. The Borrower authorizes the depository institution named below to debit to such account.
DEPOSITORY NAME | BRANCH | |
CITY | STATE AND ZIP CODE | |
TRANSIT/ABA NUMBER | ACCOUNT NUMBER |
This authority will remain in full force and effect so long as any amounts are due under the Agreement.
CONCERT PHARMACEUTICALS, INC. | ||
By: |
|
|
Date: |
|
SCHEDULE 1
SUBSIDIARIES
Concert Pharmaceuticals Securities Corp., a Massachusetts corporation
SCHEDULE 1A
EXISTING PERMITTED INDEBTEDNESS
None.
SCHEDULE 1B
EXISTING PERMITTED INVESTMENTS
Investment in Concert Pharmaceuticals Securities Corp.
SCHEDULE 1C
EXISTING PERMITTED LIENS
None.
SCHEDULE 5.3
CONSENTS, ETC.
None.
SCHEDULE 5.5
ACTIONS BEFORE GOVERNMENTAL AUTHORITIES
None.
SCHEDULE 5.8
TAX MATTERS
None.
SCHEDULE 5.9
INTELLECTUAL PROPERTY CLAIMS
None.
SCHEDULE 5.10
INTELLECTUAL PROPERTY
None.
SCHEDULE 5.11
BORROWER PRODUCTS
None.
SCHEDULE 5.14
CAPITALIZATION
Borrower owns all of the outstanding capital stock of Concert Pharmaceuticals Securities Corp. See attached capitalization table of Borrower.
Exhibit 10.15
Execution
CONCERT PHARMACEUTICALS, INC.
LEDGEMONT DEVELOPMENT CENTER
LEXINGTON, MA
Execution
ARTICLE 1: BASIC TERMS
The following terms used in this Lease shall have the meanings set forth below.
Date of Lease: | February 12, 2008 | |
Landlord: | One Ledgemont LLC , a Delaware limited liability company | |
Tenant: | Concert Pharmaceuticals, Inc. , a Delaware corporation | |
Building and Property: | The building complex known as Ledgemont Development Center and consisting of the Richards House , Building B , B Annex , Building C , the East Wing , the parking garage and other appurtenances thereto located at 128 Spring Street, Lexington. Massachusetts (the Building and such parcel of land hereinafter being collectively referred to as the Property ). | |
Premises: | Portions of the Building comprised of approximately 44,979 rentable square feet consisting of (i) approximately 27,340 rentable square feet located on the 400 Level of Building C (the Level 400 Space ), and (ii) approximately 17,639 rentable square feet and located on the 500 Level of Building C (the Level 500 Space ), all as described in Exhibit A . The Level 400 Space shall contain approximately 12,718 rentable square feet of space (the Level 400 Lab Space ) as described in Exhibit A , that Tenant intends to fit-up and operate as a laboratory, pursuant to the terms and conditions of this Lease. (The foregoing rentable square footage measurements are determined as set forth in Section 4.06(c) below.) | |
Initial Term: | Commencing on the date of this Lease and expiring, unless otherwise extended or terminated as provided in this Lease, on the expiration of the seventh (7th) full Lease Year (defined below) following the Level 400 Lab Space Commencement Date. | |
Extension Terms: | Two (2) additional successive periods of five (5) Lease Years each. | |
Lease Year: | A period of twelve (12) consecutive months, commencing on the Level 400 Lab Space Commencement Date (as defined below) and each successive twelve (12) month period during the Term, provided that (i) if the Level 400 Lab Space Commencement Date shall occur on a date other than the first day of a month, then the first Lease Year shall include the |
1
Execution
period from the Level 400 Lab Space Commencement Date to the first day of the following month and twelve (12) calendar months thereafter, and/or (ii) if a Space Commencement Date (as defined below) occurs before the Level 400 Lab Space Commencement Date, then the first Lease Year shall include the period from such Space Commencement Date to the Level 400 Lab Space Commencement Date. | ||
Term Commencement Date; Space Commencement Dates: |
The Term Commencement Date shall be the Level 400 Lab Space Commencement Date (as defined below).
The Level 500 Space Commencement Date shall be the earliest to occur of (a) Tenants Substantial Completion (as defined below) of the Level 500 Space, (b) nine (9) months following the Delivery Date (as defined below), or (c) the date Tenant commences business operations in all or any portion of the Level 500 Space: the Level 400 Commencement Date shall be the earliest to occur of (t) Tenants Substantial Completion of the Level 400 Space, or (u) nine (9) months following the Delivery Date, or (v) the date Tenant commences business operations in all or any portion of the Level 400 Space; and the Level 400 Lab Space Commencement Date shall be the earliest to occur of (x) Tenants Substantial Completion of the Level 400 Lab Space, or (y) nine (9) months following the Delivery Date, or (z) the date Tenant commences business operations in all or any portion of the Level 400 Lab Space; (each, as applicable, a Space Commencement Date ). |
|
Delivery Date: | The date of this Lease. | |
Permitted Uses: | General office, research and development, laboratory (including a vivarium) uses, and lawful ancillary uses thereto, all to the extent permitted by applicable zoning ordinances. | |
Tenants Pro Rata Share: | 25.86% subject to Section 4.06. | |
Tenants Level 400 Reduced Pro Rata Share: | 12.03% subject to Section 4.06. | |
Brokers: | McCall & Almy, Inc. and DTZ FHO Partners. | |
Landlords Managing Agent: | Beal and Company, Inc. | |
Letter of Credit Amount: | $1,450,000 subject to Article 15 of the Lease. | |
Parking: | As set forth in Section 2.01(d) of the Lease. |
2
Execution
Base Rent: | Initial Term: |
Lease Year |
Base Rent Per
Rentable Square Foot |
Base Rent |
Base Rent
Monthly Installment |
|||||||||
1 | $ | 22.53 | $ | 1,013,376.87 | $ | 84,448.07 | ||||||
2 | $ | 23.45 | $ | 1,054,757.55 | $ | 87,896.46 | ||||||
3 (Months 25-30) | $ | 24.37 | $ | 1,096,138.23 | $ | 91,344.85 | ||||||
3 (Months 31-36) | $ | 26.50 | $ | 1,191,943.50 | $ | 99,328.63 | ||||||
4 | $ | 27.50 | $ | 1,236,922.50 | $ | 103,076.88 | ||||||
5 | $ | 28.50 | $ | 1,281,901.50 | $ | 106,825.13 | ||||||
6 | $ | 30.00 | $ | 1,349,370.00 | $ | 112,447.50 | ||||||
7 | $ | 31.00 | $ | 1,394,349.00 | $ | 116,195.75 |
Note: The Base Rent calculations shown above are for the entire Premises from and after the Term Commencement Date. If any Space Commencement Date(s) occur(s) prior to the Term Commencement Date, Tenant shall pay Base Rent on the above Base Rent Per Rentable Square Foot and Tenants Pro Rata Share of Total Operating Costs and of Taxes (as defined below) multiplied by or based on, as the case may be, the applicable rentable square footage of the space for which a Commencement Date has occurred.
Extension Term: | As provided in Section 3.03(b). | |
Additional Rent: | All amounts payable by Tenant under this Lease other than Base Rent, including, without limitation, Tenants Pro Rata Share of Taxes (Article 5); Utilities (Article 6); Insurance premiums (Article 7); and Operating Expenses (Article 8) (See Section 4.02). Tenants Pro Rata Share is defined in Section 4.06 hereof. | |
Original Address of Landlord for Notices: |
c/o The Beal Companies, LLP 177 Milk Street Boston, Massachusetts 02109 Attention: Michael A. Manzo, Senior Vice President |
3
Execution
with copies to: | ||
c/o The Beal Companies, LLP 177 Milk Street Boston, Massachusetts 02109 Attention: Peter A. Spellios, Senior Vice President and General Counsel |
||
- and - |
||
Sherin and Lodgen LLP 101 Federal Street Boston, Massachusetts 02110 Attention: Robert M. Carney, Esquire |
||
Original Address of Tenant for Notices: | ||
Before Term Commencement Date: |
Concert Pharmaceuticals, Inc. 99 Hayden Avenue, Suite 100 Lexington, Massachusetts 02421 Attention: General Counsel |
|
with a copy to: | ||
Ropes & Gray LLP One International Place Boston, MA 02110-2624 Attention: Christopher F. Dunn, Esquire |
||
After Term Commencement Date: |
Concert Pharmaceuticals, Inc. Ledgemont Development Center 128 Spring Street Lexington, Massachusetts 02421 Attention; General Counsel |
|
with a copy to: | ||
Ropes & Gray LLP One International Place Boston, MA 02110-2624 Attention: Christopher F. Dunn, Esquire |
||
Tenant Improvement Allowance: | A Tenant Improvement Allowance of $65.00 per rentable square foot of the Premises (not to exceed $2,923,635.00 in the aggregate), plus the Level 400 Lab Space Allowance of $85.00 |
4
Execution
per rentable square foot of the Level 400 Lab Space (not to exceed $2,323,900.00 in the aggregate) which Level 400 Lab Space Allowance shall be amortized and paid as Additional Rent, and the Tenants Supplemental HVAC Contribution, all as further defined and provided in Exhibit E . | ||
Initial Tenant Improvements: | To be constructed by Tenant as set forth in Section 10.05 and Exhibit E. |
Exhibits:
Exhibit A: | Floor Plan of the Premises | |
Exhibit B: | Rules and Regulations | |
Exhibit C: | Rules and Regulations for Tenant Work | |
Exhibit D: | Tenant Work Insurance Schedule | |
Exhibit E: | Work Letter | |
Exhibit F: | Construction Documents | |
Exhibit G: | Reserved Parking Plan | |
Exhibit H: | Specific Aspects of Initial Tenant Improvements | |
Exhibit I: | Plan Showing Additional Space | |
Exhibit J: | Landlords Work | |
Exhibit K: | Form of Term Commencement Date Agreement | |
Exhibit L: | Form of Letter of Credit | |
Exhibit M: | List of Prior Rights to Additional Space | |
Exhibit N: | Location of Tenants Monument Sign | |
Exhibit O: | Location of Tenants Supplemental HVAC |
5
Execution
ARTICLE 2: PREMISES AND APPURTENANT RIGHTS
2.01 Lease of Premises; Appurtenant Rights. Landlord hereby leases the Premises to Tenant, and Tenant hereby leases the Premises from Landlord, for the Term, subject to all matters of record as of the date hereof and matters referred to below. Subject to Landlords rules and regulations attached hereto as Exhibit B and such other reasonable rules and regulations as Landlord may from time to time adopt and of which Tenant is given written notice (collectively, Landlords Rules ) and to force majeure, Tenant shall have access to the Premises twenty-four (24) hours a day, seven (7) days a week. Landlords Rules shall be uniformly applied to all occupants of the Building and any subsequent adoption or modification of Landlords Rules from those set forth on Exhibit B shall not be inconsistent with this Lease (which shall control in the event of any inconsistency) and shall not, to the extent practicable, materially adversely affect Tenants access to, or use of, the Premises pursuant to the terms and conditions of this Lease.
(a) Exclusions . The Premises exclude common areas and facilities of the Property, including, without limitation, exterior faces of exterior walls, the common stairways and stairwells (subject to Tenants rights to use the stairways for access between portions of the Premises pursuant to Section 2.01(b)), entranceways and the main lobby, elevators and elevator wells, fan rooms, electric and telephone closets, janitor closets, freight elevator vestibules, and pipes, ducts, conduits, wires and appurtenant fixtures serving other parts of the Property (exclusively or in common) and other common areas and facilities from time to time designated as such by Landlord; provided, however, in no event shall any such future designation include any portion of the Premises or materially adversely affect Tenants access to, or use of, the Premises pursuant to the terms and conditions of this Lease. If the Premises include less than the entire rentable area of any floor, then the Premises also exclude the common corridors, elevator lobby and toilets located on such floor.
(b) Appurtenant Rights . Tenant shall have, as appurtenant to the Premises, the nonexclusive right to use in common with others (subject to Landlords Rules and force majeure) the common areas and facilities of the Property necessary or convenient for Tenants use and occupancy of the Premises, including, without limitation, the common stairways and stairwells, entranceways, the main lobby, elevators, driveways, parking areas, sidewalks and the loading dock servicing the Premises. Subject to Landlords Rules and to force majeure, Tenant shall have access to the seating area of the common cafe in the building twenty-four (24) hours a day, seven (7) days a week.
(c) Reservations . In addition to other rights reserved herein or by law, Landlord reserves the right from time to time, provided that Landlord shall use commercially reasonable efforts to avoid unreasonable (except in emergency) interruption of Tenants use of or access to the Premises pursuant to the terms and conditions of this Lease: (i) to make additions to or reconstructions of the Building and to install, use, maintain, repair, replace and relocate for service to the Premises and other parts of the Building, or either, pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the Premises, the Building, or elsewhere in the Property; (ii) to alter, eliminate or relocate any other common area or facility, including the drives, lobbies and entrances; and (iii) to grant easements and other rights with respect to the Property. Installations, replacements and relocations within the Premises referred to in clause (i) shall be located as far as practicable in the core areas of the Building, above ceiling surfaces, below floor surfaces or within perimeter walls of the Premises. The Building may be subdivided or combined into separate or unified lots, submitted to or removed from a condominium regime or divided or combined into separate leasehold lots by ground leases to
6
Execution
facilitate financing, ownership or operation of all or portions of the Property and Building, provided that parties rights and obligations under this Lease shall not be affected in any material respect. Tenant agrees to enter into any instruments reasonably requested by Landlord in connection with the foregoing so long as the same are not inconsistent with the rights and obligations of the parties under this Lease and are otherwise reasonably acceptable to Tenant.
(d) Parking .
(i) Commencing on the applicable Space Commencement Date, Tenant shall have the appurtenant right to use, free of additional charge, 3.2 unreserved parking spaces for standard size automobiles and small utility vehicles per 1,000 rentable square feet of the Premises (or that portion thereof for which a Space Commencement Date has occurred). The parking spaces shall be used by Tenant and Tenants employees and business invitees and may be located on the Property and/or within the Building, and the location of said parking spaces, and the layout and location of the parking facilities, are subject to change from time to time; provided, however, in effecting such change Landlord shall not grant disproportionately greater parking rights to other comparable tenants resulting in a material diminution of Tenants rights hereunder. Tenants right to use such parking spaces shall be non-exclusive.
(ii) Notwithstanding the foregoing, included in the foregoing Tenants parking count is Tenants right to use, free of additional charge, five (5) parking spaces for Tenants exclusive use for Tenants visitors and invitees, which spaces are to be located as approximately shown on Exhibit G attached hereto, subject to relocation, from time to time, to a mutually agreeable location, within the parking facilities serving the Building. Tenant shall have the right to install signage identifying such spaces for Tenants exclusive use, which such signage shall be subject to Landlords prior approval, not to be unreasonably withheld or delayed, and otherwise consistent with other parking space designation signage.
(iii) None of Tenants parking rights hereunder shall be assigned or sublicensed except in connection with a Transfer in compliance with Article 13. Landlord shall have the right to make such parking available pursuant to a pass system or on any other reasonable basis determined by Landlord, and such parking rights shall be subject to Landlords Rules, and the right of Landlord to limit the number of parking spaces available to Tenant, its employees and invitees, where the use of the same exceeds the above-stated ratio. Landlord shall use commercially reasonable efforts to enforce and maintain the parking rights hereunder and under the other leases and occupancy agreements relating to the Property. Landlord shall have the right to alter the parking areas (but not materially reduce the number of parking spaces permanently available to Tenant) or, pursuant to Landlords Rules, their operation from time to time, and to temporarily close portions thereof for maintenance as necessary. Tenants parking privileges constitute a license only, and no bailment is intended or shall be created. Neither Landlord nor any parking operator of the parking areas will have any responsibility for loss or damage due to fire or theft or otherwise to any automobile parked in the parking areas or to any personal property therein.
2.02 Right of First Offer on Certain Additional Space .
(a) Provided this Lease is then in full force and effect and there then exists no uncured Event of Default on the part of Tenant hereunder, in the event that all or any portion of the space on
7
Execution
the Level 500 of Building C and the Level 500 of Building B and the Level 300 of Building C as shown on Exhibit I attached hereto (the Additional Space ) becomes available, meaning that a lease therefor is expiring or being terminated, (the space that is the subject of such expiring or terminating lease being hereinafter referred to as a First Offer Space ), Landlord shall not lease or offer to lease the subject First Offer Space to any person or entity without first offering by written notice to Tenant ( Landlords First Offer Notice ) the right and option to add the subject First Offer Space to the Premises. Landlords First Offer Notice shall be given not sooner than twelve (12) months nor later than one (1) month prior to the then anticipated expiration or termination date of the then existing lease of the subject First Offer Space as specified in Landlords First Offer Notice, which notice shall include the anticipated date upon which such Additional Space shall be available for occupancy by Tenant along with a floor plan showing the approximate rentable square footage thereof. Tenant shall have the option, to be exercised by written notice (the Acceptance Notice ) to Landlord within fifteen (15) business days after Landlords First Offer Notice, to lease all of the subject First Offer Space. In the event that as of the applicable First Offer Space Commencement Date (as defined below) there will be less than three (3) years remaining in the Term of the Lease (as such may have already been extended in accordance with Section 3.03 below), then, at Landlords election, as set forth in Landlord in Landlords First Offer Notice, the Term of the Lease for the Premises including the First Offer Space shall, to the extent Tenant elects to lease the subject First Offer Space, be automatically extended for an additional period of time commencing as of the first day following the expiration of the Term of this Lease (as such may have already been extended in accordance with Section 3.03 below) and expiring on the thirty-sixth (36 th ) full calendar month following the First Offer Space Commencement Date (the Additional Term ).
(b) If Tenant timely gives an Acceptance Notice, the subject First Offer Space shall upon the First Offer Space Commencement Date (as defined below) automatically become part of the Premises and shall be leased to Tenant upon the same terms and conditions contained in this Lease, except for Base Rent, which shall be at the Market Rent to be determined in accordance with the provisions of Section 3.03(c) and (d) made applicable hereto by such changes and modifications as are required given the application hereof (and to the extent Landlord elects to require the Additional Term, the Base Rent for the entire Premises for Additional Term shall be initially set forth in Landlords First Offer Notice subject to final determination in accordance with the provisions of Section 3.03(c) and (d)), if disputed by Tenant as may be applicable), and except for the Term of the Lease in the event the Additional Term is applicable. It is understood and agreed that the subject First Offer Space shall be delivered by Landlord and leased by Tenant free and clear of tenants and occupants and in its as is condition as of the date of the Acceptance Notice, reasonable wear and tear excepted, without warranty or representation by Landlord, and that Landlord shall have no obligation to complete any work, or pay any allowance, to prepare the subject First Offer Space for Tenants occupancy. The First Offer Space Commencement Date shall be the later of the date specified in Landlords First Offer Notice or the date on which Landlord actually delivers the subject First Offer Space to Tenant as aforesaid. Following such election by Tenant, and effective as of the subject First Offer Space Commencement Date and for the balance of the Term and any extension thereof (and the Additional Term, if applicable): (a) the Premises, as used in this Lease, shall also include the subject First Offer Space for all purposes hereof, including Extension Options and parking rights; (b) Tenants Pro Rata Share of Operating Expenses and Tenants Pro Rata Share of Taxes shall be increased to include the rentable square footage of the subject First Offer Space; and (c) the Base Rent shall equal the sum of the Base Rent provided for in this Lease for the original Premises plus the Base Rent for the subject First Offer Space. To confirm the foregoing, the parties shall promptly execute an Amendment to Lease reflecting the foregoing terms.
8
Execution
(c) If Tenant fails to deliver a timely Acceptance Notice to Landlord within fifteen (15) business days of Landlords First Offer Notice, the option granted Tenant hereunder as to the subject First Offer Space shall expire, terminate and be of no further force and effect, and waived, for all purposes of the next lease(s) thereof as next executed thereafter, and Landlord may lease all or any portion of the subject First Offer Space to any party and upon any terms free of any rights of Tenant. Tenant, following such waiver and within seven (7) business days of Landlords request therefor, shall execute and deliver to Landlord a certification, in recordable form, confirming the waiver of such right, and Tenants failure to so execute and deliver such certification shall (without limiting Landlords remedies on account thereof) entitle Landlord to execute and deliver to any third party, and record, an affidavit confirming the waiver, which affidavit, to the extent true, shall be binding on Tenant and may be conclusively relied on by third parties.
(d) Tenant understands that its rights under this Section are and shall be subject and subordinate to any extension rights, expansion rights, options to lease or any rights of first negotiation, first offer or first refusal to lease granted to other tenants of the Building prior to the date of execution and delivery of this Lease which are as set forth on Exhibit M attached hereto, or to the terms of any leases, including extension and expansion rights, but not any rights of first negotiation, first offer or first refusal to lease, as originally granted in any lease(s) to the first tenant(s) of any Additional Space that is vacant as of the date of this Lease; provided, however, Landlord shall not voluntarily extend any such lease, or expand the Premises thereunder, by way of an amendment thereto in such a way as to adversely affect Tenants rights hereunder without providing Landlords First Offer Notice as provided in this Section 2.02.
2.03 Tenants Existing Lease and Sublease Obligations .
(a) Upon the Term Commencement Date, that certain Lease dated December 22, 2006 between Landlord and Tenant (the Level 300 Lease ) pursuant to which Tenant leases from Landlord approximately 3,265 rentable square feet of space on Level 300 of Building C (the Level 300 Space ) shall terminate with the same force and effect as if the Term Commencement Date hereof were the specified expiration date of the Level 300 Lease and Tenant shall quit and deliver up the Level 300 Space on or before that date pursuant to the requirements of the Level 300 Lease. Tenant shall remain liable for any and all obligations and agreements under the Level 300 Lease accruing on or before the Term Commencement Date as and to the extent provided in the Level 300 Lease, including, without limitation, all rent, additional rent and any other amounts due thereunder, and Tenants indemnity obligations accruing under the Level 300 Lease on or before the Term Commencement Date. Tenant shall also remain liable to Landlord pursuant to the terms and conditions of the Level 300 Lease for failing to quit and deliver up the Level 300 Space on the Level 300 Effective Date as required thereunder.
(b) From and after the Term Commencement Date, upon not less than thirty (30) days notice from Tenant to Landlord, Tenant shall have the right to elect that the certain Sublease between Aurigene Discovery Technologies, Inc. ( Aurigene ) and Tenant dated August 3, 2006 (the Level 100 Sublease ) pursuant to which Tenant subleases from Aurigene approximately 9,356 rentable square feet of space on Level 100 of Building C (the Level 100 Space ), be, at Landlords option, either
9
Execution
terminated or Tenants obligations thereunder shall be assumed by Landlord, such that the Level 100 Sublease shall be terminated (at least as to all of Tenants subsequent obligations thereunder) upon the date designated in such notice from Tenant to Landlord, (such designated date being the Level 100 Effective Date ) with the same force and effect as if the Level 100 Effective Date was the specified expiration date of the Level 100 Sublease and Tenant shall quit and deliver up the Level 100 Space on or before that date pursuant to the requirements of the Level 100 Sublease. Tenant shall remain liable for any and all obligations and agreements under the Level 100 Sublease accruing on or before the Level 100 Effective Date as and to the extent provided in the Level 100 Sublease, including, without limitation, all rent, additional rent and any other amounts due thereunder, and Tenants indemnity obligations accruing under the Level 100 Sublease on or before the Level 100 Effective Date, and such liability shall survive the termination of the Level 100 Sublease. Tenant shall also remain liable pursuant to the terms and conditions of the Level 100 Sublease for failing to quit and deliver up the Level 100 Space on the Level 100 Effective Date as required thereunder.
ARTICLE 3: LEASE TERM
3.01 Lease Term. Subject to the terms and conditions of this Lease, the Initial Term of this Lease is set forth in Article 1, unless sooner terminated as provided herein. Landlord and Tenant agree to execute a Term Commencement Date Agreement substantially in the form attached hereto as Exhibit K, or as otherwise reasonably requested by Landlord confirming the actual Term Commencement Date and expiration date of the Term, once same are determined.
3.02 Hold Over. If Tenant (or anyone claiming through Tenant) shall remain in occupancy of the Premises or any part thereof after the expiration or early termination of the Term pursuant to the terms and provisions hereof without a written agreement therefor executed and delivered by Landlord, then without limiting Landlords other rights and remedies the person remaining in possession shall be deemed a tenant at sufferance, and Tenant shall pay monthly rent (pro rated for such portion of any partial month as Tenant shall remain in possession) for the first (1 st ) month of such hold over and at the full monthly rate (with no pro ration) for any portion of any month thereafter, at a rate equal to one and one-half (1 1 / 2 ) times the amount payable as Base Rent for the twelve (12) month period immediately preceding such expiration or termination for the first sixty (60) days of such hold over and two (2) times the amount payable as Base Rent for the twelve (12) month period immediately preceding such expiration or termination thereafter, together with all Additional Rent also payable as provided in this Lease. Notwithstanding the foregoing, if Landlord desires to regain possession of the Premises promptly after the termination or expiration hereof and prior to acceptance of rent for any period thereafter, Landlord may, at its option, forthwith re-enter and take possession of the Premises or any part thereof without process or by any legal process in force in the state where the Property is located. In any case, Tenant shall be liable to Landlord for all damages resulting from any failure by Tenant to vacate the Premises or any portion thereof within thirty (30) days after the expiration or earlier termination of the Term.
3.03 | Right to Extend. |
(a) Extension Term . The Term of this Lease of all of the Premises may be extended for each applicable Extension Term by unconditional (except for the Base Rent determination process as provided herein) written notice from Tenant to Landlord at least twelve (12) (but not more than eighteen (18)) months before the end of the Initial Term or first (1 st ) Extension Term, as the case may
10
Execution
be, time being of the essence. If Tenant does not timely exercise such option, or if on the date of such notice or at the beginning of the applicable Extension Term an uncured Event of Default by Tenant exists, at Landlords option upon written notice to Tenant, Tenants right to extend the Term of this Lease shall irrevocably lapse and be void and of no further force and effect, Tenant shall have no further right to extend, and this Lease shall expire at the end of the Initial Term or first (1 st ) Extension Term, as the case may be. If Tenant fails to timely exercise its rights hereunder, then within seven (7) days of Landlords request therefor, Tenant shall execute and deliver to Landlord a certification, in recordable form, confirming the Tenants failure to exercise (or waiver of) such right, and Tenants failure to so execute and deliver such certification shall (without limiting Landlords remedies on account thereof) entitle Landlord to execute and deliver to any third party, and record, an affidavit confirming the failure or waiver, which affidavit, to the extent true, shall be binding on Tenant and may be conclusively relied on by third parties. All references to the Term shall mean the Initial Term as it may be extended by an Extension Term. Each Extension Term shall be on all the same terms and conditions except that the Base Rent for the applicable Extension Term shall be as set forth below.
(b) Extension Term Base Rent . Base Rent for each year of the applicable Extension Term shall be the Market Rent (as defined in Section 3.03(c)). If Tenant gives Landlord timely notice of its exercise of the Extension Term option, then Landlord shall give Tenant written notice of Landlords good faith determination of Market Rent for the Premises for the Extension Term within sixty (60) days of its receipt of Tenants notice exercising the Extension Term. Within fifteen (15) business days after Tenant receives such notice, Tenant shall notify Landlord of its agreement with or objection to Landlords determination of the Market Rent, whereupon in the case of Tenants objection, Market Rent shall be determined by arbitration conducted in the manner set forth below. If Tenant does not notify Landlord within such fifteen (15) business day period of Tenants agreement with or good faith objection to Landlords determination of the Market Rent, then the Market Rent for the applicable Extension Term shall be conclusively deemed to be Landlords determination of the Market Rent as set forth in Landlords notice to Tenant.
(c) Arbitration of Market Rent . If Tenant timely notifies Landlord of Tenants objection to Landlords determination of Market Rent under the preceding subsection with respect to the exercised Extension Term, such notice shall also set forth a request for arbitration and Tenants appointment of a commercial real estate appraiser (an Arbitrator ). Within five (5) business days thereafter, Landlord shall by notice to Tenant appoint a second Arbitrator. Each Arbitrator shall determine the Market Rent for the Extension Term being exercised within thirty (30) days after Landlords appointment of the second Arbitrator. On or before the expiration of such thirty (30) day period, the two Arbitrators shall confer to compare their respective determinations of the Market Rent. If the difference between the amounts so determined by the two (2) Arbitrators is less than or equal to ten percent (10%) of the lower of said amounts then the final determination of the Market Rent shall be equal to the arithmetical average of said amounts. If such difference between said amounts is greater than ten percent (10%), then the two arbitrators shall within ten (10) business days thereafter appoint a similarly qualified third Arbitrator ( Third Arbitrator ), who shall, after consultation(s) with the other two (2) Arbitrators, determine the Market Rent for the Extension Term within thirty (30) business days after his or her appointment by selecting one or the other of the amounts determined by the other two (2) Arbitrators. Each party shall bear the cost of the Arbitrator selected by such party. The cost for the Third Arbitrator, if any, shall be shared equally by Landlord and Tenant. All Arbitrators appointed hereunder shall be MAI appraisers, so-called, knowledgeable
11
Execution
in the field of commercial real estate with at least five (5) years experience in the market in which the Building is located and shall not have had any significant business relationship with the party appointing such appraiser within the past eighteen (18) months. The foregoing determination shall be conclusive, final and binding on the parties and enforceable in any court having jurisdiction over the parties.
(d) Market Rent shall be the fair market rent that willing third parties would pay and receive on an arms length basis as the Base Rent to lease similar space in the Building and similar space in similar buildings in the same geographic area, during the exercised Extension Term and under the applicable terms and conditions of this Lease (taking into account all relevant factors including the condition of the Premises and such similar space).
(e) Rent Continuation . For any part of the exercised Extension Term during which the Base Rent is in dispute or has otherwise not finally been determined, Tenant shall make payment on account of Base Rent at the Market Rent estimated by Landlord, and the parties shall adjust for any overpayments or underpayments upon the final determination of Base Rent. The failure by the parties to complete the process contemplated under this Section prior to commencement of the exercised Extension Term shall not affect the continuation of the Term or the parties obligation to make any adjustments for any overpayments or underpayments for the Base Rent due for the exercised Extension Term promptly after the determination thereof is made.
3.04 Termination Option. Tenant shall have the one-time option to terminate this Lease effective at any time after the completion of the fifth (5 th ) full Lease Year, subject to the terms and conditions hereof (the Termination Option ). Tenant shall exercise the Termination Option, if at all, by giving Landlord not less than twelve (12) months prior written notice (the Termination Notice ) and such exercise shall be irrevocable. If Tenant exercises the Termination Option as set forth herein, Tenant shall pay Landlord a termination payment in an amount equal to: (i) the sum of $300,000.00 as reduced by $12,500 for each full calendar month following the expiration of the fifth (5 th ) full Lease Year until the effective date of such termination ( e.g. , if the termination was effective as of the last day of the fifth (5 th ) full Lease Year the sum would be $300,000.00 but if effective as of the last day of the sixth (6 th ) full Lease Year the sum would be $150,000.00), plus (ii) the remaining unamortized amount of the Transactions Costs (as defined below) as of the effective date of such termination (collectively, (i) and (ii), the Termination Payment ). As used herein, the term Transaction Costs shall mean the full amount of the brokerage commission(s) and reasonable attorneys fees and costs incurred and/or paid by Landlord in connection with this Lease, along with the full amount of the (x) Tenant Improvement Allowance (as defined below), and (y) the Level 400 Lab Space Allowance (as defined below), as both shall have been amortized as of the effective termination date on a straight line basis over the Initial Lease Term, together with an interest factor equal to ten percent (10%). The Termination Payment shall be paid by Tenant within one hundred eighty (180) days after Tenants delivery of the Termination Notice but, at Landlords option, in no event shall the Lease terminate unless and until the Termination Payment has been paid and all of Tenants payments and other obligations under this Lease through and including the date of such termination have been fully satisfied and performed, including, without limitation, all of Tenants yield-up and surrender obligations under the Lease, including, without limitation, Sections 10.07 and 10.08 below, as and to the extent required under this Lease. Upon Tenants payment of the Termination Payment and satisfaction of its obligations as required, this Lease shall expire on the date specified in the Termination Notice with the same effect as if such date were the date originally specified herein for the expiration of the Term hereof.
12
Execution
ARTICLE 4: RENT
4.01 Base Rent. On the Term Commencement Date (or applicable Space Commencement Date, as may be applicable if earlier) and thereafter on the first day of each month during the Term, Tenant shall pay Landlord the monthly installment of Base Rent and the monthly installment of Tenants Pro Rata Share of Total Operating Costs and Tenants Pro Rata Share of Taxes required by Section 4.02, in each case in advance (as may be applicable to the subject portion of the Premises for which the Space Commencement Date has occurred if earlier). Rent shall be payable at Landlords address or otherwise as Landlord may designate in writing from time to time.
4.02 | Additional Rent. |
(a) General . Rent means Base Rent and Additional Rent. Landlord shall reasonably estimate in advance, for each fiscal year during the Term (i) all Taxes under Article 5, (ii) all utility costs (unless separately metered to or separately contracted for by Tenant) under Article 6, (iii) all insurance premiums to be paid by Landlord under Article 7 and (iv) all Operating Expenses under Section 8.01 (individually, all such items in clauses (i) through (iv) being Operating Costs and collectively, being Total Operating Costs ) and Tenant shall pay one-twelfth (1/12 th ) of Tenants Pro Rata Share of such estimated Total Operating Costs monthly in advance together with Base Rent. Landlord may adjust its estimates of Total Operating Costs at any time based upon its experience and reasonable anticipation of costs. Such adjustments shall be effective as of the next Rent payment date after at least thirty (30) days prior notice to Tenant. Within one hundred twenty (120) days after the end of each fiscal year of the Property during the Term, Landlord shall endeavor to give to Tenant a reasonably detailed statement of the Total Operating Costs paid or incurred by Landlord during the preceding fiscal year and Tenants Pro Rata Share of such expenses. Within the next thirty (30) days, Tenant shall pay Landlord any underpayment, or Landlord shall credit (or refund the difference if the Lease Term has ended and Tenant has no further obligation to Landlord) Tenant with any overpayment, of Tenants Pro Rata Share of such Total Operating Costs. If the Term expires or the Lease is terminated as of a date other than the last day of a fiscal year, Tenants payment of Additional Rent pursuant to this Section for such partial fiscal year shall be based on Landlords best estimate of the items otherwise includable in Total Operating Costs and shall be made on or before the later of (x) ten (10) days after Landlord delivers such estimate to Tenant or (y) the last day of the Term, with an appropriate payment or refund to be made upon Tenants receipt of Landlords statement of Total Operating Costs for such fiscal year. This Section shall survive the expiration or earlier termination of the Term.
(b) Allocation of Certain Operating Costs: Gross Up . If at any time during any fiscal year during the Term Landlord provides services only with respect to particular portions of the Building that include the Premises or incurs other Operating Costs (chargeable to Tenant hereunder) allocable to particular portions of the Building that include the Premises, then such Operating Costs shall be fairly allocated and charged entirely to those tenants, including Tenant, if applicable, of such portions, notwithstanding the provisions hereof referring to Tenants Pro Rata Share. If, during any fiscal year for which Landlords Operating Costs are being computed, less than ninety-five percent
13
Execution
(95%) of the Building is occupied by tenants, or if Landlord is not supplying all tenants with the services being supplied hereunder, Operating Costs shall be reasonably estimated and extrapolated by Landlord to determine the Operating Costs that would have been incurred if the Building were ninety-five percent (95%) occupied for such year and/or such services were being supplied to all tenants, and such estimated and extrapolated amount shall be deemed to be the Operating Costs for such period. Landlord shall make a reasonable allocation of any Operating Costs incurred jointly for the Property and any other property.
(c) This Lease requires Tenant to pay directly to suppliers, vendors, carriers, contractors, etc., certain insurance premiums, utility costs, personal property taxes, maintenance and repair costs and other expenses. If Landlord pays any of these amounts in accordance with this Lease, and Landlord has given Tenant notice of such payment (and provided Landlord did not first receive notice that Tenant had previously paid such amount), Tenant shall reimburse such costs in full with the next monthly Rent payment. Unless this Lease provides otherwise, Tenant shall pay all Additional Rent then due on or before the date for the next monthly Rent payment that occurs at least twenty (20) days after billing therefor by Landlord.
4.03 Late Charge. Tenant acknowledges that if it pays Rent late, Landlord shall incur unanticipated costs, which shall be extremely difficult to ascertain exactly. Such costs include processing and accounting charges, and late charges that may be imposed on Landlord by any mortgage on the Property. Accordingly, if Landlord does not receive any Rent payment within five (5) business days following its due date, Tenant shall pay Landlord a late charge equal to five percent (5%) of the overdue amount; provided such late charge shall be waived in the first (1 st ) such instance in any twelve (12) month period so long as the late Rent payment is paid within five (5) business days of Landlords notice to Tenant of such late payment. The parties agree that this late charge represents a fair and reasonable estimate of the costs Landlord shall incur by reason of Tenants payment default. Payment of the late charge shall not cure Tenants payment default or prevent Landlord from exercising other rights and remedies.
4.04 Interest. Any late Rent not paid within five (5) days following its due date shall bear interest from the date it was due until paid at the rate equal to the Prime Rate plus three percent (3%) per annum except to the extent such interest would cause the total interest to be in excess of that legally permitted. The Prime Rate shall mean the prime lending rate per annum published in the Wall Street Journal from time to time. Payment of interest shall not cure Tenants payment default or prevent Landlord from exercising other rights and remedies.
4.05 Method of Payment. Tenant shall pay the Base Rent to Landlord in advance in equal monthly installments by the first of each calendar month during the Term. Tenant shall make a pro rata payment of Base Rent and Additional Rent for any period of less than a month at the beginning or end of the Term. All payments of Base Rent, Additional Rent and other sums due shall be paid in current U.S. exchange by check drawn on a clearinghouse bank at the Original Address of Landlord or such other place as Landlord may from time to time direct (or if requested by Landlord in the case of Base Rent, by electronic fund transfer), without demand, set-off or other deduction, except as otherwise expressly set forth in this Lease. Without limiting the foregoing, except as expressly provided in this Lease, Tenants obligation to pay Rent shall be absolute, unconditional, and independent and shall not be discharged or otherwise affected by any law or regulation now or hereafter applicable to the Premises, or any other restriction on Tenants use, or, except as expressly provided herein, any casualty or taking, or any failure by Landlord to perform or other occurrence.
14
Execution
4.06 Tenants Pro Rata Share.
(a) For the purposes of this Lease, Tenants Pro Rata Share of Taxes is equal to the product obtained by multiplying the Taxes (as defined in Section 5.02) by Tenants Pro Rata Share, as the same may be adjusted as provided herein.
(b) Tenants Pro Rata Share of Operating Expenses (as defined in Section 8.01), utilities and insurance is equal to the product obtained by multiplying the aggregate amount of same by Tenants Pro Rata Share, as the same may be adjusted as provided herein.
(c) Notwithstanding the foregoing, Tenants share of (i) those Operating Expenses relating to the repair and maintenance of the base Building heat and air conditioning (HVAC) equipment and appurtenances, (ii) gas service provided by Landlord, is equal to the product obtained by multiplying the costs relating to (i) and (ii) above, in each instance, by Tenants Level 400 Reduced Pro Rata Share, as the same may be adjusted as provided herein, in order to fairly and equitably approximate such costs to reflect that: the entire Premises is separately metered for electric service for lights and plugs therein; it is intended that the Level 400 Space shall be separately metered (by way of separate meter(s), check meter(s) or flow meter(s)) as to essentially all other Utility Services (as defined below), including being exclusively served by Tenants Supplemental HVAC (as defined below) which shall be separately metered and maintained and repaired by Tenant, and as to the usage of the base Building hot water loop system, chiller and radiant curtain heating (with such base Building systems shall be repaired and maintained by Landlord); but portions of the Premises, primarily the Level 500 Space, are served, without separate metering, by other common base Building utilities and services including but not limited to the base Building hot water loop system, chiller, radiant curtain heating, water service and other base Building systems.
(d) Tenants Pro Rata Share shall be the percentage set forth in Article 1, which percentage has been determined by dividing the total number of rentable square feet in the Premises by the total number of rentable square feet in the Building, and multiplying the resulting quotient by one hundred (100). Tenants Level 400 Reduced Pro Rata Share shall be the percentage set forth in Article 1, which percentage has been determined by dividing the number of rentable square feet in the Premises less the Level 400 Space by the number of rentable square feet in the Building less the Level 400 Space, and multiplying the resulting quotient by one hundred (100). Tenants Pro Rata Share and Tenants Level 400 Reduced Pro Rata Share may be adjusted by Landlord from time to time for a remeasurement of or changes in the physical size of the Level 400 Lab Space, the Premises and/or the Building, whether such changes in size are due to an addition to or a sale or conveyance of a portion of the Premises, the Building, the Property or otherwise. Without limiting the generality of the foregoing, Landlord may equitably adjust Tenants Pro Rata Share or Tenants Level 400 Reduced Pro Rata Share based upon Tenants use of the Utility Services as reasonably estimated and equitably determined by Landlord based upon factors such as the intensity of use of such Utility Services by Tenant such that Tenant shall pay the portion of such charges reasonably consistent with Tenants use thereof. Landlords adjustment shall be based upon an independent utility survey providing evidence of Landlords assertion. If Tenant disputes any such estimate or determination of Utility Services, then Tenant shall notify Landlord of same in writing within forty-five
15
Execution
(45) days of written notice of Landlords adjustment and Tenant shall thereafter promptly hire an independent utility engineering consultant who shall promptly conduct a survey of Tenants use of the Utility Service(s) at issue to determine the consumption thereof. If Landlord and Tenant cannot agree as to Tenants consumption within forty-five (45) days of Tenants consultants findings either Landlord or Tenant may request another independent utility engineering consultant conduct a survey whose decision shall be final and binding on Landlord and Tenant, and whose cost shall be shared equally. Upon the issue being finally resolved, any overpayment or underpayment shall be promptly refunded. In addition, with the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, Tenant may cause the Premises (Utility Service(s) at issue) to be separately metered at Tenants sole expense.
(e) As of the date hereof, the rentable floor area of the Premises is as set forth in Article 1 and the Building is conclusively deemed to be 173,956 rentable square feet. The number of rentable square feet included within the Building and Premises has been calculated substantially in accordance with the methods of measuring rentable square feet, as that method is described in the American National Institute Publication ANSI Z65.1-1996, as promulgated by the Building Owners and Managers Association.
ARTICLE 5: TAXES
5.01 Taxes. Tenant covenants and agrees to pay to Landlord as Additional Rent Tenants Pro Rata Share of the Taxes for each fiscal tax period, or ratable portion thereof, included in the Lease Term. If Landlord receives a refund of any such Taxes, Landlord shall pay Tenant Tenants Pro Rata Share of the refund after deducting Landlords costs and expenses incurred in obtaining the refund (unless such costs and expenses have previously been included in Taxes). Tenant shall make estimated payments on account of Taxes in monthly installments on the first day of each month, in amounts reasonably estimated from time to time by Landlord pursuant to Section 4.02(a).
5.02 Definition of Taxes. Taxes means all taxes, assessments, betterments, excises, user fees and all other governmental charges and fees of any kind or nature, or impositions or agreed payments in lieu thereof or voluntary payments made in connection with the provision of governmental services or improvements of benefit to the Building or the Property (including any so-called mandatory impact or betterment payments), and all penalties and interest thereon (if due to Tenants failure to make timely payments), assessed or imposed against the Building or the Property of which the Premises are a part (including, without limitation, any personal property taxes levied on such property or on fixtures or equipment used in connection therewith), but excluding income, franchise, gift, transfer, excise, capital stock, estate, succession, inheritance and excess profits taxes. Taxes also excludes penalties or interest for late payment of Taxes (unless due to Tenants failure to make timely payments under this Lease). If during the Term the present system of ad valorem taxation of property shall be changed so that, in lieu of or in addition to the whole or any part of such ad valorem tax there shall be assessed, levied or imposed on the Building or Property or on Landlord any kind or nature of federal, state, county, municipal or other governmental tax, assessment, levy, charge or fee (as distinct from the federal and state income tax in effect on the Date of Lease) measured by or based in whole or in part upon Building valuation, mortgage valuation, rents, services or any other incidents, benefits or measures of real property or real property operations, then any and all of such taxes, assessments, levies, charges and fees shall be included within the term of Taxes. Taxes shall also include expenses, including reasonable fees of attorneys, appraisers and other consultants, incurred in connection with any efforts to
16
Execution
obtain abatements or reductions or to assure maintenance of Taxes for any year wholly or partially included in the Term, whether or not successful and whether or not such efforts involved filing of actual abatement applications or initiation of formal proceedings.
5.03 Personal Property Taxes. Tenant shall pay directly all taxes charged against Tenant Property (as defined in Section 10.07). Tenant shall use its best efforts to have Tenant Property taxed separately from the Property. Landlord shall notify Tenant if any of Tenant Property is taxed to Landlord as part of the Property, and Tenant shall pay such taxes to Landlord within fifteen (15) days of such notice.
ARTICLE 6: UTILITIES AND LANDLORD SERVICES
6.01 Utility Services. Tenant shall pay all charges and deposits for gas, water, sewer, electricity, and other energy, utilities and services used or consumed on the Premises ( Utility Services ) during the Term which now or hereafter separately serve the Premises (including Tenants Supplemental HVAC [as defined below]), or are not expressly to be provided by Landlord elsewhere hereunder. If any such Utility Services are not separately metered or billed (as provided below), Tenant shall pay the cost of the same as part of Tenants Pro Rata Share or Tenants Level 400 Reduced Pro Rata Share, as the case may be, of Operating Expenses payable hereunder. It is understood and agreed that except as may be expressly provided hereunder, Landlord shall be under no obligation whatsoever to furnish any such services to the Premises, and shall not be liable for (nor suffer any reduction in any rent on account of) any interruption or failure in the supply of the same except as expressly provided in Section 6.02(c) below. Prior to the Term Commencement Date, Landlord shall install one (1) or more separate submeter(s), checkmeter(s) or flow meter(s), to measure Tenants actual consumption of electricity and gas at or for the Premises (and Tenants Supplemental HVAC), and for the base Building hot water loop system, chiller and radiant curtain heating flows serving the Level 400 Space, and Tenant will reimburse Landlord for the cost of such services as measured thereby, or at Landlords option, Landlord will require Tenant to contract with the company supplying electricity and/or gas service for the purchase and obtaining by Tenant of electricity and/or gas service directly from such company or companies to be billed directly to, and paid for by, Tenant. To the extent permitted by law, Landlord shall have the right at any time and from time to time during the Term to contract for or purchase one or more Utility Services from any company or third-party providing Utility Services ( Utility Service Provider ). Tenant agrees reasonably to cooperate with Landlord and the Utility Service Providers and at all times as reasonably necessary, and on reasonable advance notice, shall allow Landlord and the Utility Service Providers reasonable access to any utility lines, equipment, feeders, risers, fixtures, wiring and any other such machinery or personal property within the Premises and associated with the delivery of Utility Services to the Premises. If the Premises are not separately metered as to any Utility Services, Landlord reserves the right, at any time during the Term, to install a monitor or check meter to measure Tenants consumption of any such Utility Services, in which event Landlord shall calculate the applicable Utility Services based on Tenants actual usage thereof, rather than as otherwise provided herein.
6.02 | Landlord Services. |
(a) Landlord agrees to furnish reasonable heat and air conditioning (HVAC) to the Level 500 Space using base Building HVAC equipment (Tenant acknowledging that the Level 400 Space is provided HVAC service exclusively by Tenants Supplemental HVAC and the separately metered Utility Services serving same) and to common hallways and lavatories, if any, during normal business
17
Execution
hours on regular business days during the heating or air conditioning season, as applicable, to provide the electric lines, feeders, risers, junction boxes, wiring, and other electrical equipment, machinery and facilities now or hereafter located within the Building for the purpose of providing electrical service to the Premises or the Building twenty-four (24) hours a day, to light common passageways twenty-four (24) hours a day, to provide hot water to common lavatories, and to clean common areas, common area glass, common lavatories and glass main entry doorways to the Premises Mondays through Fridays, in substantially the same fashion as is typical for comparable first class life science buildings in the Lexington, Waltham, Burlington and Bedford, Massachusetts area, subject to interruption due to accident, to the making of repairs, alterations or improvements, to labor difficulties, to trouble in obtaining fuel, electricity, service or supplies from the sources from which they are usually obtained for such Building, governmental restraints, or to any cause beyond the Landlords control. In no event shall Landlord be liable for any interruption or delay in any of the above services for any of such causes. For the purposes of this clause, normal business hours shall be between the hours of 8:00 am. to 6:00 p.m. Monday through Friday and 8:00 a.m. to 12:00 p.m. on Saturday (holidays excepted). If Tenant requests Landlord to provide additional heat or air conditioning outside of such hours, Tenant shall pay therefor (within thirty (30) days after billing) at standard and reasonable rates established by Landlord from time to time to approximate that actual cost therefor.
(b) Tenant shall have the right as part of the Initial Tenant Improvements (as defined below) to install supplemental HVAC equipment exclusively serving the Premises ( Tenants Supplemental HVAC ) subject to the terms and conditions of this Lease, including, but not limited to, Section 10.06 and Exhibits C and E . Tenants Supplemental HVAC shall be installed at a location or locations shown on Exhibit O attached hereto. Prior to installing, removing or replacing Tenants Supplemental HVAC, Tenant shall submit to Landlord plans and specifications for the installation thereof, prepared by a licensed engineer reasonably satisfactory to Landlord (the Plans ). The Plans shall be reasonably satisfactory to Landlord, and shall show the location of the installations of Tenants Supplemental HVAC and all related components, the location and type of all piping, conduit, wiring and ducting, the manner in which same will be placed on and fastened on or about the Building, number, type, size and sealing of any roof penetrations, and any other information requested by Landlord, in Landlords good faith discretion. Landlord shall have the right to reasonably require that the Tenants Supplemental HVAC not be visible from any location on the ground and/or that the all such equipment be screened in a manner reasonably satisfactory to Landlord. Landlord shall have the right to employ an engineer or other consultant to review the Plans and the reasonable, actual cost of such engineer or consultant shall be paid by Tenant to Landlord within thirty (30) days after request therefor. After Landlord has approved the Plans and prior to installing the Tenants Supplemental HVAC and any related wiring, conduit, piping, ducting, control equipment, cabling, etc., Tenant shall obtain and provide to Landlord: (a) all required governmental and quasi-governmental permits, licenses, special zoning variances and authorizations, as required by applicable Legal Requirements (as defined below), all of which Tenant shall obtain at its own cost and expense; and (b) a policy or certificate of insurance evidencing the insurance coverage required by Landlord pursuant to this Lease. Any alteration or modification of Tenants Supplemental HVAC or any associated piping, conduit, wiring, or cabling after the Plans have been approved shall require Landlords prior written approval, which shall not be unreasonably withheld, conditioned or delayed.
(c) Notwithstanding the foregoing, Tenant shall be entitled to a proportionate and equitable abatement of Rent in the event of a Landlord Service Interruption (as defined below). For the purposes hereof, a Landlord Service Interruption shall occur in the event (i) the Premises shall lack any service
18
Execution
which Landlord is required to provide under this Section thereby rendering the Premises (or the entire Level 500 Space or the entire Level 400 Space) untenantable (or the actions of Landlord or any of its agents, contractors or employees render the same untenantable) for the entirety of the Landlord Service Interruption Cure Period (as defined below), (ii) such lack of service was not caused by Tenant, its employees, contractors, invitees or agents; (iii) Tenant in fact ceases to use the entire Premises (or the entire Level 500 Space or the entire Level 400 Space, as applicable) for the entirety of the Landlord Service Interruption Cure Period; and (iii) such lack of service was the result of causes, events or circumstances within the Landlords reasonable control and the cure of such interruption is within Landlords reasonable control. For the purposes hereof, the Landlord Service Interruption Cure Period shall be defined as seven (7) consecutive business days after Landlords receipt of written notice from Tenant of the Landlord Service Interruption.
6.03 Excess Usage by Tenant. Tenant shall not introduce to the Premises personnel, fixtures or equipment which (individually or in the aggregate) materially exceed those used by the average Building tenant or overload the capacity of the electrical, heating, ventilating and air conditioning, mechanical, plumbing or other utility systems serving the Premises or generate materially above average heat, noise or vibration at the Premises. If Tenant uses the Premises or installs fixtures or equipment in such a manner as would so overload said systems, as reasonably determined by Landlord, then, in addition to any other remedies Landlord may have, Tenant shall pay, as additional rent, within ten (10) days of billing therefor, the reasonable and actual cost of providing and installing any additional equipment, facilities or services that may be required as a result thereof, and for any repairs or damage resulting therefrom.
ARTICLE 7: INSURANCE
7.01 Coverages. Tenant shall, at its own expense, maintain and keep in force throughout the term of this Lease and/or alteration or construction period and for such longer period, if any, Tenant remains in occupancy of the Premises, the following insurance coverages:
(a) Property Insurance . All-Risk or Special Form property insurance, and/or Builders Risk coverage for renovation projects, including, without limitation, coverage for fire; boiler and machinery (if applicable); sprinkler damage; vandalism; malicious mischief coverage on all Tenant Property located on or in the Premises; business interruption; and extra expense. Such insurance shall be in an amount equal to the full insurable value, with commercially reasonable deductibles (as provided below) of the aggregate of the foregoing and shall provide coverage comparable to the coverage in the standard ISO All-Risk or Special Form, when such coverage is supplemented with the coverages required above. Property policy shall also include coverage for plate glass, where required by written contract.
(b) Liability Insurance . Commercial General Liability insurance against any and all claims for personal injury, death or property damage occurring in, or about the Premises and arising out of Tenants operations in the Premises, or Tenants agents, invitees, sublessees use or occupancy of the Premises. Such insurance shall have a limit of not less than One Million Dollars ($1,000,000) per occurrence with a Two Million Dollar ($2,000,000) aggregate limit. Such insurance shall contain an extended (broad form) liability endorsement, including contractual liability coverage (including this Lease, and Tenants indemnity obligations hereunder). Such liability insurance shall be primary and not contributing to any insurance available to Landlord, and
19
Execution
Landlords insurance (if any) shall be in excess thereto. Tenants commercial general liability insurance policy shall include Landlord, Landlords Management Agent, Landlords mortgagees and Landlords designees as additional insureds, and shall provide that such parties may, although additional insureds, recover for any loss suffered by Tenants negligence.
(c) Umbrella / Excess Liability Insurance . The foregoing liability limits shall be adequate as long as Tenant maintains an umbrella policy limit of not less than Three Million Dollars ($3,000,000) per occurrence. Should Tenant not maintain an umbrella policy with such limits, then the limits of the underlying Commercial General Liability policy shall be increased to Two Million Dollars ($2,000,000) per occurrence and Four Million Dollars ($4,000,000) aggregate.
(d) Other . Such other insurance as Landlord may reasonably require, from time to time, provided that such amounts or coverages are reasonably comparable to amounts or coverages required by landlords and carried by tenants of comparable first class life science buildings in the Lexington, Waltham, Burlington and Bedford, Massachusetts area and as may be required by law, including, without limitation (i) workers compensation insurance with a limit of liability as required by law to be maintained; and (ii) employers liability insurance with a minimum limit of coverage of One Million Dollars ($1,000,000).
(e) Form of the Policies . Tenant shall have the right to provide insurance coverage which it is obligated to carry pursuant to the terms hereof in a blanket policy, provided such policy expressly affords coverage to the Premises and to Landlord as required by this Lease.
(f) Failure by Tenant to Obtain Insurance . If Tenant does not procure the insurance required pursuant to this Section, or keep the same in full force and effect, Landlord may, but shall not be obligated to, take out the necessary insurance and pay the premium therefor after notice thereof to Tenant, and Tenant shall repay to Landlord, as additional rent, the amount so paid promptly upon demand. In addition, Landlord may recover from Tenant, as additional rent, any and all reasonable out of pocket expenses (including attorneys fees) and damages which Landlord may sustain by reason of the failure by Tenant to obtain and maintain such insurance, it being expressly declared that the expenses and damages of Landlord shall not be limited to the amount of the premiums thereon.
(g) Contractor Insurance . Tenant shall cause all contractors and subcontractors to maintain during any period of Tenant Work (including the Initial Tenant Improvements) the insurance described on Exhibit D attached hereto.
(h) Deductibles . Tenants insurance policies may include only commercially reasonable deductibles; provided, that if any of the above insurances have deductibles or self insured retentions, the Tenant and/or contractor (policy Named Insured) shall be responsible for the deductible amount if and to the extent Tenant would otherwise be liable for the subject loss.
(i) General Requirements . All of the insurance policies required in this Section ( Insurance Requirements ) shall be written by insurance companies which are licensed to do business in the state where the Property is located, or obtained through a duly authorized surplus lines insurance agent or otherwise in conformity with the laws of such state, with an A.M. Best rating of at least A and a financial size category of not less than VII. The liability policy(ies) shall name, as additional insureds, Landlord, Landlords Management Agent, Landlords mortgagees and
20
Execution
Landlords designees, and provide thirty (30) days notice of cancellation, non-renewal, or material change in the terms and conditions of coverage. Tenant shall provide Landlord with certificates of insurance upon request, prior to move-in date, prior to commencement of the Tenant/contractor work, or within thirty (30) days of coverage inception and subsequent renewals or rewrites/replacements of any cancelled/non-renewed policies.
7.02 Avoid Action Increasing Rates. Tenant shall comply with Sections 9.01, 9.02, 9.03 and 9.04 and in addition shall not, directly or indirectly, use the Premises in any way that is prohibited by law or dangerous to people or property or that may jeopardize or increase the cost of any insurance coverage or require additional insurance. Tenant shall pay the cost of any increased or additional insurance. Tenant shall reimburse Landlord for all of Landlords costs incurred in providing any insurance that is attributable to any special endorsement or increase in premium resulting from the business or operations of Tenant, and any special or extraordinary risks or hazards resulting therefrom, including, without limitation, any risks or hazards associated with the generation, storage and disposal of Environmental Substances.
7.03 Waiver of Subrogation. Landlord and Tenant each waive any and every claim for recovery from the other for any and all loss of or damage to the Property or any part of it, or to any of its contents, which loss or damage is covered by valid and collectible property insurance. Landlord waives any and every such claim against Tenant that would typically be covered by the standard ISO All-Risk or Special Form property insurance policy. Tenant waives any and every such claim against Landlord that would typically be covered by the standard ISO All-Risk or Special Form property insurance policy. This mutual waiver precludes the assignment of any such claim by subrogation (or otherwise) to an insurance company (or any other person), and Landlord and Tenant each agree to give written notice of this waiver to each insurance company that has issued or shall issue any property insurance policy to it, and to have the policy properly endorsed, if necessary, to prevent invalidation of the insurance coverage because of this waiver.
7.04 Landlords Insurance. Landlord shall purchase and maintain during the Term with insurance companies qualified to do business in the state where the Property is located insurance that shall include the following: (i) commercial general liability insurance for incidents occurring in the common areas, with coverage for premises/operations, personal and advertising injury, products/completed operations and contractual liability for bodily injury and property damage per occurrence, together with such other coverages and risks and in such amounts as Landlord shall reasonably decide or a mortgagee may require; (ii) property insurance covering property damage to the Building, including the Initial Tenant Improvements and any other Tenant Work (in the nature of leasehold improvements to which Landlord has consented or was notified, as required herein), and loss of rental income, for full replacement cost value of the Building with commercially reasonable deductibles as Landlord may elect in its reasonable discretion and with co-insurance waived by inclusion of an agreed amount endorsement; and (iii) such other coverage(s) and in such amounts as may be required by Landlords mortgagee or otherwise be deemed commercially reasonable by Landlord. As set forth in Section 4.02, the cost thereof shall be borne by Tenant and other tenants.
21
Execution
ARTICLE 8: OPERATING EXPENSES
8.01 Operating Expenses.
(a) Operating Expenses shall mean all costs and expenses incurred by, or fairly attributable to Landlord in connection with the ownership, operation, management, maintenance and repair of the Building and Property and of all base Building heating, ventilating, air conditioning (excluding Tenants Supplemental HVAC), plumbing, electrical, utility, elevator, safety and other systems of the Building. Common Elements shall mean all areas in the Building available for the common use of tenants of the Building and not leased or held for the exclusive use of Tenant or other tenants, including, but not limited to, the common cafe and common parking areas, driveways, sidewalks, access roads, plazas, landscaping and planted areas located in the Building or on the Property. Operating Expenses include, without limitation, the costs and expenses incurred in connection with the following: compliance with Landlords obligations under Section 10.03; planting and landscaping; snow plowing and removal; utility, water and sewage services; maintenance of signs; supplies, materials and equipment purchased or rented, total wage and salary costs paid to, and all contract payments made on account of, all persons at or below the level of General Manager (or such other appropriate title(s)) engaged in the management, operation, maintenance, security, cleaning and repair of the Property and Common Elements, including Social Security, old age and unemployment taxes and so-called fringe benefits; services generally furnished to tenants of the Building; maintenance, repair and replacement (as and to the extent limited by Subsection (b) below) of Building and Common Elements equipment and components; utilities consumed and expenses incurred in the operation, maintenance and repair of the Property and Common Elements; costs incurred under any reciprocal easement agreements benefiting the Property; costs incurred by Landlord to comply with the terms and conditions of any governmental approvals affecting operations of the Property; the amortized portion, properly attributable to the year in question, of the cost, with interest thereon at a rate reasonably determined by Landlord, of any capital repairs, improvements or replacements made to the Property, by Landlord (as and to the extent limited by Subsection (b) below); premiums for workers compensation insurance and property, liability and other insurance required or permitted to be maintained by Landlord hereunder; personal property taxes; rental or lease payments paid by Landlord for rented or leased personal property used in the operation or maintenance of the Property and Common Elements; fees for required licenses and permits; routine maintenance and repair of parking areas (including sweeping, striping, repairing, resurfacing, patching, but not repaving) (as and to the extent limited by Subsection (b) below); refuse removal; security; and management fees (reasonably consistent with fees charged by third-party property managers providing reasonably comparable services in the metropolitan Boston market for reasonably comparable projects; Tenant acknowledging that a management fee of 4.5% of gross rents on the Building for management by an affiliate of Landlord complies with the foregoing. Operating Expenses shall also include the Buildings share (as reasonably determined and allocated by Landlord) of: (i) the costs incurred by Landlord in operating, maintaining, repairing, insuring and paying real estate taxes upon any common facilities of the office park or development (including, without limitation, the common facilities from time to time serving the Building in common with other buildings or parcels of land) of which the Property may be a part, from time to time, such as any so-called loop access roads, retention ponds, sewer and other utility lines, amenities and the like; (ii) shuttle bus service (if and so long as Landlord shall provide the same); (iii) the actual or imputed cost of the space occupied by on-the-grounds building attendant(s) and related personnel and the cost of management and or service personnel whose duties are not limited solely to the Building, as fairly allocable to the Building by Landlord; and (iv) payments made by Landlord under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the payment or sharing of costs among park or development property owners to the extent such costs would be fairly considered Operating Expenses hereunder if incurred solely for the
22
Execution
benefit of the Property. Landlord may use third parties or affiliates to perform any of the foregoing services, and the cost thereof shall be included in Operating Expenses. Costs referred to in this Section shall be ascertained in accordance with generally accepted accounting principles and allocated to appropriate fiscal periods on the accrual method of accounting.
(b) Operating Expenses shall not include: (1) the cost of casualty repairs to the extent covered by insurance (except for reasonable deductibles paid by Landlord under insurance policies maintained by Landlord); (2) costs associated with the operation of the business of Landlord and/or the sale and/or financing of the Building, as distinguished from the cost of Building operations, management, maintenance and repair; (3) costs of disputes between Landlord and its employees, tenants or contractors; (4) cost of alterations, capital improvements, equipment replacement and other items which under generally accepted accounting principles are properly classified as capital expenditures except for capital expenditures (i) that are reasonably anticipated to result in a reduction in (or minimize increases in) Operating Expenses, (ii) that are required to comply with future mandatory conservation programs, or (iii) that are required under any governmental law or regulation enacted after or coming into general applicability after the date of this Lease (except as set forth in Subsection (10) below), in each instance amortized over the reasonable anticipated useful life of such expenditure in accordance with generally accepted accounting principles, consistently applied (except that such amortization for expenditures under (i) above shall be limited to the reasonably anticipated savings in Operating Expenses in each year); (5) expenses for any item or service not provided to Tenant but to certain other specific tenant(s) in the Building, or which tenant(s) pay(s) directly to a third party or separately pay(s) to Landlord; (6) expenses incurred by Landlord to resolve disputes, enforce or negotiate lease terms with prospective or existing tenants; (7) expenses incurred by Landlord to lease space to new tenants or to retain existing tenants including leasing commissions, advertising and promotional expenditures, and prepare, renovate, repaint, redecorate or perform any other work in any space leased to an existing or prospective tenant or other occupant of the Building; (8) penalties, fines and other costs incurred due to violation by the Landlord of any lease or any laws, rules, regulations or ordinances applicable to the Building or attributable to Landlords gross negligence or willful misconduct, and any interest or penalties due for late payment by Landlord of any of the Operating Expenses; (9) depreciation and amortization, except on equipment, materials, tools and supplies purchased by Landlord to enable Landlord to supply services Landlord might otherwise contract for with a third party where such depreciation and amortization would otherwise have been included in the charge for such third partys services, all as determined in accordance with generally accepted accounting principles, consistently applied, and when depreciation or amortization is permitted or required, the item shall be amortized over its reasonably anticipated useful life; (10) costs or expenses incurred by Landlord in connection with remedying the violation or lack of compliance with any Legal Requirements relating to the Building or the Property in force or applicable as of the date of this Lease including without limitation the Americans With Disabilities Act and any Environmental Laws (as defined below); (11) any payments under any ground or underlying lease or other easement, license, operating agreement, declaration, restrictive covenant or other instrument applicable to the Property, except to the extent the same would constitute Operating Expenses hereunder if paid directly by Landlord; (12) bad debt expenses and principal, points and fees on debts or amortization or interest on any mortgage or other debt instrument; (13) expenses in connection with services or other benefits that are not offered to Tenant or for which Tenant is charged directly; (14) judgments against Landlord or the Building and costs relating to (a) disputes with third parties including Tenant, tenants, prospective tenants or other occupants of the Building, (b) disputes with purchasers, prospective purchasers, mortgagees or prospective mortgagees of the
23
Execution
Building or the Building or (c) negotiations of leases, contracts of sale or mortgages; (15) costs that are reimbursed under any service contract, warranty, out of insurance or condemnation proceeds or by Tenant or other tenants (other than pursuant to an expense escalation or payment clause) or any third party; (16) appraisal, marketing, advertising and promotional expenses; (17) costs incurred in connection with the survey, testing, removal, encapsulation, remediation or other treatment of asbestos or any other Hazardous Substances at the Building or elsewhere; (18) electricity to any leaseable area of the Building (as opposed to common areas); (19) the cost of any tap fees or one time lump sum sewer or water connection fees for the Building; (20) Landlords general corporate overhead and general and administrative expenses (not fairly allocable to the operation or management of the Property); (19) legal fees and accounting costs (not fairly allocable to the operation or management of the Property); (20) acquisition costs for sculpture, paintings and other art objects costing in excess of comparable amounts spent for such items in office buildings of comparable quality in the competitive area of the Building not owned by Landlord or its affiliates; (21) costs, salary and other compensation paid for any employee of Landlord who is not assigned on a full-time basis to the operation, management, maintenance or repair of the Building, except to the extent an allocation is made on a reasonable and consistent basis that fairly reflects the proportion of such employees employment time that is attributable to the Building; and (22) increased insurance premiums caused by Landlord or any other tenant bringing any Hazardous Substances (other than normal office, laboratory and Building operation materials) to the Building.
(c) Tenant shall pay Tenants Pro Rata Share of Operating Expenses in accordance with Section 4.02.
(d) Operating Expenses must be directly attributable to the operation, maintenance, management and repair of the Building and Property as determined under generally accepted accounting principles consistently applied. Landlord shall not collect in excess of one hundred percent (100%) of Operating Expenses or any item of cost more than once. The Operating Expenses shall be fairly and accurately calculated by Landlord.
(e) Landlord shall permit Tenant, at Tenants expense and during normal business hours, but only one time with respect to any fiscal year, to review Landlords invoices and statements relating to the Operating Expenses for the applicable fiscal year for the purpose of verifying the Operating Expenses and Tenants share thereof; provided that notice of Tenants desire to so review is given to Landlord not later than sixty (60) days after Tenant receives an annual statement from Landlord, and provided that such review is thereafter commenced and prosecuted by Tenant with due diligence. Any Operating Expenses statement or accounting by Landlord shall be binding and conclusive upon Tenant unless (i) Tenant duly requests such review within such sixty (60)-day period, and (ii) within three (3) months after such review request, Tenant shall notify Landlord in writing that Tenant disputes the correctness of such statement, specifying the particular respects in which the statement is claimed to be incorrect. Tenant shall have no right to conduct a review or to give Landlord notice that it desires to conduct a review at any time there is an uncured Event of Default under the Lease. The accountant conducting the review shall be compensated on an hourly basis and shall not be compensated based upon a percentage of overcharges it discovers. No subtenant shall have any right to conduct a review, and no assignee shall conduct a review for any period during which such assignee was not in possession of the Premises. Tenant agrees that the results of any Operating Expense review shall be kept strictly confidential by Tenant and shall not be disclosed to any other person or entity except as may be reasonably required to enable Tenant to
24
Execution
recover any overcharges discovered by Tenant. If, absent a good faith dispute between the parties, such review shall conclusively determine that Landlords determination of Operating Expenses was (x) overstated, or (y) understated, then in the case of (x) Landlord shall credit the difference against monthly installments of Rent next thereafter coming due (or refund the difference if the Lease Term has ended and Tenant has no further obligation to Landlord), or in the case of (y) Tenant shall pay to Landlord the amount of such excess. In the event of any such overstatement (or understatement) Tenant (and Landlord) shall have the right if exercised within fifteen (15) days of notice of such overstatement or understatement to review the prior two (2) years for any such category containing such overstatement or understatement for re-calculation of same in accordance with the terms hereof. The cost of each such review shall be borne by Tenant unless two (2) such reviews for consecutive Operating Years conclusively determine that Landlords determination of Operating Expenses were overstated for each such Operating Year by more than five percent (5%) in the aggregate (for each Operating Year) in which event the reasonable cost for such reviews shall be borne by Landlord. Tenant shall provide Landlord with a true and complete copy of any written report, conclusion or statement prepared by the accountant conducting the review.
ARTICLE 9: USE OF PREMISES
9.01 Permitted Uses. Tenant may use the Premises only for the Permitted Uses described in Article 1, and for no other purpose(s). Tenant shall keep the Premises equipped with appropriate safety appliances to the extent required by applicable laws or insurance requirements for its particular and specific manner of use(s).
9.02 Indemnification. To the maximum extent this agreement may be made effective according to law, Tenant is responsible for the Premises and any Tenants improvements, equipment, facilities and installations, wherever located on the Property and all liabilities, including, without limitation, tort liabilities, incident thereto. To the maximum extent this agreement may be made effective according to law, Tenant shall indemnify, save harmless and defend Landlord and Landlords members, managers, officers, mortgagees, agents, employees, independent contractors, invitees, Landlords Managing Agent and other persons acting under them (collectively, Indemnitees ) from and against all liability, claim, damage or cost (including reasonable attorneys fees) arising in whole or in part out of (i) any act, omission or negligence of Tenant, or Tenants contractors, licensees, invitees, agents, servants, employees, successors or assigns ( Tenants Agents ); or (ii) any accident, injury, damage or loss whatsoever caused to any person or property during the Term, and thereafter, so long as Tenant is in occupancy of any part of the Premises, and occurring in the Premises, or arising out of the use and occupancy of the Premises by Tenant and Tenants Agents; or (iii) any accident, injury, damage or loss occurring outside of the Premises, where such accident, injury, damage or loss results or is claimed to have resulted from the act, omission or negligence of Tenant or Tenants Agents, in each case paying any cost to Landlord on demand as Additional Rent. Notwithstanding the foregoing, in no event shall Tenant have any liability to indemnify Landlord or any of the Indemnitees under this Section 9.02 for any liability, claim, damage or cost to the extent caused in whole or in part by the negligence, willful misconduct or breach of this Lease on the part of Landlord or any of the Indemnitees, but the foregoing shall not be deemed to be a release of Tenant with respect to any liability of Tenant to any third party independent of this Section 9.02. The provisions of this Section shall survive the expiration or earlier termination of this Lease.
25
Execution
9.03 Compliance With Legal Requirements. Tenant shall not cause or permit the Premises, nor cause the Property or the Building, to be used in any way that violates any law, code, ordinance, restrictive covenant, encumbrance, governmental regulation, order, permit, approval, variance, covenants or restrictions which are of record as of the date hereof, or any provision of the Lease (each a Legal Requirement ), materially annoys or interferes with the rights of tenants of the Building, or constitutes a nuisance or waste. Tenant shall obtain, maintain and pay for all permits and approvals and shall promptly take all actions necessary to comply with all Legal Requirements, including, without limitation, the Occupational Safety and Health Act, applicable to Tenants particular use of the Premises, the Property or the Building, as opposed to general office uses or the common areas for which Landlord shall be responsible, subject to reimbursement through Operating Expenses as and to the extent provided in this Lease. Notwithstanding anything to the contrary contained herein, but subject to reimbursement through Operating Expenses as and to the extent provided in this Lease, Tenant shall not be responsible for ensuring the Premises complies with law when (a) such Legal Requirements are imposed on a Building-wide basis and do not relate to Tenants particular manner of use of the Premises, the Property or the Building, (b) a notice of violation or order was issued prior to the date Tenant is given possession of the Premises, and (c) such Legal Requirements require investigating, certifying, monitoring, encapsulating, removing or in any way dealing with asbestos or Environmental Substances (as hereinafter defined) unless such asbestos or Environmental Substances were introduced by Tenant. Tenant shall maintain in full force and effect all certifications or permissions to provide its services required by any authority having jurisdiction to authorize, franchise or regulate such services. Tenant shall be solely responsible for procuring and complying at all times with any and all necessary permits and approvals directly or indirectly relating or incident to: the conduct of its activities in the Premises; its scientific experimentation, transportation, storage, handling, use and disposal of any chemical or radioactive or bacteriological or pathological substances or organisms or other hazardous wastes or environmentally dangerous substances or materials or medical waste or animals or laboratory specimens. Within ten (10) days of a request by Landlord, which request shall be made not more than once during each period of twelve (12) consecutive months during the Term hereof, unless otherwise requested by any mortgagee of Landlord, Tenant shall furnish Landlord with copies of all such permits and approvals that Tenant possesses or has obtained together with a certificate certifying that such permits are all of the permits that Tenant possesses or has obtained with respect to the Premises. Tenant shall promptly give written notice to Landlord of any notices in the nature of warnings or violations relative to the above received from any federal, state or municipal agency or by any court of law and shall promptly cure the conditions causing any such violations. Tenant shall not be deemed to be in default of its obligations under the preceding sentence to promptly cure any condition causing any such violation in the event that, in lieu of such cure, Tenant shall contest the validity of such violation by appellate or other proceedings permitted under applicable law, provided that: (i) any such contest is made reasonably and in good faith, (ii) Tenant makes provisions, including, without limitation, providing such security, potentially including bond(s), as may be reasonably required by Landlord to protect Landlord, the Building and the Property from any liability, costs, damages or expenses arising in connection with such violation and failure to cure, (iii) Tenant shall agree to indemnify, defend (with counsel reasonably acceptable to Landlord) and hold Landlord harmless from and against any and all liability, costs, damages, or expenses to the extent arising as a result of such condition and/or violation, (iv) Tenant shall promptly cure any violation in the event that its appeal of such violation is overruled or rejected, and (v) Tenants decision to delay such cure shall not, in Landlords good faith determination, be likely to result in any actual or threatened bodily injury, property damage, or any civil or criminal liability to Landlord, any tenant or occupant of the Building or the Property, or any other person or entity.
26
Execution
9.04 Environmental Substances. Environmental Law(s) means all statutes, laws, rules, regulations, codes, ordinances, standards, guidelines, authorizations and orders of federal, state and local public authorities pertaining to any of the Environmental Substances or to environmental compliance, contamination, cleanup or disclosures of any release or threat of release to the environment, of any hazardous, biological, chemical, radioactive or toxic substances, wastes or materials, any pollutants or contaminants that are included under or regulated by any municipal, county, state or federal statutes, laws, rules, regulations, codes, ordinances, standards, guidelines, authorizations or orders, including, without limitation, the Toxic Substances Control Act, 15 U.S.C. § 2601, et seq .; the Clean Water Act, 33 U.S.C. § 1251, et seq .; the Clean Air Act, 42 U.S.C. § 7401, et seq .; the Safe Drinking Water Act, 42 U.S.C. § 300f-300j, et seq .; the Federal Water Pollution Control Act, 33 U.S.C. § 1321, et seq .; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq .; the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq .; the Massachusetts Hazardous Waste Management Act, as amended, M.G.L. Chapter 21C, and the Massachusetts Oil and Hazardous Material Release Prevention Act, as amended, M.G.L., Chapter 21E, as any of the same are from time to time amended, and the rules and regulations promulgated thereunder, and any judicial or administrative interpretation thereof, including any judicial or administrative orders or judgments, and all other federal, state and local statutes, laws, rules, regulations, codes, ordinances, standards, guidelines, authorizations and orders regulating the generation, storage, containment or disposal of any Environmental Substances, including, but not limited to, those relating to lead paint, radon gas, asbestos, storage and disposal of oil, biological, chemical, radioactive and hazardous wastes, substances and materials, and underground and above ground oil storage tanks; and any amendments, modifications or supplements of any of the foregoing.
Environmental Substances means, but shall not be limited to, any hazardous substances, hazardous waste, environmental, biological, chemical, radioactive substances, oil, petroleum products and any waste or substance, which because of its quantitative concentration, chemical, biological, radioactive, flammable, explosive, infectious or other characteristics, constitutes or may reasonably be expected to constitute or contribute to a danger or hazard to public health, safety or welfare or to the environment, or that would trigger any employee or community right-to-know requirements adopted by any federal, state or local governing or regulatory body, or for which any such body has adopted any requirements for the preparation or distribution of a materials safety data sheet ( MSDS ), including, without limitation, any asbestos (whether or not friable) and any asbestos-containing materials, lead paint, waste oils, solvents and chlorinated oils, polychlorinated biphenyls (PCBs), toxic metals, etchants, pickling and plating wastes, explosives, reactive metals and compounds, pesticides, herbicides, radon gas, urea formaldehyde foam insulation and chemical, biological and radioactive wastes, or any other similar materials that are mentioned under or regulated by any Environmental Law; and the regulations adopted under these acts, and including any other products or materials subsequently found by an authority of competent jurisdiction to have adverse effects on the environment or the health and safety of persons.
Tenant shall neither cause or permit any Environmental Substances to be generated, produced, brought upon, used, stored, treated or disposed of in or about or on the Building by Tenant, nor permit or suffer persons acting under Tenant, to do the same, whether with or without negligence, without (i) first (or contemporaneously) providing Landlord with the MSDS for such Environmental Substances, and (ii) complying with all applicable Environmental Laws and Legal Requirements pertaining to the transportation, storage, use or disposal of such Environmental Substances, including obtaining and
27
Execution
maintaining, and promptly providing Landlord with copies of, proper permits and approvals and filings therefor. Landlord consents to the installation of an exterior free standing facility for the storage of Environmental Substances to be constructed, used, operated, maintained, secured and removed, at Tenants sole risk, cost and expense, at a mutually satisfactory location; Tenant acknowledging and agreeing that the construction, maintenance, use, operation and security of such facility shall be in full compliance with the terms and conditions of all applicable Legal Requirements and this Lease including but not limited to this Section 9.04 and Section 10.6. From time to time at Landlords request, Tenant shall execute affidavits, representations and the like based on Tenants best knowledge and belief, after due inquiry, regarding the presence or absence of Environmental Substances in, on or about the Premises, the Property or the Building as a result of the activities of Tenant or Tenants Agents. Tenant agrees to pay the cost of any environmental inspection or assessment requested by any lender that holds a security interest in the Property or this Lease, or by any insurance carrier, to the extent that such inspection or assessment is reasonably required as a result of a credible report of any release, threat of release, contamination, claim of contamination, loss or damage or determination of condition in the Premises as a result of the activities of Tenant or Tenants Agents or Tenants breach of this Section 9.04. In addition, at Landlords reasonable request, Tenant shall promptly provide to Landlord all MSDSs for products used by Tenant (or Tenants Agents) within the Premises. Landlord agrees to use commercially reasonable efforts to keep all such information relating to Tenants Environmental Substances (and use thereof) confidential, other than as may be required by applicable Legal Requirements, or by current and prospective environmental health and safety consultants, lenders, investors and purchasers of the Building and other relevant persons, or to ensure the necessary and appropriate safety precautions on or about the Premises.
If any transportation, storage, use or disposal of Environmental Substances on or about the Property or Building by Tenant, its agents, employees, independent contractors, or invitees results in any escape, release, threat of release of the same in a manner that could require disclosure or response actions pursuant to applicable Environmental Laws, or could result in any contamination of the soil, surface or ground water, sewage system or indoor ambient air or any loss or damage to person or property, Tenant agrees to: (a) notify Landlord immediately of the occurrence; (b) after consultation with Landlord, but subject to Tenants right to contest as set forth in Section 9.03, clean up the occurrence in full compliance with all applicable Environmental Laws; and (c) indemnify, defend and hold Landlord, and the Indemnitees harmless from and against any claims, suits, causes of action, costs and fees, including reasonable attorneys fees and costs, arising from or connected with any such occurrence including but not limited to the prompt payment, when due, of any fine or assessment against Landlord, Tenant, the Premises or Property relating to such occurrence. In the event of such occurrence, Tenant agrees to cooperate fully with Landlord and provide such documents, affidavits, information and actions as may be reasonably requested by Landlord. In the event of any such occurrence as a result of the activities of Tenant or Tenants Agents or Tenants breach of this Section 9.04 that is required to be reported to a governmental authority under any Environmental Law or Legal Requirement, Tenant shall simultaneously deliver to Landlord copies of any notices given or received by Tenant.
Subject to Landlords Work and with the understanding that Landlord has made no recent environmental site assessment or inspection of the Premises or Property, Landlord warrants and represents to Tenant that, as of the date hereof, it has no knowledge of any Hazardous Substances in or on the Premises or the Property in violation of, or require any disclosure or response action under, any applicable Environmental Laws as of the date hereof and Landlord agrees to indemnify Tenant from
28
Execution
and against any actual, direct damages (including reasonable attorneys fees) actually incurred by Tenant as a direct result of the breach of the foregoing warranty and representation. In the event Environmental Substances are discovered on or about the Property and the presence of same materially adversely affects Tenants use or occupancy of the Premises as provided in this Lease, Landlord shall remediate same to the extent required by and in compliance with applicable Environmental Laws; provided, however, Landlords obligation hereunder shall not apply to any Environmental Substances discovered on or about the Property as a result of the activities of Tenant or Tenants Agents or Tenants breach of this Section 9.04.
9.05 Signs and Auctions . No sign, antenna or other structure or thing, shall be erected or placed by Tenant on any part of the exterior of the Building or erected in the Premises so as to be visible from the exterior of the Building without first securing the written consent of the Landlord, not to be unreasonably withheld, conditioned or delayed. Tenant shall not conduct or permit any auctions or sheriffs sales at the Property. Landlord, at Landlords cost, shall provide Tenant (a) one (1) suite entry sign and (b) identification on existing multi-tenant signs or directories at the entrance to Building C and in the parking garage and on other existing or future Property directory/way-finding signage, as appropriate. Such signs will be mutually agreed upon by Landlord and Tenant provided that all such signs will be consistent with standard Building signage and will conform to local regulations. Tenant, at its expense, shall have the right to place its corporate name and logo within the Premises and on the entrance doors to the Premises and the right to place a monument sign, subject to Landlords approval as provided above, in the location shown on Exhibit N attached hereto.
9.06 Landlords Access. Landlord or its agents may enter the Premises at reasonable times, accompanied, at Tenants election, by a Tenant representative, to show the Premises to potential buyers, investors, other Landlord parties or, during the last year of the Term of the Lease, to any tenants; to inspect and conduct tests in order to monitor Tenants compliance with Legal Requirements governing Environmental Substances; for purposes described in Sections 2.01, 9.04, 10.03 and/or 10.04(b) and otherwise to exercise its rights and remedies and perform its obligations hereunder. Landlord shall give Tenant prior notice (which may be oral) of such entry. In the event of any such entry, Landlord and its agents shall exercise all commercially reasonable efforts to minimize the nature, extent and duration of any interference with Tenants use and enjoyment of the Premises. However, in case of emergency, Landlord may enter any part of the Premises without prior notice to Tenants representative and shall make reasonable efforts to notify Tenant.
ARTICLE 10: CONDITION AND MAINTENANCE OF PREMISES AND PROPERTY
10.01 Existing Conditions. Subject to Landlords obligation to effect Landlords Work as provided in this Lease and the other terms and conditions of this Lease, Landlord shall deliver and Tenant shall accept the Premises and Property in substantially their as is condition as of the date hereof, free and clear of tenants and occupants and any personal property, and subject to all Legal Requirements. Tenant acknowledges that except for any express representations in this Lease, neither Landlord nor any person acting under Landlord has made any representation as to the condition of the Property or the suitability of the Property for Tenants intended use. Tenant represents and warrants that Tenant has made its own inspection and inquiry regarding the Property and is not relying on any representations of Landlord or any Broker or persons acting under either of them. Subject to Landlords Work and with the understanding that Landlord has made no recent inquiry or inspection in connection herewith, Landlord warrants and represents to Tenant that, as of the date hereof, it has no knowledge of any
29
Execution
violation of any Legal Requirement relating to the Premises or the Property that would prohibit or materially affect Tenants ability to obtain a Certificate of Occupancy (as defined below) for the Premises or a building permit for the Initial Tenant Improvements.
10.02 Exemption and Limitation of Landlords Liability.
(a) Exemption of Landlord from Liability . Landlord shall not be liable for any damage or injury to the person, property or business (including loss of revenue, profits or data) of Tenant, Tenants employees, agents, contractors, or invitees, or any other person on or about the Property or the Building; provided, however, that this Section 10.02(a) shall not exempt Landlord from liability for Landlords negligence or willful misconduct. This exemption shall apply whether such damage or injury is caused by (among other things): (i) fire, steam, electricity, water, gas, sewage, sewer gas or odors, snow, ice, frost or rain; (ii) the breakage, leakage, obstruction or other defects of pipes, faucets, sprinklers, wires, appliances, plumbing, windows, air conditioning or lighting fixtures or any other cause; (iii) any other casualty or any Taking; (iv) theft; (v) conditions in or about Property or the Building or from other sources or places; or (vi) any act or omission of any other tenant.
(b) Limitation On Landlords Liability . Tenant agrees that Landlord shall be liable only for breaches of its covenants occurring while it is owner of the Property (provided, however, that if Landlord from time to time is lessee of the ground or improvements constituting the Building, then Landlords period of ownership of the Property shall be deemed to mean only that period while Landlord holds such leasehold interest). Upon any sale or transfer of the Building, the transferor Landlord (including any mortgagee) shall be freed of any liability or obligation thereafter arising and Tenant shall look solely to the transferee Landlord as aforesaid for satisfaction of such liability or obligation. Tenant and each person acting under Tenant agrees to look solely to Landlords interest from time to time in the Property (including the rents, issues, profits and proceeds thereof and therefrom) for satisfaction of any claim against Landlord. No owner, trustee, beneficiary, partner, member, manager, agent, or employee of Landlord (or of any mortgagee or any lender or ground or improvements lessor) nor any person acting under any of them shall ever be personally or individually liable to Tenant or any person claiming under or through Tenant for or on account of any default by Landlord or failure by Landlord to perform any of its obligations hereunder, or for or on account of any amount or obligations that may be or become due under or in connection with this Lease or the Premises; nor shall it or they ever be answerable or liable beyond the extent of their interest in the Property. No deficit capital account of any member or partner of Landlord shall be deemed to be a liability of such member or partner or an asset of Landlord. Any lien obtained to enforce any judgment against Landlord shall be subject and subordinate to any mortgage encumbering the Property. In no event shall Landlord (or any such persons) ever be liable to Tenant for indirect, special, consequential or punitive damages.
10.03 Landlords Obligations.
(a) Repair and Maintenance . Subject to the provisions of Article 12, and except for damage caused by any act or omission of Tenant or persons acting under Tenant (or as otherwise may be required of Tenant under this Lease), Landlord shall keep the common areas of the Building (including, without limitation, common elevators and common parking areas) and the foundation, roof, Building systems (to the extent not serving the Premises or another tenants premises exclusively, such as, without limitation, Tenants Supplemental HVAC and the Initial Tenant
30
Execution
Improvements, but including the VAV boxes in the office portions of the Premises), structural supports, exterior windows and exterior walls of the Building in good working order, condition and repair reasonable wear and tear and fire or other casualty excepted. Landlord shall not be obligated to maintain or repair any interior windows, doors, plate glass, the surfaces of walls or other fixtures, components or equipment within the Premises, but the same shall be Tenants obligation. Tenant shall promptly report in writing to Landlord any defective condition known to it that Landlord is required to repair. Tenant waives the benefit of any present or future law that provides Tenant the right to repair the Premises or Property at Landlords expense or, except in the case of a judicially determined constructive eviction (beyond applicable appeal periods), to terminate this Lease because of the condition of the Property or Premises. Notwithstanding the fact that Landlord may provide security services at the Property or Building at any time during the Term of this Lease, Tenant, to the maximum extent allowable by law, hereby releases Landlord from any claim for injury to person or damage to property asserted by Tenant or any personnel, employee, guest, invitee or agent of Tenant that is suffered or occurs in or about the Premises or in or about the Building or Property or the common areas appurtenant thereto by reason of the act of any intruder or any other third party in or about the Premises, Building or Property. (For purposes of this Section, the term reasonable wear and tear constitutes that normal, gradual deterioration that occurs due to aging and ordinary use despite reasonable and timely maintenance and repairs or repairs and restoration, as the case may be; in no event shall reasonable wear and tear excuse Landlord from its obligations duty to maintain and/or repair as may be required hereunder.)
10.04 Tenants Obligations.
(a) Repair and Maintenance . Except for work that Section 10.03 or Article 12 requires Landlord to do (or as otherwise may be required of Landlord under this Lease), Tenant at its sole cost and expense shall keep the Premises including, without limitation, all Initial Tenant Improvements, other Tenant Work, Tenant Property, Tenants Supplemental HVAC, make-up air systems, fixtures, systems and equipment now or hereafter in the Premises (excluding the VAV boxes in the office portions of the Premises), or elsewhere exclusively serving the Premises, in good working order (subject to the yield-up provisions of Section 10.07 below), condition and repair, reasonable wear and tear and fire or other casualty excepted; shall keep in a safe, secure and sanitary condition all trash and rubbish temporarily stored at the Premises; and shall make all repairs and replacements and do all other work necessary for the foregoing purposes whether the same may be ordinary or extraordinary, foreseen or unforeseen. The foregoing shall include, without limitation, Tenants obligation to maintain floors and floor coverings, to paint and repair walls and doors, to replace and repair all interior glass and windows, ceiling tiles, lights and light fixtures, pipes, drains and the like in the Premises. In no event shall Tenants obligations to repair the Premises extend to (i) repairs covered under any insurance policy carried solely by Landlord in connection with the Building or the Property; (ii) repairs to the extent necessitated by the negligence or willful misconduct of Landlord or its agents, employees or contractors; or (iii) repairs for which Landlord is responsible hereunder, subject to Section 7.03 above; (iv) repairs required as a result of Landlords failure to make repairs for which it is responsible hereunder, subject to Section 7.03 above; or (v) takings or eminent domain proceedings of governmental authorities. Tenant shall hire its own cleaning contractor for the Premises and shall provide first-class janitorial service in the Premises on each business day during the Term (including daily disposal of trash from trash bins in the Premises). Tenant shall arrange for its own appropriately sized dumpster, and shall locate the same in the vicinity of Tenants loading bay in a location and manner reasonably approved by Landlord. If
31
Execution
applicable, Tenant shall arrange for disposal of its own lab-related refuse by a licensed vendor in accordance with all applicable Legal Requirements. No storage or Environmental Substances shall be permitted outside of the Premises, except as expressly provided in Section 9.04. Storage inside the Premises shall be provided in a manner not visible from outside the Premises. (For purposes of this Section, the term reasonable wear and tear constitutes that normal, gradual deterioration that occurs due to aging and ordinary use despite reasonable and timely maintenance and repairs or repairs and restoration, as the case may be; in no event shall reasonable wear and tear excuse Tenant from its obligations duty to maintain and/or repair as may be required hereunder.)
(b) Landlords Right to Cure . If Tenant does not perform any of its obligations under Section 10.04(a), Landlord upon requisite notice and the expiration of any applicable cure period (or without prior notice or cure periods in the case of an emergency [which shall include but not be limited to acts necessary to prevent civil or criminal liability; to prevent an imminent and material interruption of the conduct of business at the Property; or to prevent risk of imminent injury to persons or damage to property]) may perform such maintenance, repair or replacement on Tenants behalf, and Tenant shall reimburse Landlord for all costs reasonably incurred, immediately upon demand.
10.05 Initial Tenant Improvements; Work Letter.
(a) Except as otherwise expressly provided in this Lease, Tenant perform all work required to prepare the Premises for Tenants use and occupancy including the Initial Tenant Improvements (as that term is defined in the Work Letter attached hereto as Exhibit E ). The Initial Tenant Improvements constructed by Tenant shall be performed in accordance with, and subject to, the terms and conditions of this Lease including but not limited to the provisions of Section 10.06 of this Lease and the Work Letter. Landlord shall not be responsible for any aspects of the design or construction of Initial Tenant Improvements, the correction of any defects therein, or any delays in the completion thereof. Tenant shall use commercially reasonable, diligent efforts to Substantially Complete (as defined in the Work Letter) the Initial Tenant Improvements pursuant to the Work Letter no later than fifteen (15) months after the Delivery Date, subject to Landlords obligation to complete Landlords Work as provided below.
(b) Tenant shall have the right to enter the Premises from and after the Delivery Date for the purpose of constructing the Initial Tenant Improvements and installing its furniture, fixtures, equipment and data communications wiring and cabling. Such early entry shall be subject to all of the terms and conditions of this Lease except for the obligation to pay Rent, and such occupancy shall not change the termination date. Prior to entering the Premises, Tenant shall obtain all insurance it is required to obtain by the Lease and shall provide certificates of said insurance to Landlord. Tenant shall coordinate such entry with Landlords building manager, and such entry shall be made in compliance with all terms and conditions of this Lease and Landlords Rules in effect from time to time.
10.06 Tenant Work.
(a) General . Tenant Work shall mean all work including demolition, improvements, additions and alterations in or to the Premises, including the Initial Tenant Improvements. Without limitation, Tenant Work includes any penetrations in the walls, partitions, ceilings or floors and all attached carpeting, all signs visible from the exterior of the Premises, and any change in the exterior
32
Execution
appearance of the windows in the Premises (including shades, curtains and the like). All Tenant Work shall be subject to Landlords prior written approval (as and to the extent provided herein) and shall be arranged and paid for by Tenant all as provided herein; provided that, with the exception of the Initial Tenant Improvements, any interior, non-structural Tenant Work (including any series of related Tenant Work projects) that (a) costs less than the Tenant Work Threshold Amount (which shall be $50,000.00), (b) does not adversely affect any fire-safety, telecommunications, electrical, mechanical, ventilation or plumbing systems of the Building ( Core Building Systems ), and (c) does not adversely affect or effect any penetrations in or otherwise affect any walls, floors, roofs, or other structural elements of the Building or involve any signs visible from the exterior of the Premises or any change in the exterior appearance of the windows in the Premises (including shades, curtains and the like) shall not require Landlords prior approval if Tenant shall deliver notice of such Tenant Work and the Construction Documents (as defined in Section 10.06(b)) for such work to Landlord at least five (5) business days prior to commencing such work. Whether or not Landlords approval is required, Tenant shall neither propose nor effect any Tenant Work that in Landlords reasonable judgment (i) adversely affects any structural component of the Building, (ii) would be incompatible with the Core Building Systems, (iii) affects the exterior or the exterior appearance of the Building or common areas within or around the Building or other property than the Premises, or (iv) diminishes the value of the Premises. If any proposed Tenant Work, other than standard office or laboratory fit-up, will require any unusual expense to demolish or remove same from the Premises, Landlord may condition its approval or consent thereto on such removal or payment of the incremental costs of such demolition or removal, provided such condition is communicated at the time of such consent (if required to be obtained and so obtained). Prior to commencing any Tenant Work affecting air dispersal from ventilation systems serving the Premises or the Building, including, without limitation, the installation of Tenants exhaust systems, Tenant shall provide Landlord with a third party report from a consultant, and in a form, reasonably acceptable to Landlord, showing that such work will not adversely affect the ventilation systems of the Building (or of any other tenant in the Building) and shall, upon completion of such work, provide Landlord with a certification reasonably satisfactory to Landlord from such consultant confirming that no such adverse effects have resulted from such work. If, as a result of any Tenant Work (excluding therefrom the Initial Tenant Improvements), Landlord is obligated to comply with any Legal Requirements, including, but not limited to, the Americans With Disabilities Act, and such compliance requires Landlord to make any improvement or alteration to any portion of the Property, as a condition to Landlords consent, Landlord shall have the right to require Tenant to pay to Landlord prior to the construction of any improvement or alteration by Tenant, the entire cost of any improvement or alteration Landlord is obligated to complete by such law or regulation.
(b) Construction Documents . No Tenant Work, including the Initial Tenant Improvements, shall be effected except in accordance with complete, coordinated construction drawings and specifications ( Construction Documents ), if reasonably required for such work, prepared in accordance with Exhibit F . Before commencing any Tenant Work requiring Landlords approval hereunder, Tenant shall obtain Landlords prior written approval of the Construction Documents for such work, which approval shall not be unreasonably withheld, conditioned or delayed (with Landlord agreeing to respond to any submissions or resubmissions (if any) within five (5) business days of Landlords receipt thereof). Any disapproval of plans and specifications shall be accompanied by a specific statement of the reason(s) therefor. The Construction Documents shall be prepared by an architect ( Tenants Architect ) registered in the Commonwealth of Massachusetts experienced in the construction of tenant space improvements in comparable buildings in the area
33
Execution
where the Premises are located and, if the value of such Tenant Work will equal or exceed the Tenant Work Threshold Amount or will affect any Core Building Systems or structural components of the Building, the identity of such Architect shall be approved by Landlord in advance, such approval not to be unreasonably withheld, conditioned or delayed. Landlord hereby approves Olson, Lewis, Dioli & Doktor as Tenants Architect for the Initial Tenant Improvements. Once any Tenants Architect has been approved, then Tenants Architect may thereafter be used by Tenant for the same type of work until Landlord notifies Tenant that such Tenants Architect is no longer approved. Tenant shall be solely responsible for the liabilities associated with and expenses of all architectural and engineering services relating to Tenant Work or for the adequacy, accuracy, and completeness of the Construction Documents even if approved by Landlord (and even if Tenants Architect has been otherwise engaged by Landlord in connection with the Building). The Construction Documents shall set forth in detail the requirements for construction of the Tenant Work and shall show all work necessary to complete the Tenant Work including all cutting, fitting, and patching and all connections to the mechanical, electrical, and plumbing systems and components of the Building. All Tenant Work described in the Construction Documents shall (i) comply with all applicable laws, regulations and building codes, (ii) not adversely affect any structural component of the Building, (iii) be compatible with and not adversely affect the Core Building Systems, (iv) not affect any property other than the Premises, and (v) conform to floor loading limits specified by Landlord (currently 100 lbs prsf live load). The Construction Documents shall comply with Landlords requirements for the uniform exterior appearance of the Building, including, without limitation, the use of Building standard window blinds. Landlords approval of Construction Documents shall signify only Landlords consent to the Tenant Work shown and shall not result in any responsibility or warranty of Landlord concerning compliance of the Tenant Work with laws, regulations, or codes, or coordination or compatibility with any component or system of the Building, or the feasibility of constructing the Tenant Work without damage or harm to the Building, all of which shall be the sole responsibility of Tenant.
(c) Performance . The identity of any person or entity (including any employee or agent of Tenant) performing or designing any Tenant Work ( Tenant Contractor ) shall, if the cost of such work in any instance is in excess of the Tenant Work Threshold Amount or will affect any Core Building Systems or structural components of the Building or involves any work other than interior, nonstructural alterations, be approved in advance by Landlord, such approval not to be unreasonably withheld, conditioned or delayed. Landlord hereby approves The Richmond Group as Tenant Contractor for the Initial Tenant Improvements. Once any Tenant Contractor has been approved, then the same Tenant Contractor may thereafter be used by Tenant for the same type of work until Landlord notifies Tenant that such Tenant Contractor is no longer approved. Tenant shall procure at Tenants expense all necessary permits and licenses before undertaking any Tenant Work but shall not take any plans for Tenant Work to the municipal inspection services or fire departments, without on each occasion obtaining Landlords prior written consent, which shall not be unreasonably withheld, conditioned or delayed. Tenant shall perform all Tenant Work in a good and workmanlike manner employing new materials of good quality and producing a result at least equal in quality to the other parts of the Premises, and at Tenants sole risk in compliance with all applicable laws and Landlords design and construction rules and regulations attached hereto as Exhibit C as the same may be amended by Landlord from time to time, which rules and regulations shall be uniformly applied to all occupants of the Building and any subsequent adoption or modification of such rules and regulations from those set forth on Exhibit C shall not, to the extent practicable, materially adversely affect Tenants rights under this Lease pursuant to the terms and conditions of this Lease.
34
Execution
When any Tenant Work is in progress, Tenant shall cause to be maintained insurance as described in the Tenant Work Insurance Schedule attached as Exhibit D and such other insurance as may be required under this Lease or reasonably required by Landlord covering any additional hazards due to such Tenant Work, and, except as to the Initial Tenant Improvements, if the cost of such Tenant Work exceeds $200,000.00 also such bonds or other assurances of satisfactory completion and payment as Landlord may reasonably require, in each case for the benefit of Landlord. Except for the Initial Tenant Improvements, if the cost of any Tenant Work equals or exceeds $200,000.00 in any instance, Tenant shall reimburse Landlord for its third party reasonable costs of reviewing the proposed Tenant Work and inspecting installation of the same, not to exceed one percent (1%) of the cost of such Tenant Work. At all times while performing Tenant Work, Tenant shall require any Tenant Contractor to comply with all applicable laws, regulations, permits and Landlords Rules (and those set forth on Exhibit C ) relating to such work, including, without limitation, use of loading areas, elevators and lobbies. Landlord shall have the right to stop any work not being performed in conformance with this Lease, and, at its option, may repair or remove non-conforming work at the expense of Tenant. Each Tenant Contractor working on the roof of the Building shall coordinate with Landlords roofing contractor, shall comply with its requirements and shall not violate existing roof warranties. Each Tenant Contractor shall work on the Premises without causing labor disharmony, coordination difficulties, or delay to or impairing of any guaranties, warranties or the work of any other contractor.
(d) Payment . Subject to Landlords performance of its obligations with respect to the Tenant Improvement Allowance, the Level 400 Lab Space Allowance and the Tenants Supplemental HVAC Contribution as expressly provided in this Lease, Tenant shall pay the entire cost of all Tenant Work so that the Premises, including Tenants leasehold, shall be free of liens for labor or materials claiming to be attributable to the activities of Tenant or Tenants Agents; provided, however, if any lien is filed that is claimed to be attributable to Tenant or persons acting under Tenant, then Tenant shall not be deemed to be in violation of this subsection (d) if Tenant, within thirty (30) days of Tenants notice of the filing thereof discharges same.
(e) Other . (i) Tenant must schedule and coordinate all aspects of work with the Building manager and Building engineer and shall make prior arrangements for elevator use with the Building manager. If an operating engineer is required by any union regulations, Tenant shall pay for such engineer. If shutdown of risers and mains for electrical, mechanical and plumbing work is required, such work shall be supervised by Landlords representative and Tenant shall reimburse Landlord for the actual and reasonable cost therefor within thirty (30) days of invoice. If special security arrangements must be made (e.g., in connection with work outside normal business hours), Tenant or Tenant Contractor shall pay the actual and reasonable cost of such security. No work shall be performed in Building mechanical or electrical equipment rooms without Landlords approval, which approval shall not be unreasonably withheld, conditioned or delayed, and all such work shall be performed under Landlords supervision. Except in case of emergency, at least forty-eight (48) hours prior notice must be given to the Building management office prior to the shutdown of fire, sprinkler and other alarm systems, and in case of emergency, prompt notice shall be given, and in all cases Tenant shall reimburse Landlord for the actual and reasonable costs incurred as a result of such shutdown. In the event that such work unintentionally alerts the Fire or Police Department or any private alarm monitoring company through an alarm signal, Tenant shall be liable for any fees or charges levied in connection with such alarm. All demolition, installations, removals or other work that is reasonably likely to inconvenience other tenants or disturb Building operations must be scheduled with the Building manager at least twenty-four (24) hours in advance.
35
Execution
(ii) Tenant shall take all necessary and appropriate steps to ensure that any work carried out by or on behalf of Tenant is done in a manner so as to not unreasonably interfere with any other tenants or occupants of the Building. Installations within the Premises (and elsewhere where Tenant is permitted to make installations) shall not interfere with existing services and shall be installed so as not to unreasonably interfere with subsequent installation of ceilings or services for other tenants. Redundant electrical, control and alarm systems and mechanical equipment and sheet metal used or placed on the Property during construction and not maintained as part of the Initial Tenant Improvements or Tenants use of the Premises must be removed as part of the work.
(iii) Each Tenant Contractor shall take all reasonable steps to assure that any work is carried out without disruption from labor disputes arising from whatever cause, including disputes concerning union jurisdiction and the affiliation of workers employed by said Tenant Contractor or its subcontractors. Tenant shall be responsible for, and shall reimburse Landlord for, all actual costs and expenses, including reasonable attorneys fees incurred by Landlord in connection with the breach by any Tenant Contractor of such obligations. If Tenant does not promptly resolve any labor dispute caused by or relating to any Tenant Contractor, Landlord may in its sole discretion request that Tenant remove such Tenant Contractor from the Properly, and if such Tenant Contractor is not promptly removed, Landlord may prohibit such Tenant Contractor from entering the Property.
(iv) Tenant shall diligently pursue and complete all Tenant Work and upon completion thereof, Tenant shall give to Landlord (x) a certificate of occupancy (if one is legally required and which may be a temporary certificate if followed by a permanent certificate in the ordinary course) and any other final governmental approvals required for such work, (y) copies of as built plans and all construction contracts and (z) proof of payment for all labor and materials.
10.07 Condition Upon Termination. At the expiration or earlier termination of the Term, Tenant (and all persons claiming through Tenant) shall without the necessity of notice, deliver the Premises (including all Initial Tenant Improvements, Tenant Work and Tenants Supplemental HVAC, and all replacements thereof, except such additions, alterations, Initial Tenant Improvements and other Tenant Work as the Landlord may direct to be removed at the time the Landlord approves the plans thereof in accordance with Section 10.06(a), or, in the case of Tenant Work not subject to Landlord approval, at the time of expiration or earlier termination of the Term) broom-clean, in compliance with the requirements of this Section 10.07 and in tenantable condition. Notwithstanding the foregoing, Tenant shall surrender the mechanical, electrical and plumbing systems and components exclusively serving the Premises (including but not limited to Tenants Supplemental HVAC) and the laboratory equipment for which Tenant is required to maintain, in good working order, reasonable wear and tear, and damage by casualty or taking (to the extent provided in Article 12 only) excepted. Prior to the expiration or termination of the Lease Term, Landlord and Tenant shall jointly inspect the Premises to confirm the working order and condition thereof (and the various equipment and appurtenances serving same). In the event Landlord and Tenant identify laboratory equipment that is inoperable or in a condition otherwise not consistent with the terms and conditions hereof, Tenant shall have the option of either removing same (subject to the terms and conditions hereof) or repairing or replacing same to bring such equipment into the condition required hereunder, in either event at Tenants cost and expense. (For purposes of the foregoing sentence, the term reasonable wear and tear constitutes that
36
Execution
normal, gradual deterioration that occurs due to aging and ordinary use despite reasonable and timely maintenance and repairs; in no event shall reasonable wear and tear excuse Tenant from its duty to maintain same in good condition and repair and otherwise serviceable.) The Premises shall be surrendered to Landlord free and clear of any mechanics liens (or any similar lien related to labor or materials) filed against any part of the Premises resulting from the acts or omissions of Tenant or Tenants Agents, and free and clear of any Tenant financing or other encumbrance on any equipment and/or Initial Tenant Improvements or Tenant Work to be surrendered with the Premises. As part of such delivery, Tenant shall also provide all keys (or lock combinations, codes or electronic passes) to the Premises to Landlord; remove all signs wherever located; and, except as provided in this Section 10.07, remove all Tenant Property whether or not bolted or otherwise attached. As used herein, Tenant Property shall mean all trade fixtures, furnishings, equipment inventory, cabling and other personal property owned by Tenant or any person acting under Tenant at the Premises. Tenant shall repair all damage that results from such removal and restore the Premises substantially to a functional and tenantable condition (including the filling of all floor holes and the removal of all disconnected wiring back to junction boxes). Any property not so removed shall be deemed abandoned, shall at once become the property of Landlord, and may be disposed of in such manner as Landlord shall see fit; and Tenant shall pay the cost of removal and disposal to Landlord upon demand. The covenants of this Section shall survive the expiration or earlier termination of the Term.
10.08 Decommissioning of the Premises. Prior to the expiration of this Lease (or within thirty (30) days after any earlier termination), Tenant shall clean and otherwise decommission all interior surfaces (including floors, walls, ceilings, and counters), piping, supply lines, waste lines and plumbing in and/or exclusively serving the Premises, and all exhaust or other ductwork in and/or exclusively serving the Premises, in each case which has carried or released or been exposed to any Environmental Substances as a result of the activities of Tenant or Tenants Agents, and shall otherwise clean the Premises so as to permit the report hereinafter called for by this Section 10.08 to be issued. Prior to the expiration of this Lease (or within thirty (30) days after any earlier termination), Tenant, at Tenants expense, shall obtain for Landlord a report addressed to Landlord and Landlords designees (and, at Tenants election, Tenant) by a reputable licensed environmental engineer that is designated by Tenant and approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, which report shall be based on the environmental engineers inspection of the Premises and shall show: that (i) the Environmental Substances associated with the activities of Tenant or Tenants Agents, to the extent, if any, existing prior to such decommissioning, have been removed as necessary so that the interior surfaces of the Premises (including floors, walls, ceilings, and counters), piping, supply lines, waste lines and plumbing, and all such exhaust or other ductwork in and/or exclusively serving the Premises, may be reused by a subsequent tenant or disposed of in compliance with applicable Environmental Laws (as defined in Section 9.04 hereof) without taking any special precautions for such Environmental Substances, without incurring special costs or undertaking special procedures for demolition, disposal, investigation, assessment, cleaning or removal of such Environmental Substances and without incurring regulatory compliance requirements or giving notice in connection with such Environmental Substances; and (ii) the Premises may be reoccupied for office or laboratory use, demolished or renovated without taking any special precautions for such Environmental Substances, without incurring special costs or undertaking special procedures for disposal, investigation, assessment, cleaning or removal of such Environmental Substances and without incurring regulatory requirements or giving notice in connection with such Environmental Substances. For purposes of this Section: special costs or special procedures shall mean costs or procedures, as the case may be, that would not be incurred but for the nature of the Environmental Substances associated with the
37
Execution
activities of Tenant or Tenants Agents as Environmental Substances instead of non-hazardous materials. The report shall include reasonable detail concerning the clean-up location, the tests run and the analytic results. If Tenant fails to perform its obligations under this Section, without limiting any other right or remedy, Landlord may, on five (5) business days prior written notice to Tenant perform such obligations at Tenants expense, and Tenant shall promptly reimburse Landlord upon demand for all costs and expenses reasonably incurred. Tenants obligations under this Section shall survive the expiration or earlier termination of this Lease.
ARTICLE 11: DELIVERY DATE; LANDLORDS WORK
11.01 From and after the date hereof, Landlord shall proceed, using reasonable efforts, to obtain all necessary permits and approvals, if necessary, for the work described on Exhibit J ( Landlords Work ) and to engage a contractor (or contractors) to perform Landlords Work as required hereunder. Landlord reserves the right to make changes and substitutions to Landlords Work in connection with the construction of Landlords Work, provided same do not materially adversely modify same. All components of Landlords Work shall be part of the Building. Except as expressly required under this Lease, Landlord shall have no obligation to perform any work or construction to make the Premises fit for use and occupation or for Tenants particular purpose or to make them acceptable to Tenant.
11.02 Landlord shall commence and shall use commercially reasonable and diligent efforts to substantially complete Landlords Work as soon as reasonably practical following the date of this Lease. Landlord and Tenant each acknowledge and agree that they are both using the same general contractor to complete Landlords Work and Initial Tenant Improvements and that each party shall take the necessary and appropriate steps to ensure that such contractor (and each partys related subcontractors) shall each conduct their work and employ labor in such manner to maintain harmonious labor relations and to coordinate their activities so as to complete Landlords Work and the Initial Tenant Improvements in an efficient and timely manner and not to interfere with Landlords other business operations at, or any other tenant or occupant of, the Building or Property and that such work shall be coordinated between Landlord and Tenant, subject to reasonable scheduling requirements, to ensure the efficient completion thereof. Landlord shall Substantially Complete Landlords Work in a good and workmanlike manner using Building standard construction items and finishes and otherwise in compliance with ail Legal Requirements, including without limitation the Americans With Disabilities Act, at Landlords sole cost and expense. In no event shall Landlord be liable to Tenant for any failure to deliver the Premises on any specified date, nor shall such failure give rise to any default or other remedies under this Lease or at law or equity. Notwithstanding the foregoing, the Term Commencement Date (or any Space Commencement Dates, as applicable) shall not occur until Landlords Work (or such portion thereof as may be applicable to the specific portion of the Premises relating to the Space Commencement Date) is Substantially Complete, and to the extent any nine (9) month period set for in Article 1 is used to determine such Commencement Date, such Commencement Date shall be extended on a day-for-day basis in the event that a delay in completing Landlords Work actually and materially delayed the Substantial Completion of the Initial Tenant Improvements provided Tenant shall promptly provide Landlord with written notice of any situation giving rise to such a delay and such delay is not remedied (or otherwise resolved in such a way so as to allow Tenant to continue its work without further delay) promptly upon receipt of such notice. Notwithstanding the foregoing, if any delay in the Substantial Completion of Landlords Work by Landlord is due to Tenant Delays (defined below), then the day-for-day extension set forth in the prior sentence shall be of no force or effect to any delay in Landlords Work relating thereto. Tenant
38
Execution
Delays shall mean delays caused by: (i) any material change to Landlords Work requested by Tenant and agreed to by Landlord; (ii) any request by Tenant for a delay in the commencement or completion of Landlords Work for any reason; or (iii) any other act or omission of Tenant or its employees, agents or contractors which reasonably inhibits the Landlord from timely completing Landlords Work.
11.03 Within seven (7) business days after the Substantial Completion of Landlords Work, Landlord and Tenant shall confer and create a specific list of any defects or incomplete remaining items of work with respect to Landlords Work. Except with respect to the items contained in the punchlist, Tenant shall be deemed satisfied with Landlords Work, Landlord shall be deemed to have completed all of its obligations under this Article 11 and Tenant shall have no claim that Landlord has failed to perform in full its obligations hereunder. Landlord shall complete all such punchlist work as soon as reasonably practical thereafter, and in any event within thirty (30) days and at times and in a fashion that does not adversely affect work on the Initial Tenant Improvements.
ARTICLE 12: DAMAGE OR DESTRUCTION; CONDEMNATION
12.01 Damage or Destruction of Premises.
(a) If the Premises or any part thereof shall be damaged by fire or other insured casualty, then, subject to the last paragraph of this Section, Landlord shall proceed with diligence, subject to then applicable statutes, building codes, zoning ordinances and regulations of any governmental authority, and at the expense of Landlord (but only to the extent of insurance proceeds made available to Landlord by any mortgagee of the Building) to repair or cause to be repaired such damage (including any Initial Tenant Improvements and Tenant Work in the nature of leasehold improvements). All such repairs made necessary by the negligence or breach hereof on the part of Tenant shall be made at the Tenants expense as Additional Rent to the extent that the cost of such repairs are less than a commercially reasonable deductible amount under Landlords insurance policy. Landlord shall have no obligation to undertake any repairs to or replacements of Tenant Property (or any Tenant Work not consisting of leasehold improvements). If the Premises or any part thereof shall have been rendered unfit for use and occupation hereunder by reason of such damage, the Rent or a just and proportionate part thereof, according to the nature and extent to which the Premises shall have been so rendered unfit, shall be abated until the Premises (except as to Tenant Property but including Initial Tenant Improvements and any Tenant Work) shall have been restored as nearly as practicable to the condition in which they were immediately prior to such fire or other casualty; provided, however, that in no event shall the period of such abatement exceed twelve (12) months. Landlord shall not be liable for delays in the making of any such repairs that are due to government regulation, casualties, and strikes, unavailability of labor and materials, delays in obtaining insurance proceeds, and other causes beyond the reasonable control of Landlord, nor shall Landlord be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting from delays in repairing such damage.
(b) If (i) the Premises are so damaged by fire or other casualty (whether or not insured) at any time during the last thirty (30) months of the Term that the cost to repair such damage is reasonably estimated to exceed one-third (1/3) of the total Base Rent payable hereunder for the period from the estimated completion date of repair until the end of the Term, (ii) at any time the Building (or any portion thereof, whether or not including any portion of the Premises) is so damaged by fire or other casualty (whether or not insured) that substantial alteration or reconstruction or
39
Execution
demolition of the Building (or a portion thereof) shall in Landlords judgment be required, or (iii) at any time damage to the Building occurs by fire or other insured casualty and any mortgagee or ground lessor shall refuse to permit insurance proceeds to be utilized for the repair or replacement of such property and Landlord determines in good faith not to repair such damage, then and in any of such events, this Lease and the term hereof may be terminated at the election of Landlord by a notice from Landlord to Tenant within sixty (60) days following such fire or other casualty, provided that no termination pursuant to subsection (ii) or (iii) of this Section 12.01(a) shall be effective unless Landlord is also contemporaneously terminating all leases of comparably affected (or unaffected) Tenants in the Building; the effective termination date pursuant to such notice shall be not less than thirty (30) days after the day on which such termination notice is received by Tenant. Landlord shall, within sixty (60) days after the occurrence of a casualty, provide Tenant with a good faith estimate of the time required to repair the damage to the Premises or the Building; if such estimate is for a period of more than nine (9) months from the occurrence of the casualty, Tenant may terminate this Lease upon written notice to Landlord given within fifteen (15) days of receipt of Landlords notice. If neither Landlord nor such mortgagee has commenced such repair or replacement within six (6) months following adjustment of such casualty loss with the insurer, then Tenant may, until any such repair or replacement commences, terminate this Lease by giving at least thirty (30) days prior written notice thereof to Landlord and such termination shall be effective on the date specified if such replacement has not then commenced. In addition, if for any reason (including force majeure) and regardless of the amount of insurance proceeds actually made available to Landlord, repair or replacement of the Premises and access thereto is not Substantially Complete within nine (9) months from the occurrence of such damage or casualty, Tenant may terminate this Lease upon not less than thirty (30) days written notice by giving Landlord written notice of such termination after the expiration of said nine (9) month period; provided however, if Landlord Substantially Completes such restoration within such thirty (30) day period such termination shall be void and of no further force or effect. In the event of any termination, the Term shall expire as though such effective termination date were the date originally stipulated in Article 1 for the end of the Term and the Rent (to the extent not abated as set forth above) shall be apportioned as of such date. The foregoing nine (9) and six (6) month periods relating to Tenants termination right(s) hereunder shall not be subject to extension or delay due to force majeure.
12.02 Eminent Domain. In the event that all or any substantial part of the Premises or its common areas is taken (other than for temporary use, hereafter described) by public authority under power of eminent domain (or by conveyance in lieu thereof), then Rent shall be proportionately abated and by notice given within three (3) months following the recording of such taking (or conveyance) in the appropriate registry of deeds, this Lease may be terminated at Landlords or Tenants election thirty (30) days after such notice, and Rent shall be apportioned as of the date of termination. If this Lease is not terminated as aforesaid, Landlord shall within a reasonable time thereafter, diligently restore what may remain of the Premises (excluding any Tenant Property or other items installed or paid for by Tenant that Tenant is permitted or may be required to remove upon expiration but including any Initial Tenant Improvements and Tenant Work in the nature of leasehold improvements) to a tenantable condition. In the event some portion of rentable floor area of the Premises is taken (other than for temporary use) and this Lease is not terminated, Rent for the portion thereof not restored shall be proportionally abated for the remainder of the Term. In the event of any taking of the Premises or any part thereof for temporary use, (i) this Lease shall be and remain unaffected thereby and rent shall not abate, and (ii) Tenant shall be entitled to receive for itself such portion or portions of any award made for such use with respect to the period of the taking that is within the Term. As used herein, a
40
Execution
substantial part shall mean a taking which: requires restoration and repair of the remaining portion of the Property that cannot in the ordinary course be reasonably expected to be repaired within six (6) months; results in the loss of reasonable access to the Premises; results in the loss of more than twenty-five percent (25%) of the rentable floor area of the Premises; or results in loss of parking facilities for the Building and Landlord reasonably determines it is not practical to relocate such parking or relocate and reconnect such facilities within the remaining Building or Property.
So long as Tenant is not then in breach of any covenant or condition of this Lease beyond applicable notice and cure periods, any specific damages that are expressly awarded to Tenant on account of its relocation expenses, and specifically so designated, shall belong to Tenant. Except as provided above with respect to temporary takings and as provided in the preceding sentence of this paragraph, Landlord reserves to itself, and Tenant releases and assigns to Landlord, all rights to damages accruing on account of any taking or by reason of any act of any public authority for which damages are payable. Tenant agrees to execute such further instruments of assignment consistent with the foregoing as may be reasonably requested by Landlord, and to turn over to Landlord any damages that may be recovered in any proceeding or otherwise; and Tenant irrevocably appoints Landlord as its attorney-in-fact with full power of substitution so to execute and deliver in Tenants name, place and stead all such further instruments if Tenant shall fail to do so after ten (10) days notice.
ARTICLE 13: ASSIGNMENT AND SUBLETTING
13.01 Landlords Consent Required. Except as set forth in this Article, Tenant shall not directly or indirectly assign this Lease, or sublet or license the Premises or any portion thereof, or permit the occupancy of all or any portion of the Premises by any person other than Tenant, its employees and invitees, (each of the foregoing actions are collectively referred to as a Transfer) without obtaining, on each occasion, the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed provided that Tenant complies with the provisions of this Article. Except as otherwise expressly provided in this Article, a Transfer shall include, without limitation, any transfer of Tenants interest in this Lease by operation of law, merger or consolidation of Tenant into any other firm or corporation, and the transfer or sale of a controlling interest in Tenant, whether by sale of its capital stock or otherwise or any sale of all or a substantial part of Tenants assets. Any Transfer shall be subject to this Lease, all of the provisions of which shall be conditions to such Transfer and be binding on any transferee. Without limiting the generality of the foregoing, the terms and conditions of this Article 13 shall be binding on any assignee or sublessee to which Landlord has consented. If Tenant does Transfer without Landlords consent to the extent required hereunder, any option or other right that Tenant may have relating to the Premises, including any right to extend the Term or lease other premises, shall automatically be terminated at Landlords option.
13.02 Terms. Without limitation, it shall not be unreasonable for Landlord to withhold such consent for any Transfer where, in Landlords reasonable opinion: (i) the proposed transferee does not have a financial standing and credit rating suitable for its undertakings in connection with the proposed Transfer, taking into account Tenants continuing liability hereunder; (ii) the proposed transferee has a poor business reputation in the community; (iii) the business in which the proposed transferee is engaged could detract from, or be inappropriate for, a comparable first class life science building in the Lexington, Waltham, Burlington and Bedford, Massachusetts area, its value or the costs of ownership thereof; (iv) intentionally omitted; (v) the proposed transferee is a current tenant or a prospective tenant (or any affiliate of such tenant or prospective tenant), meaning such tenant has been shown space or has
41
Execution
been presented with or has made an offer to lease space, of the Building or the Project within the last six (6) months and Landlord has (or will have on a timely basis) other reasonably comparable space in the Building suitable for such tenants requirement; (vi) the use of the Premises by any transferee (even though a Permitted Use) violates any use restriction granted by Landlord in any other lease or would otherwise cause Landlord to be in violation of its obligations under another lease or agreement to which Landlord is a party; (vii) if such Transfer is not approved of by the holder of any mortgage on the Property (if such approval is required); (viii) a proposed transferees business will impose a burden on the Propertys parking facilities, elevators, common areas, facilities, or utilities that is substantially greater than the burden imposed by Tenant, in Landlords reasonable judgment, unless such new use is generally consistent with those uses in comparable first class life science buildings in the Lexington, Waltham, Burlington and Bedford, Massachusetts area; (ix) any guarantor of this Lease refuses to consent to the proposed transfer or to execute a written agreement reaffirming the guaranty; (x) there exists an uncured Event of Default on the part of Tenant under the Lease at the time of the request or at the time of the proposed Transfer; (xi) intentionally omitted; (xii) Landlord has sued or been sued by the proposed transferee or has otherwise been involved in a legal dispute with the proposed transferee; (xiii) the transferee is involved in a business which is not in keeping with the then current standards of the Property unless such transferees business is consistent with comparable first class life science buildings in the Lexington, Waltham, Burlington and Bedford, Massachusetts area; (xiv) the Transfer will result in there being more than two (2) subtenants on either floor of the Premises; or (xv) the transferee is a governmental or quasi-governmental entity or an agency, department or instrumentality of a governmental or quasi-governmental agency. In no event, however, shall Tenant assign this Lease or sublet the whole or any part of the Premises to a proposed transferee which has been judicially declared bankrupt or insolvent according to law, or with respect to which an assignment has been made of property for the benefit of creditors, or with respect to which a receiver, guardian, conservator, trustee in involuntary bankruptcy or similar officer has been appointed to take charge of all or any substantial part of the proposed transferees property by a court of competent jurisdiction, or with respect to which a petition has been filed for reorganization under any provisions of the Bankruptcy Code now or hereafter enacted, or if a proposed transferee has filed a petition for such reorganization, or for arrangements under any provisions of the Bankruptcy Code now or hereafter enacted and providing a plan for a debtor to settle, satisfy or extend the time for the payment of debts, unless the applicable proceedings have been terminated or otherwise resolved such that the condition raised by this sentence is no longer applicable.
13.03 Right of Termination or Recapture. In the event Tenant intends to effect a Transfer (excepting a Related Party Transfer) of all or substantially all of the Premises for all or substantially all of the remaining Term of this Lease, then Tenant shall notify Landlord of such intent prior to or in connection with seeking Landlords consent thereto which notice shall specify the effective date of such Transfer, which date shall not be less than one hundred twenty (120) nor more than one twelve (12) months days after the date of such notice. Upon such notice, Landlord shall have the option, exercisable by written notice to Tenant given within forty-five (45) days after Landlords receipt of such notice, to terminate this Lease as of the date specified in such Tenants notice. In the event of termination of this Lease, the Premises shall be delivered to Landlord on the date specified in the order and condition in the manner required under this Lease at the end of the Term.
13.04 Procedures. At least thirty (30) days prior to the effective date of any Transfer, Tenant shall give Landlord in writing the details of the proposed Transfer, including, but not limited to: (i) the name, business, and financial condition of the prospective transferee, (ii) a copy of the letter of intent or
42
Execution
other statement of all of the material terms and conditions of such Transfer, provided Landlords final consent to such Transfer shall be subject to its receipt of a true and complete copy of the fully-executed instrument effecting the Transfer substantially in conformance with such terms and conditions, (iii) a commercially reasonable written agreement of the assignee, subtenant or licensee agreeing with Landlord to perform and observe all of the terms, covenants, and conditions of this Lease undertaken by such transferee and such other commercially reasonable matters as are contained in Landlords form of consent to a Transfer, and (iv) any other commercially reasonable information requested by Landlord. Tenant shall pay to Landlord, as Additional Rent, Landlords reasonable attorneys fees in reviewing any Transfer. Tenant may make a Related Party Transfer (as defined below) without the consent of Landlord provided that Tenant gives Landlord at least ten (10) days prior notice thereof (or, in the event the Transfer is subject to a confidentiality undertaking, within ten (10) days thereafter) together with evidence reasonably satisfactory to Landlord that the proposed Transfer is a Related Party Transfer (including financial information, financial statements or certificates reflecting Tenants Net Worth [as defined below]) and such Related Party Transfer is subject to all of the other applicable terms and conditions for this Article.
As used herein, a Related Party Transfer shall refer to (a) a transaction (including but not limited to an assignment or sublease) with an entity (i) into or with which Tenant is merged or consolidated, (ii) to which substantially all of Tenants assets, stock or other equity interests are transferred as a going concern, or (iii) which controls or is controlled by Tenant or is under common control with Tenant, or (b) the transfer, exchange, acquisition or conveyance of any stock, equity or other ownership interest in Tenant by, to or from any entity providing financing or capitalization to Tenant. A Related Party Transfer shall not be deemed to be a Transfer within the meaning of this Section, provided that in any of such events (1) the assignee agrees directly with Landlord, by commercially reasonable written instrument reasonably satisfactory to Landlord, to be bound by all the obligations of Tenant hereunder (and, as to subleases, sublessee agrees to be bound by all of the obligations of Tenant made applicable by the sublease) including, without limitation, the provisions of this Article 13 (except in any instance where Tenant is the surviving entity following any such transaction described in (a) above), (2) in no event shall Tenant be released from its obligations under this Lease (unless as a result of any such transaction described in (a) above Tenant is not the surviving entity), (3) any such transfer or transaction is for a legitimate, regular business purpose of Tenant other than a transfer of Tenants interest in this Lease, and (4) the involvement by Tenant or its assets in any transaction, or series of related transactions whether or not a formal assignment or hypothecation of this Lease or Tenants assets occurs, will not result in a reduction of the Net Worth of Tenant (as defined below) from the Net Worth of Tenant as it is exists immediately prior to said transaction or transactions. Net Worth of Tenant for purposes of this Section shall be the tangible net worth of Tenant (excluding any guarantors) established under generally accepted accounting principles consistently applied. Notwithstanding anything to the contrary contained herein, an initial or subsequent offering, sale transfer or conveyance of Tenants stock, equity or ownership interest on any recognized national stock exchange or securities market shall not be considered a Transfer hereunder and shall not require Landlords consent.
13.05 Excess Rents. If the consideration, rent, or other amounts payable to Tenant under any other Transfer other than a Related Party Transfer exceed the Rent (pro rated based on floor area in the case of a subletting, license or other occupancy of less than the entire area of the Premises), then Tenant shall, after first reimbursing itself out of such excess to the extent of Tenants Transfer Expenses (as defined below), pay to Landlord, as Additional Rent, fifty percent (50%) of the amount of such excess when and as received. As used herein Tenants Transfer Expenses shall mean Tenants actual
43
Execution
payments (or credits) to third parties in connection with such a Transfer on account of brokerage, legal and fit-up costs or allowances, free rent or other such concessions. Without limiting the generality of the first sentence of this Section, any lump-sum payment or series of payments (including, without limitation, for the purchase or use of so-called leasehold improvements or Tenant Property and any separate charges for services) on account of any Transfer shall be shall be included in the consideration, rent or other amounts payable to Tenant under such Transfer.
13.06 No Release. Notwithstanding any Transfer and whether or not the same is a Related Party Transfer or is consented to, the liability of Tenant to Landlord shall remain direct and primary, except as may be expressly provided above. Any assignee of all or substantially all of Tenants interest in the Premises or in this Lease (including any such transferee under a Related Party Transfer) shall be jointly and severally liable with Tenant to Landlord for the performance of all of Tenants covenants under this Lease; and such assignee shall upon request execute and deliver such instruments as Landlord reasonably requests in confirmation thereof. No Transfer shall be deemed a waiver of the provisions of this Section, or the acceptance of the transferee as a tenant, or a release of Tenant from direct and primary liability for the performance of all of the covenants of this Lease. Notwithstanding anything to the contrary in the documents effecting the Transfer, no Transfer shall alter in any manner whatsoever the terms of this Lease, to which any Transfer at all times shall be subject and subordinate.
Anything contained in the foregoing provisions of this section to the contrary notwithstanding, neither Tenant nor any transferee nor any other person having an interest in the possession, use, occupancy or utilization of the Premises shall enter into any lease, sublease, assignment, license, concession or other agreement for use, occupancy or utilization of space in the Premises that provides for rental or other payment for such use, occupancy or utilization based, in whole or in part, on the net income or profits derived by any person from the Premises leased, used, occupied or utilized (other than an amount based on a fixed percentage or percentages of receipts or sales), and any such purported lease, sublease, assignment, license, concession or other agreement shall be absolutely void and ineffective as a conveyance of any right or interest in the possession, use, occupancy or utilization of any part of the Premises.
13.07 Certain Additional Rights. If the Premises or any part thereof are sublet by Tenant, following the occurrence and during the continuance of an uncured Event of Default, Landlord, in addition to any other remedies provided hereunder or at law, may at its option collect directly from any such sublessee (s) all rents becoming due to the Tenant under any such Transfer and apply such rent against any amounts due Landlord by Tenant under this Lease, and Tenant hereby irrevocably authorizes and directs such sublessee(s) to so make all such rent payments, if so directed in writing by Landlord; and it is understood that no such election or collection or payment shall be construed to constitute a novation of this Lease or a release of Tenant hereunder, or to create any lease or occupancy agreement between the Landlord and such subtenant or impose any obligations on Landlord, or otherwise constitute the recognition of such sublease by Landlord for any purpose whatsoever. Tenant hereby absolutely and unconditionally assigns and transfers to Landlord all of Tenants interest in all rentals and income arising from any Transfer entered into by Tenant, and Landlord may collect such rent and income and shall apply same toward Tenants obligations under this Lease; provided, however, that until a default occurs in the performance of Tenants obligations under this Lease, and after such default has been cured, Tenant may receive, collect and enjoy the rents accruing under such Transfer. Landlord shall not, by reason of this or any other assignment of such rents to Landlord nor by reason of the collection of the rents from a transferee, be deemed to have assumed or recognized any
44
Execution
Transfer or to be liable to the transferee for any failure of Tenant to perform and comply with any of Tenants obligations to such transferee under such Transfer, including, but not limited to, Tenants obligation to return any security deposit. Tenant hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Landlord stating that a default exists in the performance of Tenants obligations under this Lease, to pay to Landlord the rents due as they become due under the Transfer and Landlord may collect such rent and income and shall apply same toward Tenants obligations under this Lease until all such defaults have been cured. Tenant agrees that such sublessee shall have the right to rely upon any such statement and request from Landlord, and that such sublessee shall pay such rents to Landlord without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Tenant to the contrary. In the event Tenant shall default in the performance of its obligations under this Lease or Landlord terminates this Lease by reason of a default of Tenant, Landlord at its option and without any obligation to do so, may require any sublessee to attorn to Landlord.
ARTICLE 14: EVENTS OF DEFAULT AND REMEDIES
14.01 Events of Default . Landlord and Tenant hereby agree that the occurrence of any one or more of the following events is a material default (sometimes referred to as an Event of Default ) by Tenant under this Lease:
(a) Tenants failure to make any payment of Base Rent, Additional Rent, Rent, Tenants share of Operating Expenses, Tenants share of Taxes, late charges, or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of five (5) business days after written notice thereof from Landlord to Tenant;
(b) Tenants failure to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Tenant (other than those referenced in Section 14.01(a), above) where such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; or if such failure is of such a nature that Tenant cannot reasonably remedy the same within such thirty (30) day period, and Tenant shall fail to commence within such thirty (30) day period to remedy the same and to prosecute such remedy to completion with diligence; provided, however, Tenant shall notify Landlord within such thirty (30) day period of the circumstances requiring such extended cure period and keep Landlord reasonably apprised of such diligent efforts to cure same;
(c) Intentionally omitted;
(d) Tenants (or any transferee of Tenants) attempt to make any Transfer of the Premises in violation of this Lease;
(e) (i) The making by Tenant or any guarantor of Tenants obligations hereunder of any general arrangement or general assignment for the benefit of creditors; (ii) Tenant or any guarantor becoming a debtor as defined in 11 U.S.C. 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant or guarantor, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenants assets located at the Premises or of Tenants interest in this Lease, where possession is not restored to Tenant within thirty (30) days; (iv) the attachment, execution or other judicial seizure of substantially all of Tenants assets located at the Premises or of Tenants interest in this Lease, where such seizure is not
45
Execution
discharged within thirty (30) days; or (v) the insolvency of Tenant. In the event that any provision of this Section 14.04(e) is unenforceable under applicable law, such provision shall be of no force or effect;
(f) The discovery by Landlord that any financial statement, representation or warranty given to Landlord by Tenant, or by any guarantor of Tenants obligations hereunder, was to Tenants actual knowledge materially false at the time given, Tenant acknowledging that Landlord has entered into this Lease in material reliance on such information;
(g) The failure of Tenant to comply with any of its obligations within the applicable specified timeframes under (i) Article 7 with respect to maintaining and evidencing the required insurance coverages; (ii) Article 15; (iii) Section 16.03; and (iv) Section 16.04, where such failure shall continue for a period of five (5) business days after written notice thereof from Landlord to Tenant (in addition to any other notice as may be required under the foregoing sections).
then, and in any such case, Landlord and its agents lawfully may, in addition to any remedies for any preceding breach, immediately or at any time thereafter without demand or notice and with or without process of law, enter upon any part of the Premises in the name of the whole or mail or deliver a notice of termination of the Term of this Lease addressed to Tenant at the Premises or any other address herein, and thereby terminate the Term and repossess the Premises as of Landlords former estate. Upon such entry or mailing the Term shall terminate, all executory rights of Tenant and all obligations of Landlord will immediately cease, and Landlord may expel Tenant and all persons claiming under Tenant and remove their effects without any trespass and without prejudice to any remedies for arrears of Rent or prior breach; and Tenant waives all statutory and equitable rights to its leasehold (including rights in the nature of further cure or redemption, if any). If Landlord engages attorneys in connection with any failure to perform by Tenant hereunder, Tenant shall promptly reimburse Landlord for the reasonable fees of such attorneys on demand as Additional Rent. Without implying that other provisions do not survive, the provisions of this Article shall survive the Term or earlier termination of this Lease.
Rent forgiveness, allowances for (and/or Landlord expenses in designing and constructing) leasehold improvements to ready the Premises for Tenants occupancy and the like, if any, have been agreed to by Landlord as inducements for Tenant faithfully to perform all of its obligations. For all purposes, upon the occurrence and during the pendency of any Event of Default, any payments relating to such inducements shall, at Landlords election, be tolled, until the Event of Default has been cured.
14.02 Remedies for Default.
(a) Reletting; Expenses: Damages . If the Term of this Lease is terminated for an Event of Default, Tenant covenants, as an additional cumulative obligation after such termination, to pay all of Landlords reasonable costs, including reasonable attorneys fees, related to Tenants Event of Default and in collecting amounts due under the Lease. Subject to the conditions and limitations hereafter set forth, Landlord agrees to use good faith efforts to relet the Premises after Tenant vacates the Premises in the event that this Lease is terminated by Landlord as the result of an Event of Default hereunder. Marketing of the Premises in a manner similar to the manner in which Landlord markets other premises within Landlords control in the Building shall be deemed to have satisfied Landlords obligation to use good faith efforts to relet the Premises. In no event shall Landlord be
46
Execution
required to (a) solicit or entertain negotiations with any other prospective tenants for the Premises until Landlord obtains full and complete possession of the Premises including, without limitation, the final and unappealable legal right to relet the Premises free of any claim of Tenant, (b) relet the Premises before leasing other vacant space in the Building, (c) lease the Premises for a rental or upon terms and conditions less than the current fair market rental and terms and conditions then prevailing for similar office space in the Building, or (d) enter into a lease with any proposed tenant that does not have, in Landlords good faith opinion, sufficient financial resources or operating experience to operate the Premises in a first-class manner.
(b) Termination Damages . If the Term of this Lease is terminated based on an Event of Default, unless and until Landlord elects lump sum liquidated damages described in the next paragraph, Tenant covenants, as an additional, cumulative obligation after any such termination, to pay punctually to Landlord all the sums and perform all of its obligations in the same manner as if the Term had not been terminated. In calculating such amounts Tenant will be credited with the net proceeds of any rent then actually received by Landlord from a reletting of the Premises after deducting all reasonable expenses in connection with reletting, including tenant inducements (such as by way of example and not limitation, fit-up costs or allowances, free rent or other such concessions) to new tenants, brokerage commissions, fees for legal services, expenses of preparing the Premises for reletting and the like ( Reletting Expenses ). Tenant shall never be entitled to receive any portion of the re-letting proceeds, even if the same exceed the Rent originally due hereunder.
(c) Lump Sum Liquidated Damages . If this Lease is terminated based on an Event of Default, Tenant covenants, in lieu of any further damages under subsection (b) above after any such termination, to pay forthwith to Landlord at Landlords election made by written notice at any time after termination, as full and final liquidated damages a single lump sum payment equal to the sum of (i) all sums to be paid by Tenant and not then paid at the time of such election, plus, (ii) the excess of the present value of all of the Rent reserved for the residue of the Term (with Additional Rent deemed to increase at the average rate of such increase over the last three (3) Lease Years prior to such election (or such shorter period if three (3) Lease Years have not occurred prior to such election) on a compounding basis) over the present value of the aggregate fair market rent and Additional Rent payable (if less than the Rent payable hereunder) on account of the Premises during such period (determined as of the time of such termination), which fair market rent shall be reduced by reasonable projections of vacancies and by Landlords Reletting Expenses described above to the extent not theretofore paid to Landlord). (The Federal Reserve discount rate (or equivalent) shall be used in calculating such present values under clause (ii), and in the event the parties are unable to agree on such fair market rent, the matter shall be submitted, upon the demand of either party, to the office of the American Arbitration Association (or successor) closest to the Property, with a request for arbitration in accordance with the rules of the Association by a single arbitrator who shall be a MAI appraiser, so-called, knowledgeable in the field of commercial real estate with at least five (5) years experience in the market in which the Building is located.
(d) Remedies Cumulative; Late Performance; Limitation on Damages . The remedies to which Landlord may resort under this Lease, and all other rights and remedies of Landlord are cumulative, and any two or more may be exercised at the same time. Nothing in this Lease shall limit the right of Landlord to prove and obtain in proceedings for bankruptcy or insolvency an amount equal to the maximum allowed by any statute or rule of law in effect at the time; and Tenant agrees that the fair value for occupancy of all or any part of the Premises at all times shall never be less than
47
Execution
the Base Rent and all Additional Rent payable from time to time. Notwithstanding any provision hereof to the contrary, in no event shall Tenant have any liability under or for any breach of any provision of this Lease for lost profits or other indirect, special, consequential or punitive damages provided, however, that the foregoing limitation on damages shall in no event apply to Tenants failure to comply with, or breach of, Section 3.02, in which event Landlord shall have recourse to all rights and remedies available under this Lease, at law or equity with no such limitation on damages.
(e) Waivers; Accord and Satisfaction . No consent by Landlord or Tenant to any act or omission that otherwise would be a default shall be construed to permit other similar acts or omissions. Neither partys failure to seek redress for violation or to insist upon the strict performance of any covenant, nor the receipt by Landlord of Rent with knowledge of any breach of covenant, shall be deemed a consent to or waiver of such breach. No breach of covenant shall be implied to have been waived unless such is in writing, signed by the party benefiting from such covenant and delivered to the other party; and no acceptance by Landlord of a lesser sum than the Rent due shall be deemed to be other than on account of the earliest installment of such Rent. No payment by Tenant of any amount demanded by Landlord shall be deemed a waiver by Tenant of its right to dispute its obligation to make such payment. Nor shall any endorsement or statement on any check or in any letter accompanying any check or payment be deemed an accord and satisfaction; and Landlord may accept such check or payment without prejudice to Landlords right to recover the balance of such installment or pursue any other right or remedy. The acceptance by Landlord of any Rent following the giving of any default and/or termination notice shall not be deemed a waiver of such notice. If Landlord commences any summary proceeding for possession of the Premises or in any action based on non-payment of Rent by Tenant hereunder, Tenant hereby waives the right to interpose any non-compulsory claim or counterclaim of whatever nature or description in any such proceeding.
(f) Landlords Curing . If Tenant fails to perform any covenant within any applicable notice and cure period, or if Tenant has failed to cure any default pursuant to subsection 14.01(b) above within one hundred twenty (120) days after Landlords initial notice thereof, then Landlord at its option may (without waiving any right or remedy for Tenants non-performance) at any time thereafter perform the covenant for the account of Tenant. Tenant shall upon demand reimburse Landlords cost (including reasonable attorneys fees) of so performing, Notwithstanding any other provision concerning cure periods, Landlord may cure any non-performance for the account of Tenant after such notice to Tenant, if any, as is reasonable under the circumstances if curing prior to the expiration of the applicable cure period is reasonably necessary to prevent civil or criminal liability; to prevent an imminent and material interruption of the conduct of business at the Property; or to prevent risk of imminent injury to persons or damage to property, or to protect Landlords interest in the Premises.
ARTICLE 15: LETTER OF CREDIT
(a) Simultaneously with the execution and delivery of this Lease, Tenant shall deliver to Landlord a clean, irrevocable letter of credit in the Letter of Credit Amount (as defined in Article 1) in the form attached hereto as Exhibit L or otherwise satisfactory in form and content to Landlord and issued by an FDIC insured bank reasonably satisfactory to Landlord in favor of Landlord, provided Landlord hereby consents to Silicon Valley Bank as the issuer of the letter of credit requested hereunder. During the Term hereof, and any extensions thereof, and for ninety-one (91) days after
48
Execution
the expiration of the Term, or for so long thereafter as Tenant is in possession of the Premises or has unsatisfied obligations hereunder to Landlord, the letter of credit shall be held to ensure the full and timely performance of Tenants obligations under this Lease; which letter of credit may be drawn upon by Landlord and applied from time to time against outstanding obligations of Tenant hereunder to cure any Event of Default or to collect any damages to which Landlord is entitled hereunder by reason of an Event of Default without further notice or demand; provided, however, if any notice, demand or other act or action by Landlord is prohibited, proscribed, stayed or barred by applicable law without obtaining court, trustee or other partys approval ( e.g ., the automatic stay in the event of a bankruptcy of Tenant), no such notice, demand or act or action, or Event of Default, shall be required for Landlord to draw upon the letter of credit Tenant shall have no right to require Landlord to so draw and apply the letter of credit, nor shall Tenant be entitled to credit the same against rents or other sums payable hereunder. During the entire Term hereof, including any extension thereof, Tenant shall cause said letter of credit to be renewed, in identical form to that delivered herewith, no later than thirty (30) days prior to the date of expiration of same. Without limiting any other remedies of Landlord, in the event that Tenant fails to renew any letter of credit given hereunder at least thirty (30) days prior to the date of expiration thereof, then Landlord shall have the right to draw down the entire amount of said letter of credit and hold such sums as a cash deposit. If and to the extent that Landlord makes such use of the letter of credit, or any part thereof, the sum so applied by Landlord (from cash or from a drawing on the letter of credit) shall be restored to the letter of credit (or by a new letter of credit equal to the difference) by Tenant forthwith upon notice from Landlord, and failure to so restore (within the grace period applicable to Base Rent hereunder) shall be a default hereunder giving rise to all of Landlords rights and remedies applicable to a default in the payment of rent. In the event of a change of circumstance relating to the bank issuing the letter of credit such that Landlord reasonably believes the financial conditions of the issuing bank has been degraded to the point where it would no longer be reasonably satisfactory to Landlord, Landlord reserves the right to require Tenant to replace the letter of credit from time to time with a substitute similar letter of credit issued by another bank reasonably satisfactory to Landlord.
(b) Notwithstanding the foregoing, provided (i) there has not been an Event of Default on the part of Tenant in the prior twelve (12) months; and (ii) the Tenant originally named herein (or a Transferee pursuant to Related Party Transfer) continues to be Tenant hereunder, the Letter of Credit Amount shall be reduced, upon Tenants written request, by $372,000 after the first (1 st ) full Lease Year, reducing the Letter of Credit Amount to $1,078,000.00, and by an additional $372,000.00 after the second (2 nd ) full Lease Year, reducing the Letter of Credit Amount to $706,000.00.
ARTICLE 16: PROTECTION OF LENDERS
16.01 Subordination and Superiority of Lease. Tenant agrees that this Lease and the rights of Tenant hereunder will be subject and subordinate to any lien of the holder of any existing or future mortgage, and to the rights of any lessor under any ground or improvements lease of the Building (all mortgages and ground or improvements leases of any priority are collectively referred to in this Lease as mortgage , and the holder or lessor thereof from time to time as a mortgagee ), and to all advances and interest thereunder and all modifications, renewals, extensions and consolidations thereof. The foregoing subordination shall be conditioned upon the mortgagees execution and delivery to Tenant an agreement (in a commercially reasonable and recordable form as such mortgagee may
49
Execution
reasonably provide, consistent with its usual practice) in which the mortgagee agrees that such mortgagee shall not disturb Tenant in its possession of the Premises upon Tenants execution thereof and attornment to such mortgagee as Landlord so long as there exists no Event of Default hereunder. Such agreement shall provide that upon such attornment, this Lease shall continue in full force and effect as a direct lease between the mortgagee and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease, except that the mortgagee shall not be (i) liable in any way to Tenant for any act or omission, neglect or default on the part of mortgagor as Landlord under this Lease, (ii) responsible for any monies owing by or on deposit with mortgagor as Landlord to the credit of Tenant, (iii) subject to any counterclaim or setoff which theretofore accrued to Tenant against mortgagor as Landlord, (iv) bound by any amendment or modification of this Lease subsequent to such mortgage, or by any previous prepayment of Rent for more than one (1) month before the same is due under this Lease, which was not approved in writing by the mortgagee, (v) liable beyond mortgagees interest in the Property, (vi) responsible for the performance of any work to be done by the Landlord under this Lease to render the Premises ready for occupancy by the Tenant, or (vii) required to remove any person occupying the Premises or any part thereof, except if such person claims under the mortgagee. Tenant agrees that any present or future mortgagee may at its option unilaterally elect to subordinate, in whole or in part and by instrument in form and substance satisfactory to such mortgagee alone, the lien of its mortgagee (or the priority of its ground lease) to some or all provisions of this Lease.
Tenant agrees that this Lease shall survive the merger of estates of ground (or improvements) lessor and lessee. Until a mortgagee (either superior or subordinate to this Lease) forecloses Landlords equity of redemption (or terminates or succeeds to a new lease in the case of a ground or improvements lease) no mortgagee shall be liable for failure to perform any of Landlords obligations (and such mortgagee shall thereafter be liable only after it succeeds to and holds Landlords interest and then only as limited herein). Tenant shall, if requested by Landlord or any mortgagee, give notice of any alleged non-performance on the part of Landlord to any such mortgagee provided that an address for such mortgagee has been designated to Tenant in writing, and Tenant agrees that such mortgagee shall have a separate, consecutive reasonable cure period of no less than thirty (30) days (to be reasonably extended in the same manner Landlords cure period is to be extended and for such additional periods as is necessary to allow such Mortgagee to take possession of the Property) following Landlords cure period during which such mortgagee may, but need not, cure any non- performance by Landlord. Nothing in this Section 16.01 shall affect Tenants rights under Section 6.02(c). The agreements in this Lease with respect to the rights and powers of a mortgagee constitute a continuing offer to any person that may be accepted by taking a mortgage (or entering into a ground or improvements lease) of the Premises. This Section shall be self-operative, but in confirmation thereof, Tenant shall execute and deliver the subordination agreement in such form as any mortgagee may request.
16.02 Rent Assignment. If from time to time Landlord assigns this Lease or the rents payable hereunder to any person, whether such assignment is conditional in nature or otherwise, such assignment shall not be deemed an assumption by the assignee of any obligations of Landlord; but, subject to the limitations herein including Sections 16.01 and 10.02(b), the assignee shall be responsible only for non-performance of Landlords obligations that occur after it succeeds to, and only during the period it holds possession of, Landlords interest in the Premises whether after foreclosure, voluntary deed in lieu of foreclosure or otherwise.
50
Execution
16.03 Other Instruments. Tenant agrees to execute, acknowledge and deliver any subordination, attornment or priority agreements or other instruments conforming to the provisions of this Lease (and being otherwise commercially reasonable) from time to time requested by Landlord or any mortgagee.
16.04 Estoppel Certificates. Within ten (10) business days after Landlords written request to Tenant, Tenant shall execute, acknowledge and deliver to Landlord a written statement certifying: (i) that none of the terms or provisions of this Lease have been changed (or if they have been changed, stating how); (ii) that this Lease has not been canceled or terminated; (iii) the last date of payment of Base Rent and other charges and the time period covered; (iv) that to Tenants knowledge Landlord is not in default under this Lease (or if Tenant believes that Landlord is in default, describing it in reasonable detail); and (v) such other factual information with respect to Tenant or this Lease to Tenants knowledge as Landlord may reasonably request or which any prospective purchaser or encumbrancer of the Property may require. Landlord may deliver any such statement by Tenant to any such prospective purchaser or encumbrancer, which may rely conclusively upon such statement as true and correct. If Tenant does not deliver such statement to Landlord within such ten (10) business day period, Landlord, and any such prospective purchaser or encumbrancer, may conclusively presume and rely upon the following facts: (i) that the terms and provisions of this Lease have not been changed except as represented by Landlord; (ii) that this Lease has not been canceled or terminated except as otherwise represented by Landlord; (iii) that not more than one (1) months Base Rent or other charges have been paid in advance; and (iv) that Landlord is not in default under this Lease. In such event, Tenant shall be estopped from denying the truth of such facts.
16.05 Tenants Financial Condition. Tenant, within ten (10) days after request from Landlord from time to time, shall deliver to Landlord Tenants annual audited financial statements for the latest available two (2) fiscal years, including the year ending no more than six (6) months prior to Landlords request, and quarterly financial statements certified in writing by Tenants chief executive officer or other person duly appointed to certify such statements. Landlord may deliver such financial statements to its investors, mortgagees, lenders and prospective mortgagees, lenders, investors and purchasers. Tenant represents and warrants to Landlord that each such financial statement shall be true and accurate as of its date. Except for publicly available information, Landlord shall use commercially reasonable efforts to maintain such financial statements on a confidential basis for the purposes set forth in this Section 16.05. Landlord agrees to keep all such financial statements confidential and not to release them without the prior consent of Tenant, other than to current and prospective lenders, investors and purchasers of the Building and other relevant persons on a need-to-know basis, provided that all such lenders, purchasers and other persons agree to maintain the confidentiality of such statements. Notwithstanding the foregoing, Tenant shall have no obligation to deliver to Landlord, nor shall Landlord have any obligation to keep confidential, any financial statements if the same are filed with the U.S. Securities and Exchange Commission.
ARTICLE 17: MISCELLANEOUS PROVISIONS
17.01 Landlords Consent Fees. In addition to fees and expenses in connection with Tenant Work, as described in Section 10.06, Tenant shall pay Landlords reasonable third-party fees and expenses, including reasonable legal, engineering and other consultants fees and expenses, incurred in connection with Tenants request for Landlords consent under Article 13 (Assignment and Subletting) or in connection with any other act by Tenant that requires Landlords consent or approval under this Lease.
51
Execution
17.02 Notice of Landlords Default. Landlord shall in no event be in default in the performance of any of Landlords obligations under this Lease unless and until Landlord shall have failed to perform such obligations within thirty (30) days, or such additional time as is reasonably required to correct any such default, after notice by Tenant to Landlord properly specifying wherein Landlord has failed to perform any such obligation. It is the express understanding and agreement of the parties and a condition of Landlords agreement to execute this Lease that except as expressly provided herein in no event shall Tenant have the right to terminate this Lease or seek an abatement to or offset from Base Rent, Additional Rent or Rent as a result of Landlords default, but Tenant shall be entitled to seek all other remedies, at law or equity, as a result of such default, subject to the terms and conditions of this Lease. Tenant hereby waives its right to recover punitive, special or consequential damages arising out any act, omission or default by Landlord (or any party for whom Landlord is responsible). This Lease and the obligations of Tenant hereunder shall not be affected or impaired because Landlord is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such inability or delay is caused by reason of force majeure, and the time for Landlords performance shall be extended for the period of any such delay. Any claim, demand, right or defense by Tenant that arises out of this Lease or the negotiations which preceded this Lease shall be barred unless Tenant commences an action thereon, or interposes a defense by reason thereof, within twelve (12) months after the date of, or the date Tenant should have reasonably had notice of, the inaction, omission, event or action that gave rise to such claim, demand, right or defense.
17.03 Quiet Enjoyment. Landlord agrees that, so long as (i) there then exists no uncured Event of Default on the part of Tenant under the terms of this Lease and (ii) this Lease is in full force and effect, Tenant shall lawfully and quietly hold, occupy and enjoy the Premises during the Term of this Lease without disturbance by Landlord or by any person claiming through or under Landlord, subject to the terms of this Lease and any encumbrances of record. The foregoing covenant of quiet enjoyment is in lieu of any other covenant, expressed or implied.
17.04 Interpretation. In any provision relating to the conduct, acts or omissions of Tenant, the term Tenant includes Tenants agents, employees, contractors, invitees, successors, assigns or others using the Premises with Tenants expressed or implied permission.
17.05 Notices. All notices, requests and other communications required or permitted under this Lease shall be in writing, addressed as specified in Article 1, and shall be (i) personally delivered, (ii) sent by certified mail, return receipt requested, postage prepaid, (iii) delivered by a national overnight delivery service that maintains delivery records or (iv) sent by telecopier or facsimile machine ( fax ) that automatically generates a transmission report, with a copy also sent as described in clause (i), (ii) or (iii). All notices shall be effective upon delivery (or first attempted refusal to accept delivery); provided, however, that notice by fax or telecopy shall be effective when transmitted. Either party may change its notice address upon written notice to the other party.
17.06 No Recordation. Tenant shall not record this Lease but, if required by applicable law in order to protect Tenants interest in the Premises, each party hereto agrees, on the request of the other, to execute a so-called memorandum of lease or short form lease in recordable form and complying with applicable law and reasonably satisfactory to Landlords and Tenants attorneys. The party requesting or requiring such recording shall pay all transfer taxes and recording fees. In no event shall such document set forth the rent or other charges payable by Tenant under this Lease; and any such document shall expressly state that it is executed pursuant to the provisions contained in this Lease and is not intended to vary the terms and conditions of this Lease.
52
Execution
17.07 Security Measures. Tenant acknowledges that except as otherwise provided herein, Landlord shall have no obligation to provide guard service or other security measures for the benefit of the Premises or the Property, and Landlord shall have no liability to Tenant due to its failure to provide such services. Tenant assumes all responsibility for the protection of Tenant, its agents, employees, contractors and invitees and the property of Tenant and of Tenants agents, employees, contractors and invitees from acts of third parties. Landlord currently provides periodic patrolled security of the Building common areas and grounds from time to time throughout the day and night, the cost of which shall be included in Operating Expenses. Landlord reserves the right at any time or from time to time, in its sole discretion, to implement additional, modify, alter or discontinue security measures for the Building, Property or any part thereof, in which event Tenant shall participate in such security measures and the cost thereof shall, as and to the extent provided in Section 8.01, be included within the definition of Operating Expenses, and to the maximum extent permissible by law, Landlord shall have no liability to Tenant and its agents, employees, contractors and invitees arising out of Landlords provision of security measures. Landlord shall have the right, but not the obligation, to require all persons entering or leaving the Building to identify themselves to a security guard and to reasonably establish that such person should be permitted access to the Building.
17.08 Corporate Authority. If Tenant is a corporation, limited liability company, trust, or general or limited partnership, Tenant, and each individual executing this Lease on behalf of such entity, represents and warrants that such individual is duly authorized to execute and deliver this Lease on behalf of said entity, that said entity is duly authorized to enter into this Lease, and that this Lease is enforceable against said entity in accordance with its terms. If Landlord is a corporation, limited liability company, trust, or general or limited partnership, Landlord, and each individual executing this Lease on behalf of such entity, represents and warrants that such individual is duly authorized to execute and deliver this Lease on behalf of said entity, that said entity is duly authorized to enter into this Lease, and that this Lease is enforceable against said entity in accordance with its terms.
17.09 Intentionally Omitted.
17.010 Joint and Several Liability; Right to Lease. If more than one (1) party signs this Lease as Tenant, they shall be jointly and severally liable for all obligations of Tenant. Landlord reserves the absolute right to effect such other tenancies in the Property as Landlord in its sole discretion shall determine, and Tenant is not relying on any representation that any specific tenant or number of tenants will occupy the Property.
17.011 Force Majeure. Except as herein expressly provided, if either party cannot perform any of its obligations under this Lease due to events beyond its reasonable control, the time provided for performing such obligations shall be extended by a period of time equal to the duration of the events. Events beyond a partys reasonable control include, without limitation, acts of God, war, civil commotion, labor disputes, strikes, fire, flood or other casualty, shortages of or the inability to obtain labor or material from customary sources on customary terms, government regulation or restriction, weather conditions or acts, neglects or delays of Tenant. The preceding sentence shall not apply to a partys covenants and obligations to pay rent, additional charges and/or other charges or sums due to the other or required to be paid to third parties hereunder and shall not be interpreted to diminish Landlords rights hereunder to cure an Event of Default by Tenant or to recover the expense of such cure.
53
Execution
17.012 Limitation of Warranties. Landlord and Tenant expressly agree that there are and shall be no implied warranties of merchantability, habitability, suitability, fitness for a particular purpose or of any other kind arising out of this Lease, and there are no warranties that extend beyond those expressly set forth in this Lease.
17.013 Certain Amenities; Cafeteria. Landlord has made arrangements for the operation of a cafeteria food service facility in the East Wing of the Building (the One Ledgemont Cafeteria ) and in the building known as Two Ledgemont (the Two Ledgemont Cafeteria ; collectively, One Ledgemont Cafeteria and Two Ledgemont Cafeteria shall be referred to, collectively, as the Cafeterias ). The Cafeterias will be available for use by Tenant and its employees, together with others, during their respective hours of operation and in accordance with any Landlords Rules that may be established concerning such use. Charges for food and other services provided at the Cafeterias shall be as determined by the operator(s) of the Cafeterias (or Landlord) from time to time in its or their sole discretion. It is understood and agreed that all use of the Cafeterias and its facilities shall be at the sole risk of Tenant and the employees using same, and Tenant hereby releases Landlord, and the owner or operator of the Cafeterias, from any liability in connection with such use and indemnifies and holds the Landlord, and the owners or operators of the Cafeterias, harmless from and against any loss, cost, liability, damage or expense occasioned by or in any way related to or arising from the use of the Cafeterias by Tenant or Tenants employees or by any other party allowed to use same by Tenant or any of its employees. Landlord agrees to use commercially reasonable and diligent efforts to continue the operation of the One Ledgemont Cafeteria during the Lease Term and to continue the operation of the Two Ledgemont Cafeteria or otherwise provide commercially reasonable food service in the Building in the event no other commercially reasonable food service is offered in the Project; provided, however, that in no event shall Landlord be required to use such efforts as to the Two Ledgemont Cafeteria in the event that building is no longer owned or controlled by Landlord or that building is no longer a multi-tenanted building. Any costs or losses incurred by Landlord in operating the Cafeterias may be included as part of the Operating Expenses for the Operating Year in which such costs or losses were incurred.
17.014 No Other Brokers. Landlord and Tenant represent and warrant to each other that it has engaged no real estate brokers or finders other than the Broker(s) named in Article 1 and Landlords Managing Agent with respect to this Lease. Landlord and Tenant each agree to indemnify and hold the other harmless from any claim, demand, cost or liability, including reasonable attorneys fees and expenses, asserted by any party other than the Broker(s) named in Article 1 and Landlords Managing Agent based upon a claim that such party was engaged by the indemnifying party. Landlord shall be responsible for the payment of any brokerage fees to the Broker(s)s named in Article 1 and Landlords Managing Agent. The provisions of this Section shall survive the Term or early termination of this Lease.
17.015 Applicable Law and Construction. This Lease may be executed in counterparts, shall be construed as a sealed instrument, and shall be governed exclusively by the provisions hereof and by the laws of the state where the Property is located without regard to principles of choice of law or conflicts of law. A facsimile signature to this Lease shall be sufficient to prove the execution by a party. The covenants of Landlord and Tenant are independent, and such covenants shall be construed as such in
54
Execution
accordance with the laws of the state where the Property is located. If any provisions shall to any extent be invalid, the remainder shall not be affected. Other than contemporaneous instruments executed and delivered of even date, if any, this Lease contains all of the agreements between Landlord and Tenant relating in any way to the Premises and supersedes all prior agreements and dealings between them. There are no oral agreements between Landlord and Tenant relating to this Lease or the Premises. This Lease may be amended only by instrument in writing executed and delivered by both Landlord and Tenant. The provisions of this Lease shall bind Landlord and Tenant and their respective successors and assigns, and shall inure to the benefit of Landlord and its successors and assigns and of Tenant and its permitted successors and assigns, subject to Article 13. The titles are for convenience only and shall not be considered a part of the Lease. This Lease shall not be construed more strictly against one party than against the other merely by virtue of the fact that it may have been prepared primarily by counsel for one of the parties, it being recognized that both Landlord and Tenant have contributed substantially and materially to the preparation of this Lease. If Tenant is granted any extension or other option, to be effective the exercise (and notice thereof) shall, except as expressly otherwise provided herein, be unconditional; and if Tenant purports to condition the exercise of any option or to vary its terms in any manner, then the option granted shall be void and the purported exercise shall be ineffective. The enumeration of specific examples of a general provisions shall not be construed as a limitation of the general provision. Unless a partys approval or consent is required by the express terms of this Lease not to be unreasonably withheld, such approval or consent may be withheld in the partys sole discretion. The submission of a form of this Lease or any summary of its terms shall not constitute an offer by Landlord to Tenant; but a leasehold shall only be created and the parties bound when this Lease is executed and delivered by both Landlord and Tenant and approved by the holder of any mortgagee of the Premises having the right to approve this Lease. Nothing herein shall be construed as creating the relationship between Landlord and Tenant of principal and agent, or of partners or joint venturers or any relationship other than landlord and tenant. Signed originals of this Lease and all consents, notices, approvals and all other related documents may be reproduced by any party by any electronic means or by facsimile, photographic, microfilm, microfiche or other reproduction process and the originals may be destroyed; and each party agrees that any such reproductions shall be as admissible in evidence in any judicial or administrative proceeding as the original itself (whether or not the original is in existence and whether or not reproduction was made in the regular course of business), and that any further reproduction of such reproduction shall likewise be admissible. If any payment in the nature of interest provided for in this Lease shall exceed the maximum interest permitted under controlling law, as established by final judgment of a court, then such interest shall instead be at the maximum permitted interest rate as established by such judgment. The term Term includes the Initial Term as it may be extended pursuant to Section 3.03.
17.016 Construction on the Property or Adjacent Property. Tenant acknowledges that Landlord is undertaking, or may undertake in the future, certain renovations in the Building or on or about the Property (the Project ) including the right to make changes to the size, shape, location, number and extent of the improvements comprising the Property. In connection therewith, Landlord may, among other things, erect scaffolding or other necessary structures at the Property, limit or eliminate access to portions of the Property, including portions of the common areas, or perform work in or about the Building, which work may create noise, dust or leave debris in the Building. Landlord and its agents, employees, licensees and contractors shall also have the right to enter on the Property or Building to undertake work pursuant to any easement granted pursuant to the above paragraph; to shore up the foundations and/or walls of the Building; to erect scaffolding and protective barricades around, within or adjacent to the Building; and to do any other act necessary for the safety of the Building or the
55
Execution
expeditious completion of such work. Although Landlord shall use commercially reasonable efforts to minimize any material interference of Tenants use or occupancy of or access to the Premises, Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenants business arising from the foregoing work, nor shall Tenant be entitled to any compensation or damages from Landlord for any inconvenience or annoyance occasioned by such work or Landlords actions in connection therewith. Landlord shall have the right, in connection with the development, redevelopment, alteration, improvement, operation, maintenance, or repair of the Building, the Property or the Project, to subject the Property to easements for the construction, reconstruction, alteration, improvement, operation, repair or maintenance of elements thereof, for access and egress for parking, for the installation, maintenance, repair, replacement or relocation of utilities serving the Building, the Property or the Project and to subject the Property to such other rights, agreements, and covenants for such purposes as Landlord may determine. Tenant hereby agrees that this Lease shall be subject and subordinate to any such matters that do not materially adversely affect Tenants rights or Landlords obligations under this Lease or Tenants use and enjoyment of the Premises. The foregoing sentence shall be self-operative. Neither Tenant nor any persons acting under Tenant shall take any action to oppose the Project, nor shall the Tenant knowingly permit any persons acting under Tenant to take any action in opposition to the Project.
17.017 Intentionally | Omitted. |
17.018 Confidentiality. Tenant acknowledges and agrees that the terms of this Lease are confidential. Disclosure of the terms hereof could adversely affect the ability of Landlord to negotiate other leases with respect to the Building and may impair Landlords relationship with other tenants of the Building. Tenant agrees that it and its partners, officers, directors, employees, brokers, and attorneys, if any, shall, except if disclosure is required by law or regulation applicable to Tenant, including required financial disclosures or securities filings use commercially reasonable efforts to maintain the confidentiality of the terms and conditions of this Lease. It is understood and agreed that damages alone would be an inadequate remedy for the breach of this provision by Tenant, and Landlord shall also have the right to seek specific performance of this provision and to seek injunctive relief to prevent its breach or continued breach.
17.019 OFAC CERTIFICATION AND INDEMNITY . Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (the Executive Order), and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 10756, the Patriot Act) prohibit certain property transfers. Tenant hereby represents and warrants to Landlord (which representations and warranties shall be deemed to be continuing and re-made at all times during the Term) that neither Tenant nor any stockholder, manager, beneficiary, partner, or principal of Tenant is subject to the Executive Order, that none of them is listed on the United States Department of the Treasury Office of Foreign Assets Control (OFAC) list of Specially Designated Nationals and Blocked Persons as modified from time to time, and that none of them is otherwise subject to the provisions of the Executive Order or the Patriot Act. The most current list of Specially Designated Nationals and Blocked Persons can be found at http://www.treas.gov/offices/eotffc/ofac/sdn/index.html . Tenant shall from time to time, within ten days after request by Landlord, deliver to Landlord any certification or other evidence reasonably requested from time to time by Landlord in its reasonable discretion, confirming Tenants compliance with these provisions. If for any reason the representations and warranties set forth in this subsection, or any certificate or other evidence of compliance delivered to Landlord hereunder, is untrue in any
56
Execution
respect when made or delivered, or thereafter becomes untrue in any respect, then an Event of Default by Tenant hereunder shall be deemed to occur. Tenant shall indemnify, defend with counsel reasonably acceptable to Landlord, and hold Landlord harmless from and against, any and all liabilities, losses claims, damages, penalties, fines, and costs (including attorneys fees and costs) arising from or related to the breach of any of the foregoing representations, warranties, and duties of Tenant. The provisions of this subsection shall survive the expiration or earlier termination of this Lease for the longest period permitted by law.
17.020 WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, COUNTERCLAIM OR CROSS-COMPLAINT IN ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER LANDLORD AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANTS USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY WITH RESPECT THERETO UNDER ANY LAW, STATUTE, OR REGULATION, EMERGENCY OR OTHERWISE, NOW OR HEREAFTER IN EFFECT.
17.021 Attorneys Fees. In the event of any litigation between Landlord and Tenant related to this Lease or the Premises the prevailing party shall be entitled to recover as a part of such proceeding, or in a separate action brought for that purpose, reasonable attorneys fees, court costs and expert fees.
17.022 Tenant shall have the right from time to time to grant security interests in all of the Tenant Property located within the Premises to its lenders in connection with Tenants financing arrangements, and any statutory or common law lien of Landlord against Tenant Property shall be subject and subordinate to such security interest. Landlord agrees that it shall subordinate its lien on all such Tenant Property pursuant to a commercially reasonable form of lien waiver (which may include mutually satisfactory access rights for the benefit of he holders of such security interests) reasonably approved by Landlord.
57
Execution
Executed to take effect as a sealed instrument on the Date of Lease first set forth above.
LANDLORD: | ||||
ONE LEDGEMONT LLC | ||||
By: | /s/ Robert L. Beal | |||
|
||||
Name: |
Robert L. Beal |
|||
Title: |
Manager |
|||
TENANT: | ||||
CONCERT PHARMACEUTICALS, INC. | ||||
By: | /s/ Roger Tung | |||
|
||||
Name: |
Roger Tung |
|||
Title: |
President & CEO |
|||
Duly Authorized |
58
Execution
Executed to take effect as a sealed instrument on the Date of Lease first set forth above.
LANDLORD: | ||||
ONE LEDGEMONT LLC | ||||
By: |
|
|||
Name: |
|
|||
Title: |
|
|||
TENANT: | ||||
CONCERT PHARMACEUTICALS, INC. | ||||
By: | /s/ R. Silverman | |||
|
||||
Name: |
ROBERT SILVERMAN |
|||
Title: |
VP & General Counsel |
|||
Duly Authorized |
58
Execution
Exhibit A
Plan of Leased
Premises
A - 1
Execution
A - 2
Execution
A - 3
Execution
Exhibit B
Rules and Regulations
1. | If Tenant requires telephone, data, burglar alarm or similar service, the cost of purchasing, installing and maintaining such service shall be borne solely by Tenant. No boring or cutting for wires will be allowed without the prior written consent of Landlord, not to be unreasonably withheld, conditioned or delayed. Landlord shall direct electricians as to where and how telephone, data, and electrical wires are to be introduced or installed. The location of burglar alarms, telephones, call boxes or other office equipment affixed to the Premises shall be subject to the prior written approval of Landlord |
2. | Tenant shall not place a load upon any floor of its Premises, including mezzanine area, if any, which exceeds the load per square foot that such floor was designed to carry (100 lbs prsf live load) and that is allowed by law. Heavy objects shall stand on such platforms as reasonably determined by Landlord to be necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant. |
3. | Tenant shall not install any radio or television antenna, satellite dish, loudspeaker or other device on the roof or exterior walls of the Building without Landlords prior written consent which consent shall not be unreasonably withheld, conditioned or delayed. |
4. | Tenant shall not drive nails, screw or drill into the partitions, woodwork, plaster or drywall (except for pictures and general office uses) or in any way deface the Premises or any part thereof. Tenant shall not affix any floor covering to the floor of the Premises or paint or seal any floors in any manner except as approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant shall repair any damage resulting from noncompliance with this rule. |
5. | No cooking shall be done or permitted on the Premises, except that Underwriters Laboratory approved microwave ovens or equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, provided that such equipment and use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations. |
6. | All trash and refuse shall be contained in suitable receptacles at locations approved by Landlord. Tenant shall not place in the trash receptacles any personal trash or material that cannot be disposed of in the ordinary and customary manner of removing such trash without violation of any law or ordinance governing such disposal. |
7. | Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governing authority. |
8. | Tenant assumes all responsibility for securing and protecting its Premises and its contents including keeping doors locked and other means of entry to the Premises closed. |
9. | Except as otherwise provided in this Lease, Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord without Landlords prior written consent. |
10. | No person shall go on the roof without Landlords permission, not to be unreasonably withheld, conditioned or delayed. |
B - 1
Execution
11. | Canvassing, soliciting, distribution of handbills or any other written material in the Building or Project Area is prohibited and each tenant shall cooperate to prevent the same. No tenant shall solicit business from other tenants or permit the sale of any goods or merchandise in the Building or Project Area without the written consent of Landlord. |
12. | Any equipment belonging to Tenant which causes noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the Building shall be placed and maintained by Tenant, at Tenants expense, on vibration eliminators or other devices sufficient to eliminate the noise or vibration. |
13. | Driveways, sidewalks, halls, passages, exits, entrances and stairways ( Access Areas ) shall not be obstructed by tenants or used by tenants for any purpose other than for ingress to and egress from their respective premises. Access areas are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the reasonable judgment of Landlord, shall be prejudicial to the safety, character, reputation and interests of the Building or its tenants. |
14. | Subject to the terms and conditions of the Lease, Landlord reserves the right to designate the use of parking areas and spaces. Tenant shall not park in visitor, reserved, or unauthorized parking areas. Tenant and Tenants guests shall park between designated parking lines only and shall not park motor vehicles in those areas designated by Landlord for loading and unloading. Vehicles in violation of the above shall be subject to being towed at the vehicle owners expense. Tenant shall endeavor to notify Landlords property management of any vehicles to be parked overnight on or about the Building or parking areas serving same. Vehicles parked overnight without such Tenant notification may be subject to being towed at vehicle owners expense. Tenant will from time to time, upon the request of Landlord, supply Landlord with a list of license plate numbers of vehicles owned or operated by its employees or agents. |
15. | No trucks, tractors or similar vehicles can be parked anywhere other than in Tenants own truck dock area. Tractor-trailers which must be unhooked or parked with dolly wheels beyond the concrete loading areas must use steel plates or wood blocks under the dolly wheels to prevent damage to the paving surfaces. No parking or storing of such trailers will be permitted in the parking areas or on streets adjacent thereto. |
16. | Except as otherwise provided in the Lease, no sign, placard, picture, advertisement, name or notice (collectively referred to as Signs ) shall be installed or displayed on any part of the outside of the Building without the prior written consent of the Landlord which consent shall be in Landlords sole discretion. Subject to the terms and conditions of the Lease, all approved Signs shall be printed, painted, affixed or inscribed at Tenants expense by a person or vendor approved by Landlord and shall be removed by Tenant at Tenants expense upon vacating the Premises. Landlord shall have the right to remove any Sign installed or displayed in violation of this rule at Tenants expense and without notice. Subject to approval by Landlord and by the Town of Lexington, Tenant will have the right to signage similar to that of other tenants of the Building. All such signage will be installed, maintained, and, at the end of the Term, removed by Tenant at its sole expense, with Tenant repairing any damage caused by same. |
17. |
During periods of loading and unloading, Tenant shall not unreasonably interfere with traffic flow and loading and unloading areas of other tenants. All products, materials or goods must |
B - 2
Execution
be stored within the Tenants Premises and not in any exterior areas, including, but not limited to, exterior dock platforms, against the exterior of the Building, parking areas and driveway areas. Tenant agrees to keep the exterior of the Premises clean and free of nails, wood, pallets, packing materials, barrels and any other debris produced from their operation. |
18. | Tenant shall not permit any motor vehicles to be washed or mechanical work or maintenance of motor vehicles to be performed on any portion of the Premises or parking lot. |
19. | Tenant shall not permit smoking or carrying of lighted cigarettes or cigars in the Building. |
20. | Canvassing, soliciting, distribution of handbills or any other written material in the Building or Project Area is prohibited and each tenant shall cooperate to prevent the same. No tenant shall solicit business from other tenants or permit the sale of any goods or merchandise in the Building or Project Area without the written consent of Landlord. |
21. | Except for animals used in connection with Tenants Permitted Uses, Tenant shall not permit any animals, other than seeing-eye dogs, to be brought or kept in or about the Premises or any common area of the property. |
22. | Tenant shall not alter any lock or other access device or install a new or additional lock or access device or bolt on any door of its Premises without the prior written consent of Landlord, not to be unreasonably withheld, conditioned or delayed. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys or other means of access to all doors. |
23. | These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of any premises in the Building. Landlord may waive any one or more of these Rules and Regulations for the benefit of any tenant or tenants, and any such waiver by Landlord shall not be construed as a waiver of such Rules and Regulations for any or all tenants. |
24. | Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order in and about the Building. Tenant agrees to abide by all such rules and regulations herein stated and any additional rules and regulations which are adopted. Tenant shall be responsible for the observance of all of the foregoing rules by Tenants employees, agents, clients, customers, invitees and guests. |
B - 3
Execution
Exhibit C
Rules and Regulations for Design and Construction of Tenant Work
1. | DEFINITIONS |
1.1 Building: | 128 Spring Street, Ledgemont I. | |
1.2 Property Manager: | Beal and Company, Inc., or such other individual/entity as landlord may designate, from time to time. | |
1.3 Consultant: | Any architectural, engineering or design consultant- engaged by a Tenant in connection with Tenant Work. | |
1.4 Contractor: | Any Contractor engaged by Tenant of the Building for the performance of any Tenant Work, and any Subcontractor employed by any such Contractor. | |
1.5 Plans: | All architectural, electrical and mechanical construction drawings and specifications required for the proper construction of the Tenant Work. | |
1.6 Regular Business Hours: | Monday through Friday, 8:00 a.m. through 6:00 p.m., holidays and weekends excluded. | |
1.7 Tenant: | Any occupant of the Building. | |
1.8 Tenant Work: | Any alterations, improvements, additions, repairs or installations on the building performed by or on behalf of any Tenant. | |
1.9 Tradeperson: | Any employee (including, without limitation, any mechanic laborer, or Tradeperson) employed by a Contractor performing Tenant Work. |
2. | GENERAL |
2.1 | All Tenant Work shall be performed in accordance with these Rules and Regulations and the applicable provisions of the Lease and to current local and state code. |
2.2 | The provisions of these Rules and Regulations shall be incorporated in all agreements governing the performance of all Tenant Work, including, without limitation, any agreements governing services to be rendered by each Contractor and Consultant. |
2.3 | Except as otherwise provided in these Rules and Regulations, all inquires, submissions and approvals in connection with any Tenant Work shall be processed through the Property Manager. |
C - 1
Execution
3. | INTENTIONALLY OMITTED. |
4. | RECONSTRUCTION NOTIFICATION AND APPROVALS |
4.1 | Approval to Commence Work: |
A) | Tenant shall submit to Property Manager, for the approval of the Landlord, the names of all prospective Contractors and Certificates of Insurance, prior to issuing any bid packages to such Contractors. |
B) | No Tenant Work shall be undertaken by any Contractor or Tradeperson unless and until all the matters set forth in Section 4.2 below have been received for the Tenant Work in question and unless the Property Manager has approved the matters set forth in Section 4.2 below. |
4.2 | No Tenant Work shall be performed unless, at least two (2) weeks before any Tenant Work is to begin, all of the following have been provided to the Property Manager and approved. In the event that Tenant proposes to change any of the following, the Property Manager shall be immediately notified of such change and such change shall be subject to the approval of the Property Manager: |
A) | Schedule for the work, indication start and completion dates, any phasing and special working hours, and also a list of anticipated shutdowns of building systems. |
B) | List of all Contractors and Subcontractors, including addresses, telephone numbers, emergency (after hours) telephone numbers, trades employed, and the union affiliation, if any, of each Contractor and Subcontractor. |
C) | Names and telephone numbers of the supervisors of the work. |
D) | Copies of all necessary governmental permits, licenses and approvals. |
E) | Proof of current insurance, to the limits set out in Schedule A to these Rules and Regulations, naming Landlord (One Ledgemont LLC) and Landlords designees as additional insured parties. |
F) | Notice of the involvement of any Contractor in any ongoing threatened labor dispute. |
G) | Payment, Performance and Lien Bonds from sureties acceptable to Landlord, in form acceptable to Landlord, naming Landlord as an additional obligee. |
C - 2
Execution
H) | Evidence that Tenant has made provision for either written waivers of lien from all Contractors and suppliers of material, or other appropriate protective measures approved by Landlord. |
I) | A pre-existing condition survey as specified in Section 7.2(C). |
4.3 | Reporting Incidents: All accidents, disturbances, labor disputes or threats thereof, and other noteworthy events pertaining to the Building or the Tenants property shall be reported immediately to the Property Manager. A written report must follow within twenty-four (24) hours. |
5. | CONSTRUCTION SCHEDULE |
5.1 | Coordination: |
A) | All Tenant Work shall be carried out expeditiously and with minimum disturbance and disruption to the operation of the Building and without causing discomfort, inconvenience, or annoyance to any of the other tenants or occupants of the Building or the public at large. |
B) | All schedules for the performance of construction, including materials deliveries, must be coordinated through the Property Manager. The Property Manager shall have the right, without incurring any liability to any Tenant, to stop activities and/or to require rescheduling of Tenant Work based upon adverse impact on the tenants or occupants of the Building or on the maintenance or operation of the Building. |
C) | If any Tenant Work requires the shutdown of risers and mains for electrical, mechanical, sprinkler, and plumbing work, such work shall be supervised by a representative of Landlord, the cost of which shall be charged directly to the tenant at the prevailing building rate. No Tenant Work will be performed in the Buildings mechanical or electrical equipment rooms without both Landlords prior approval and the supervision of a representative of Landlord, the cost of which shall be reimbursed by the Tenant to the Landlord. Tenant shall provide the Property Manager with at least one week to schedule such work. |
5.2 | Time Restrictions: |
A) | Subject to Section 5.1 of these Rules and Regulations, general construction work will generally be permitted at all times, unless such work affects other tenants or occupants of the building or poses a safety concern at which time it will need be scheduled during non-business hours. |
B) | Tenant shall provide the Property Manager with at least forty eight (48) hours notice before proceeding with Special Work, as hereinafter defined, and such Special Work will be permitted only at times agreed to by the Property Manager during periods outside of Regular Business Hours. Special Work shall be defined as the following operations: |
1. | All utility disruptions, shutoffs and turnovers. |
C - 3
Execution
2. | Activities involving high levels of noise, including demolition, coring, drilling and ramsetting. |
3. | Activities resulting in excessive dust or odors, including demolition, staining and spray painting. |
4. | All construction work which will require access to multi-tenant areas or other tenant areas. |
C) | The delivery of construction materials to the Building, their distribution within the Building, and the removal of waste materials shall also be confined to periods outside Regular Business Hours, unless otherwise specifically permitted in writing by the Property Manager. Costs for use of the freight elevator after Regular Business Hours shall be billed directly to such tenant at the then prevailing rate. |
D) | If coordination, labor disputes or other circumstances require, the Property Manager may change the hours during which regular construction work can be scheduled and/or restrict or refuse entry to and exit from the Building by any Contractor. |
6. | CONTRACTOR PERSONNEL |
6.1 | Work in History: |
A) | All Contractors shall be responsible for employing skilled and competent personnel and suppliers who shall abide by the rules and regulations herein set forth as amended from time to time by Landlord. |
B) | No Tenant shall at any time, either directly or indirectly, employ, permit the employment, or continue the employment of any contractor if such employment or continued employment will or does interfere or cause any labor disharmony, coordination difficulty, delay or conflict with any other contractors engaged in construction work in or about the Building or the complex in which the Building is located. |
C) | Should a work stoppage or other action occur anywhere in or about the Building as a result of the presence, anywhere in the Building, or a Contractor engaged directly or indirectly by a Tenant, or should such Contractor be deemed by Landlord to have violated any applicable rules or regulations, then upon twelve hours written notice, Landlord may, without incurring any liability to Tenant or said contractor, require any such Contractor to vacate the premises demised by such Tenant and the Building, and to cease all further construction work therein. |
6.2 | Conduct: |
A) | While in or about the Building, all Tradepersons shall perform in a dignified, quiet, courteous, and professional manner at all times. Tradepersons shall wear clothing suitable for their work and shall remain full attired at all times. All Contractors will be responsible for their Tradepersons proper behavior and conduct. |
B) | The Property Manager reserves the right to remove any one who, or any contractor which; is causing a disturbance to any tenant or occupant of the Building or any other person using or servicing the Building; is interfering with the work of others; or is in any other way displaying conduct or performance not compatible with the Landlords standards. |
C - 4
Execution
6.3 | Access: |
A) | All Contractors and Tradepersons shall contact the Property Manager prior to commencing work, to confirm work location and Building access, including elevator usage and times of operation. Access to the Building before and after Regular Business Hours or any other hours designated from time to time by the Property Manager and all day on weekends and holidays will only be provided when forty-eight (48) hours advanced notice is given to the Property Manager. |
B) | No Contractor or Tradepersons will be permitted to enter any private or public space in the Building, other than the common areas of the Building necessary to give direct access to the premises of Tenant for which he has been employed, without the prior approval of the Property Manager. |
C) | All Contractors and Tradepersons must obtain permission from the Properly Manager prior to undertaking work in any space outside of the Tenants premises. This requirement specifically includes ceiling spaces below the premises where any work required must be undertaken at the convenience of the affected Tenant and outside of Regular Business Hours. Contractors undertaking such work shall ensure that all work, including work required to reinstate removed items and cleaning, be completed prior to opening of the next business day. Any cleaning or repairs costs incurred by Landlord, as a result of work outside the construction area shall be charged to the Tenant. |
D) | Contractors shall ensure that all furniture, equipment and accessories in areas potentially affected by any Tenant Work shall be adequately protected by means of drop cloths or other appropriate measures. In addition, all Contractors shall be responsible for maintaining security to the extent required by the Property Manager. |
E) | Temporary access doors for tenant construction areas connecting with a public corridor will be building standards, i.e., door, frame, hardware and lockset. A copy of the key will be furnished to the Property Manager. |
6.4 | Safety: |
A) | All Contractors shall police ongoing construction operations and activities at all times, keeping the premises orderly, maintaining cleanliness in and about the premises, and ensuring safety and protection of all areas, including truck docks, elevators, lobbies, and all other public areas which are used for access to the premises. |
C - 5
Execution
B) | All Contractors shall appoint a supervisor who shall be responsible for all safety measures, as well as for compliance with all applicable government laws, ordinances, rules and regulations such as, for example, OSHA and Right-to-Know legislation. |
C) | Any damage caused by Tradepersons or other Contractor employees shall be the responsibility of the Tenant employing the Contractor. Costs for repairing such damage shall be charged directly to such Tenant. |
6.5 | Parking: |
A) | No parking of contractor or sub-contractor vehicles will be provided in the truck dock, handicapped or fire access lanes, or any private ways in or surrounding the property. Vehicles so parked will be towed at the expense of the Tenant who has engaged the Contractor for whom the owner of such vehicle is employed. |
B) | Garage parking is available on-site. |
7. | BUILDING MATERIALS |
7.1 | Delivery: |
A) | All deliveries of construction materials shall be made at the predetermined times approved by the Property Manager and shall be effected safely and expeditiously only at the location determined by the Property Manager. |
7.2 | Transportation in Building: |
A) | Distribution of materials from delivery point to the work area in the Building shall be accomplished with the least disruption to the operation of the Building possible. Elevators will be assigned for material delivery and will be controlled by the Building Management. |
B) | Contractors shall provide adequate protection to all carpets, wall surfaces, doors and trim in all public areas through which materials are transported. Contractors shall continuously clean all such areas. Protective measures shall include runners over carpet, padding in elevators and any other measures determined by the Property Manager. |
C) | Any damage caused to the Building through the movement of construction materials or otherwise shall be the responsibility of Tenant who has engaged the Contractor involved. Charges for such damage will be submitted by the Landlord directly to the Tenant. Prior to the commencement of tenant work, a pre-existing condition survey shall be submitted to the Property Manager. Such survey shall be used at the completion of the project to determine, if any, the extent of damage to the building systems or finishes. |
C - 6
Execution
7.3 | Storage and Placement: |
A) | All construction materials shall be stored only in the premises where they are to be installed. No storage of materials will be permitted in any public areas, loading docks or corridors leading to the premises. |
B) | No flammable, toxic, or otherwise hazardous materials may be brought in or about the Building unless all of the following are met: (i) authorized by the Property Manager, (ii) all applicable laws, ordinances, rules and regulations are complied with, and (iii) all necessary permits have been obtained. All necessary precautions shall be taken by the contractor handling such materials against damage or injury caused by such materials. |
C) | All materials required for the construction of the premises must comply with Building Standards, must conform with the plans and specifications approved by Landlord, and must be installed in the locations shown on the drawings approved by the Landlord. |
D) | All work shall be subject to supervision and inspection by Landlords Representative. |
E) | No alterations to approved plans will be made without prior knowledge and approval of the Property Manager. Such changes shall be documented on the as-build drawings required to be delivered to Landlord pursuant to Paragraph 10 of the rules and regulations. |
F) | All protective devices (e.g., temporary enclosures and partitions) and materials, as well as their placement, must be approved by the Property Manager. |
G) | It is the responsibility of Contractors to ensure that the temporary placement of materials does not impose a hazard to the Building or its occupants, either through overloading, or interference with Building systems, access, egress or in any other manner whatsoever. |
H) | All existing and/or new openings made through the floor slab for piping, cabling, etc. must be sealed per code. All holes in the floor slab at abandoned floor outlets, etc. need to be filled with solid concrete. |
7.4 | Salvage and Waste Removal: |
A) | All rubbish, waste and debris shall be neatly and cleanly removed from the Building by Contractors daily unless otherwise approved by the Property Manager. The Buildings trash compactor shall not be used for construction or other debris. For any demolition and debris, each Contractor must make arrangements with the Property Manager for the scheduling and location of an additional dumpster to be supplied at the cost of the Tenant engaging such Contractor. Where, in the opinion of the Property Manager, such arrangements are not practical, such Contractors will make alternative arrangements for removal at the cost of the Tenant engaging such Contractors. |
C - 7
Execution
B) | Toxic or flammable materials are to be properly removed daily and disposed of in full accordance with all applicable laws, ordinances, rules and regulations. |
C) | Contractors shall, prior to removing any item (including, without limitation, building standard doors, frames and hardware, light fixtures, ceiling diffusers, ceiling exhaust fans, sprinkler heads, fire horns, ceiling speakers and smoke detectors) from the Building, notify the Property Manager that it intends to remove such item. At the election of Property Manager, Contractors shall deliver any such items to the Properly Manager. Such items will be delivered, without cost, to an area designated by the Property Manager which area shall be within the Building or the complex in which the Building is located. |
8. | PAYMENT OF CONTRACTORS |
Tenant shall promptly pay the cost of all Tenant Work so that Tenants premises and the Building shall be free of liens for labor or materials. If any mechanics lien is filed against the Building or any part thereof which is claimed to be attributable to the Tenant, its agents, employees or contractors, Tenant shall give immediate notice of such lien to the Landlord and shall promptly discharge the same by payment or filing any necessary bond within 10 days after Tenant has first notice of such mechanics lien.
9. | CONFLICT BETWEEN RULES AND REGULATIONS AND LEASE |
In the event of any conflict between the Lease and these Rules and Regulations, the terms of the Lease shall control.
10. | GENERAL |
10.1. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of any premises in the Building. Landlord may waive any one or more of these Rules and Regulations for the benefit of any tenant or tenants, and any such waiver by Landlord shall not be construed as a waiver of such Rules and Regulations for any or all tenants.
10.2. Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order in and about the Building. Tenant agrees to abide by all such rules and regulations herein stated and any additional rules and regulations which are adopted. Tenant shall be responsible for the observance of all of the foregoing rules by Tenants employees, agents, clients, customers, invitees and guests.
C - 8
Execution
SCHEDULE A OF EXHIBIT C
RULES AND REGULATIONS
FOR DESIGN AND CONSTRUCTION OF TENANT WORK
Ledgemont Center
BASE BUILDING CHARGES
Contractors desiring to work on the Building Systems must coordinate all work with the Management Office at 781-861-7786.
All work must be scheduled a minimum of one week prior to the start of work. A work order will be issued listing the system affected and the time of shutdown. No work will commence until the work order has been signed by an authorized representative of the construction company.
Contractors must obtain credit approval from the Management Office prior to any work authorization.
Fire Alarm Shutdown | Reconnect Shutdown | |||||||
8:00 a.m. to 5:00 p.m. |
$ | 125.00 | N/C | |||||
5:00 p.m. to 8:00 a.m. |
$ | 175.00 | $ | 175.00 | ||||
Saturday |
$ | 225.00 | $ | 225.00 | ||||
Sunday |
$ | 250.00 | $ | 250.00 |
Labor charge (per person) for Fire Alarm Watch or Sprinkler System Shutdown (required when servicing or testing any life safety device):
8:00 a.m. to 5:00 p.m. | $40.00 per hour | |
5:00 p.m. to 8:00 a m. | $60.00 per hour | |
Saturday | $60.00 per hour | |
Sunday | $80.00 per hour |
Contractor may not proceed with any work until authorization to begin work has been obtained from the Management Office. A separate request is to be issued for each day in which the Life Safety work is being performed.
Contractor will be fined $1,500.00 for each and every false alarm caused by contractors employees or their actions. Contractor will be fined $500.00 for every smoke detector covered by the contractor or their subcontractors.
$30.00 Per Hr (3 Hr Min) Contractors must pay a minimum of $1,500.00 to repair the elevator cabs if damaged.
C - 9
Execution
SCHEDULE B OF EXHIBIT C
RULES AND REGULATIONS
FOR DESIGN AND CONSTRUCTION OF TENANT WORK
INSTALLATION OF CABLES
1.1 | Computer and Telephone Cables |
1.1.1 | Layout |
A layout of cables must be submitted to the Property Manager for approval prior to installation.
1.1.2 | Installation |
A) | Cables installed above the ceiling must be Teflon coated or encased in metal conduit. |
B) | Cables must be tagged every 15 and color coded. |
C) | Cables must be properly affixed to the framing above the duct work so that they are self-supporting. Do not fasten to light fixtures. |
D) | Cables must not sag and will be installed in the shortest possible runs. |
E) | Connections (connectors, splices, etc.) must be securely installed so that they will not pull apart if cable is accidentally touched or pulled. |
1.2 | Electrical Floor Outlet Cables |
1.2.1 | Layout |
A layout of cables must be submitted to the Property Manager for approval prior to installation.
1.2.2 | Installation |
A) | Cables must be tagged every 15 and color coded. |
B) | Runs will be as short and as free of slack as possible secured per code requirements. |
C) | Cables are to be installed in tenants own ceiling then down partitions into the ceiling of the tenant below. |
D) | Cables must be properly secured so that they are self supporting. |
C - 10
Execution
E) | All connections (connectors, splices, etc.) must be located in the tenants own space to avoid damage from below. |
F) | Cables must be secured with clamps where they pass through the floor to prevent connections from separating. |
G) | Where feasible, install cables above duct work and other materials in the ceiling. |
1.1 | Electrical Work |
1.3.1 | All power wiring in Mechanical Rooms, Electric Rooms and Telephone rooms must be in EMT. |
1.4 | Security System |
1.4.1 | Layout |
A layout of the security system wiring must be submitted to the Property Manager for approval prior to installation.
1.4.2 | Installation |
A) | All wiring for the security system will be tagged every 15. |
C - 11
Execution
SCHEDULE C OF EXHIBIT C
RULES AND REGULATIONS
FOR DESIGN AND CONSTRUCTION OF TENANT WORK
1. | WELDING AND HEAT CUTTING WORK |
1.1 | Definition |
Welding and heat cutting activities as well as soldering and brazing shall be included in Special Work category as defines in Section 5.2(B). They require the tenant to provide the Property Manager with at least forty eight (48) hours notice before proceeding and must be performed during periods outside of regular business hours.
1.2 | Permitting |
The Contractor must obtain a permit from the Lexington Fire Department before commencing work.
1.3 | Precautions |
Because welding and other hot work is a fire hazard, the Contractor must observe the following precautions and procedures (when possible, work should be done in a non-combustible area):
A) | No sprinkler impairments are allowed during Special Work and while the fire watch is in place. The sprinkler impairment restriction is for the floor the Special Work is taking place on and the floor above and the floor below. |
B) | Smoke Detectors in the work area should be de-activated by the Building Manager for the duration of the work. The Property Manager will re-activate smoke detectors when the work is complete. |
C) | Combustible materials shall be located at least fifty (50) feet from hot work operations and shall be covered with non-combustible materials. |
D) | All flammable liquids and other hazards must be removed. |
E) | All floor and wall openings must be covered with non-combustible material. |
F) | Containers, tanks, ducts, etc. must be cleaned and purged of flammable vapors, liquids, dusts etc. |
G) |
A minimum of one multipurpose ABC rated portable fire extinguisher must be provided within ten (10) feet of the work area. The extinguisher should be fully charged and have been properly serviced within the last year. It is the |
C - 12
Execution
responsibility of the contractor to provide fire extinguishers. Building extinguishers should not be used. A standpipe hose should also be readily available. |
H) | A fire watch should be maintained on the floor levels where the work was conducted plus the next two floors below for at least one hour after welding or burning has ceased. The fire watch shall consist of a member of the Lexington Fire Department. If there is a chance that slag could enter into a utility or elevator shaft, then the fire watch should cover the base of the shaft as well as the intermediate floors. |
I) | If determined, a member of the Lexington Fire Department shall be on site, at Tenant cost, for any Special Work. |
C - 13
Execution
Exhibit D
Tenant Work Insurance Schedule
Tenant shall, at its own expense, maintain and keep in force, or cause to be maintained and kept in force by any general contractors, sub-contractors or other third party entities where required by contract, throughout any period of alterations to the Premises or the Building by Tenant, the following insurance coverages:
(1) Property Insurance . All-Risk or Special Form property insurance, and/or Builders Risk coverage for major renovation projects, including, without limitation, coverage for fire, earthquake and flood; boiler and machinery (if applicable); sprinkler damage; vandalism; malicious mischief coverage on all equipment, furniture, fixtures, fittings, tenants work, improvements and betterments, business income, extra expense, merchandise, inventory/stock, contents, and personal property located on or in the Premises. Such insurance shall be in an amount equal to the full replacement cost of the aggregate of the foregoing and shall provide coverage comparable to the coverage in the standard ISO All-Risk or Special form, when such coverage is supplemented with the coverages required above. Property policy shall also include coverage for Plate Glass, where required by written contract.
Builders Risk insurance coverage may be provided by the general contractor on a blanket builders risk policy with limits adequate for the project, and evidencing the additional insureds as required in the Lease.
(2) Liability Insurance . General Liability, Umbrella/Excess Liability, Workers Compensation and Auto Liability coverage as follows:
(a) General Liability |
$1,000,000 per occurrence | |
$1,000,000 personal & advertising injury | ||
$2,000,000 products/completed operations agg | ||
$2,000,000 general aggregate |
The General Contractor is required to maintain, during the construction period and up to 3 years after project completion, a General Liability insurance policy, covering bodily injury, personal injury, property damage, completed operations, with limits to include a $1,000,000 limit for blanket contractual liability coverage and adding Landlord as additional insured as respects the project during construction and for completed operations up to 3 years after the end of the project. Landlord requires a copy of the ISO 20 10 11 85 Additional Insured endorsement, showing Landlord as an additional insured to the GCs policy.
(b) |
Auto Liability | $1,000,000 combined single limit (Any Auto) for bodily injury and property damage, hired and non-owned cover. | ||
(c) |
Workers Compensation Statutory Limits Employers Liability |
$1,000,000 each accident $1,000,000 each employee $1,000,000 policy limit |
D - 1
Execution
General Contractor shall ensure that any and all sub-contractors shall maintain equal limits of coverage for Workers Compensation/EL and collect insurance certificates verifying same.
(d) Umbrella/Excess Liability |
$3,000,000 per occurrence $3,000,000 aggregate |
(e) Environmental Insurance To the extent required by Landlord Contractors commercial general liability/umbrella insurance policy(ies) shall include Landlord and Landlords designees as additional insureds, and shall include a primary non-contributory provision. Liability policy shall contain a clause that the insurer may not cancel or materially change coverage without first giving Landlord thirty (30) days prior written notice, except cancellation for non-payment of premium, in which ten (10) days prior written notice shall be required.
(3) Deductibles . If any of the above insurances have deductibles or self insured retentions, the Tenant and/or contractor (policy Named Insured) shall be responsible for the deductible amount.
All of the insurance policies required in this Exhibit D shall be written by insurance companies which are licensed to do business in the State where the property is located, or obtained through a duly authorized surplus lines insurance agent or otherwise in conformity with the laws of such state, with an A.M. Best rating of at least A- and a financial size category of not less than VII. Tenant shall provide Landlord with certificates of insurance upon request, prior to commencement of the Tenant/contractor work, or within thirty (30) days of coverage inception and subsequent renewals or rewrites/replacements of any cancelled/non-renewed policies.
D - 2
Execution
Exhibit E
Work Letter
THIS WORK LETTER (the Work Letter ) is attached to and made part, of that certain Lease (the Lease) by and between Landlord and Tenant. The terms, definitions, and other provisions of the Lease are hereby incorporated into this Work Letter by reference as if set forth in full. Capitalized terms used herein but not defined in this Work Letter shall have the meanings set forth in the Lease. In connection with the execution of the Lease, Landlord and Tenant hereby agree as follows:
1. Initial Tenant Improvements . Tenant, at its sole cost and expense but subject to the Tenant Improvement Allowance, the Level 400 Lab Space Allowance and the Tenants Supplemental HVAC Contribution (all as defined below), shall cause the Substantial Completion of the construction and installation of ail of Tenants improvements to the Premises in accordance with Tenants Plans (as defined below) ( Initial Tenant Improvements ). The Initial Tenant Improvements shall be constructed in a good and workmanlike manner, using new, first quality materials and finishes equal to or better than Building standard construction materials and finishes and in compliance with all Legal Requirements and the terms and conditions of this Work Letter (and applicable provisions of the Lease).
2. Plans for the Initial Tenant Improvements; Contractor Approval . The Initial Tenant Improvements shall be in conformity with plans and specifications submitted to and approved by Landlord, and constructed by a contractor approved by Landlord, in accordance with the following provisions:
(a) On or about February 25, 2008, Tenant shall prepare and submit to Landlord for its approval two (2) sets of fully dimensioned scale plans and specifications (suitable for submission with a building permit application) for the Initial Tenant Improvements (including plans, elevations, critical sections and details and as otherwise provided in the Lease) ( Tenants Plans ). Tenants Plans shall be prepared by a licensed architect and where appropriate, mechanical, electrical and structural engineers, reasonably approved by Landlord. Landlord hereby approves Olson, Lewis, Dioli & Doktor, as Tenants Architect, ESI at Tenants HVAC engineer, Engineered Systems Inc. for Tenants plumbing and electrical engineering, and The Richmond Group as Tenants general contractor. Throughout the approval process for Tenants Plans, Tenant shall use commercially reasonable and diligent efforts to cooperate with Landlord and/or Landlords architect or engineer in responding to questions or requests for information or submissions regarding Tenants design requirements for the Initial Tenant Improvements. Landlords approval of Tenants Plans (or any requested modification, amendment or alteration thereto) shall not be unreasonably withheld or delayed so long as such plans do not (i) require any modification to any existing permits and approvals obtained by Landlord in connection with the Building, (ii) involve changes to structural components of the Building nor involve any material floor or exterior wall penetrations, or (iii) require any material modifications of the Buildings mechanical, electrical, plumbing, fire or life- safety systems. All construction work done by or on behalf of Tenant, in or to the Premises (including the Initial Tenant Improvements) causing roof penetrations shall be performed by or supervised by Landlords roofing contractor, or by a contractor otherwise approved by Landlord, which approval shall not be unreasonably withheld or delayed, and at Tenants expense, in such a way so as to not void any roof warranties or guaranties.
E - 1
Execution
(b) Within five (5) business days after receipt of Tenants Plans (unless the response reasonably requires a longer time), Landlord shall return one set of prints thereof with Landlords approval and/or required modifications noted thereon. Landlord shall also identify any components of the Tenant Initial Improvements which Landlord will require to be removed at the expiration of the Term or earlier termination of the Lease. If Landlord has approved Tenants Plans subject to modifications, such modifications shall be deemed to be acceptable to and approved by Tenant unless Tenant shall prepare and resubmit revised plans for further consideration by Landlord within a reasonable period. If Landlord has required modifications without approving Tenants Plans, Tenant shall prepare and resubmit revised drawings within fourteen (14) days for consideration by Landlord. All revised plans shall be submitted, with changes highlighted, and Landlord shall approve or disapprove such revised drawings within five (5) business days following receipt of the same. The foregoing submission process shall continue until Landlord has approved Tenants Plans and upon such approval, the approved plans shall constitute the Tenants Plans . Notwithstanding Landlords review and approval of Tenants Plans, Landlord assumes no responsibility whatsoever, and shall not be liable, for the manufacturers, architects, or engineers design or performance of any structural, mechanical, electrical, or plumbing systems or equipment of Tenant relating to the Initial Tenant Improvements or Tenants Plans. Notwithstanding the time periods permitted for either partys review of Tenants Plans, both parties agree to use reasonable efforts to complete such review as soon as practical.
(c) Upon Landlords approval of Tenants Plans, Tenant shall not materially modify, amend or alter Tenants Plans without Landlords prior written approval during the construction process. Landlord will not unreasonably withhold or delay its approval of any requested modifications, amendments or alterations to Tenants Plans requested by Tenant, and (unless the response reasonably requires a longer time), Landlord shall respond within five (5) business days to Tenants request. Any material changes in the Initial Tenant Improvements from Tenants Plans as approved by Landlord shall be subject to Landlords prior written approval, which shall not be unreasonably withheld, conditioned or delayed. Any deviation (other than immaterial changes that do not affect the quality or nature of the improvements or require an alteration in any Building mechanical, electrical, plumbing, fire or life-safety systems or Landlords permits and approvals) in construction from the design specifications and criteria set forth in Tenants Plans as approved by Landlord shall, at Landlords election, constitute a default for which Landlord may, after applicable notice and cure periods, elect to exercise the remedies available in the event of default under the provisions of this Lease, unless such default is cured in accordance with and in the time periods set forth in the Lease.
(d) Tenants Plans shall include detailed drawings and specifications for the design and installation of Tenants fire alarm and security system(s) for the Premises. Such system(s) shall meet all appropriate building code requirements, and the fire alarm and security systems shall, at Tenants expense, be integrated into, and in operational harmony with, Landlords fire alarm and security systems for the Building. Unless otherwise authorized or approved by Landlord in writing, Landlords electrical contractor and/or fire alarm contractor shall, at Tenants expense, make all final connections between Tenants and Landlords fire alarm and security systems. Tenant shall ensure that all work performed on the fire alarm and security system(s) shall be coordinated at the job site with the Landlords representative.
E - 2
Execution
(e) Upon the delivery of the Premises to Tenant and after final approval of Tenants Plans by Landlord, Tenant shall proceed promptly to commence and diligently complete construction of Initial Tenant Improvements in accordance with Tenants Plans and this Work Letter. Tenants contractors and subcontractors shall be licensed and be acceptable to and approved in writing by Landlord, which approval shall not be unreasonably withheld or delayed, and shall, at Landlords option, be subject to administrative supervision by Landlord in their use of the Building, at no extra cost. Tenant shall furnish to Landlord a copy of the executed contract and applicable detailed cost schedule (and applicable back-up material as reasonably requested by Landlord) between Tenant and Tenants contractor covering all of Tenants obligations under this Work Letter. Tenant shall use commercially reasonable efforts to cause such work to be performed in as efficient a manner as is commercially reasonable. Tenant shall indemnify Landlord from and reimburse Landlord on demand for the cost of repairing any damage to the Building caused by Tenant or its contractors during performance of the Initial Tenant Improvements. Tenants contractor(s) shall conduct their work and employ labor in such manner as to maintain harmonious labor relations and to coordinate their activities with Landlords contractors so as not to interfere with Landlord or any other tenant or occupant of the Building or Project. Any work to be performed outside of the Building shall be coordinated with Landlord, and shall be subject to reasonable scheduling requirements of Landlord.
(f) Tenant acknowledges that it has engaged (or shall engage) its architects and contractors and Tenant shall be solely responsible for the actions and omissions of its architects and contractors or for delays caused by its architects or contractors. Landlords approval of any of Tenants architects or contractors and of any documents prepared by any of them, including but not limited to Tenants Plans, shall not be for the benefit of Tenant or any third party or be construed as a representation or warranty as to the suitability or legal compliance of same, and Landlord shall have no duty to Tenant or to any third parties for the actions or omissions of Tenants architects or contractors. Tenant shall indemnify and hold harmless Landlord against any and all losses, costs, damages, claims and liabilities arising from the actions or omissions of Tenants architects and contractors.
3. Permits and Approvals . Tenant shall obtain all building and other permits and approvals necessary to perform the construction and installation of the Initial Tenant Improvements prior to the commencement of such work. The Initial Tenant Improvements shall not (i) require any modification to any existing permits and approvals obtained by Landlord in connection with the Building or Project, (ii) involve changes to structural components of the Building nor involve any floor, or exterior wall penetrations unless approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, or (iii) require any material modifications of the Buildings mechanical (except as provided in the Lease as to Tenants Supplemental HVAC), electrical, plumbing, fire or life-safety systems unless approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed.
4. Prior to Commencing the Initial Tenant Improvements . Prior to commencing the Initial Tenant Improvements, Tenant shall deliver to Landlord (in addition to any other requirements under the Lease) the following:
(a) The address of Tenants contractor(s), and the names of the primary subcontractors Tenants contractor intends to engage for the construction of the Initial Tenant Improvements and Notices of Identification from each such entity pursuant to M.G.L. c.254, §4.
E - 3
Execution
(b) The estimated commencement date of construction and the estimated date of completion of the work, including fixturization.
(c) Certificates or policies of insurance evidencing that Tenant and Tenants contractor(s) have in effect (and shall maintain at all times during the course of the construction of Initial Tenant Improvements hereunder) the insurance coverages required under the Lease.
(d) An executed copy of the applicable building permit(s) for such work.
5. Temporary Connections; Trash . During the construction of the Initial Tenant Improvements, Landlord shall provide and pay for connections for all utilities brought to the Premises, if required; provided Tenant shall reimburse Landlord for all such utility costs reasonably and equitably allocable to the construction and completion of the Initial Tenant Improvements. Trash removal relating to the Initial Tenant Improvements, will be done continually at Tenants sole cost and expense. No trash, or other debris, or other waste may be deposited at any time outside the Premises or Building by Tenant or its contractor. If so, Landlord may remove it at Tenants expense, which expense shall equal the cost of removal plus ten percent (10%) of such costs.
6. Storage; Release and Indemnity; MSDS . Storage of Tenants contractors construction materials, tools and equipment shall be confined within the Premises in an area or areas designated by Landlord, and in no event shall any materials or debris be stored outside of the Premises or Building, except for Tenants Supplemental HVAC. To the extent Tenants equipment, fixtures, furniture, furnishings or other materials are stored or installed in the Premises prior to the Term Commencement Date by Tenant or its agents, Tenant hereby releases Landlord for any and all liability therefor and agrees to indemnify and hold Landlord harmless from and against any and all liability, loss, claim, cause of action, damages, cost or expense arising out of or in connection with loss or damage or destruction of any such equipment, fixtures, furnishings or other materials, unless such loss, damage or destruction is caused by the negligence or willful misconduct of Landlord or its agents. Tenant shall cause its contractors to provide Landlord with Material Safety Data Sheets (MSDS) required for all chemicals and substances they use on, at, in or about the Premises, which use shall be subject to the reasonable approval of Landlord.
7. Substantial Completion . As used herein the term Substantial Completion or substantially complete shall mean that the applicable work (i.e., the Initial Tenant Improvements or Landlords Work) shall have been completed in accordance with the requirements of the Lease except for punchlist items and that as to the applicable work a certificate of occupancy (temporary or permanent) or a fully-signed off building permit for the Premises issued by the Town of Lexington (the Certificate of Occupancy ) permitting the use of the applicable space is available or has been issued, or that such work is otherwise substantially complete but the Certificate of Occupancy cannot be issued because the other partys work is not substantially complete. Landlord shall provide Tenant access to the Building and the Premises for the purposes of constructing the Initial Tenant Improvements on the Delivery Date or prior thereto as reasonably determined by Landlord so long as such access is in accordance with all terms and conditions of this Work Letter (and applicable provisions of the Lease).
8. Upon Completion . Upon completion of the Initial Tenant Improvements, Tenant shall furnish Landlord:
(a) a Certificate of Occupancy issued by the Town of Lexington and other governmental approvals, if any, necessary to permit occupancy of the Premises for the Permitted Uses.
E - 4
Execution
(b) a notarized affidavit from Tenants contractor(s) that all amounts due for work done and materials furnished in completing Tenants Work have been paid.
(c) final releases of liens satisfactory in form and substance to Landlord from all contractors, subcontractors or material suppliers that have been involved in the performance of the Initial Tenant Improvements.
(d) two (2) complete sets of as-built plans (one (1) reproducible CAD file) and specifications covering all of the Initial Tenant Improvements, including architectural, electrical, and plumbing, with a list and description of all work performed by the contractors, subcontractors, and material suppliers, with all changes or modifications listed thereon.
9. Damage to Base Building . Tenant shall also be responsible for the cost of any damage to the Building required as a result of the Initial Tenant Improvements. Any damage to the existing finishes of the Building shall be patched and repaired by Tenant, at its expense, and all such work shall be done to Landlords reasonable satisfaction. If any patched and painted area does not match the original surface, then the entire surface shall be repainted at Tenants expense. Tenant agrees to indemnify and hold harmless Landlord, its agents, and employees from and against any and all costs, expenses, damage, loss, or liability, including, but not limited to, reasonable attorneys fees and costs, which arise out of, is occasioned by, or is in any way attributable to the build-out of the Premises by Tenant pursuant to this Work Letter.
10. | Payment of Costs for the Initial Tenants Improvements . |
(a) Tenant Improvement Allowance . Subject to the Tenant Improvement Allowance and the Level 400 Lab Space Allowance set forth below, Tenant shall pay all of the costs and expenses of the Initial Tenant Improvements (which cost shall include, without limitation, the costs of construction, the cost of permits and permit expediting, and all architectural and engineering services obtained by Tenant in connection therewith). Landlord will provide Tenant an allowance (the Tenant Improvement Allowance ) up to a maximum of Sixty-five and 00/100 Dollars ($65.00) per square foot of Rentable Area of the Premises, not to exceed Two Million Nine Hundred Twenty-three Thousand Six Hundred Thirty-five and 00/100 Dollars ($2,923,635.00). The Tenant Improvement Allowance shall be utilized first for so-called hard costs and building improvements to the Premises pursuant to Tenants Plans and then for so-called soft costs limited to architectural and design costs, construction management fees, reasonable moving costs, and legal fees relating directly to Tenants fit-up of and/or move into the Premises, but such soft costs shall be limited to as provided in Subsection (c) below. So long as Tenant is not in default of the Lease beyond any applicable notice or cure period, payment of the Tenant Improvement Allowance shall be paid by Landlord to Tenant, based upon requests for payment submitted by Tenant not more often than monthly. Each request for payment shall be accompanied by a written certification satisfactory to Landlord by Tenants Architect (or other licensed architect or engineer reasonably approved by Landlord) that all work up to the date of the request for payment has been completed, along with the releases (partial or complete) of liens from all of Tenants contractors and subcontractors for all work done and materials furnished up to the date of Tenants request for payment and Tenants final request for payment shall also be accompanied by the applicable items required under Section 8, above, along with any other support documentation
E - 5
Execution
reasonably required by Landlord in connection therewith. Upon receipt thereof, Landlord shall pay to Tenant, within thirty (30) days after submission of such items to Landlord, an amount equal to Landlords pro-rata share of such request for payment. Landlords pro-rata share shall mean the percentage that the sum of the Tenant Improvement Allowance and the Level 400 Lab Space Allowance bears to the total cost of the Initial Tenant Improvements (less ten (10%) percent of each payment to be retained by Landlord pending final completion and less fees and expenses, if any, due to Landlord or its agents relating to such completed work). Landlords pro-rata share may be reviewed and recalculated by Landlord from time to time and upon any cumulative upgrade/change orders in and upon such recalculation the necessary credits or payments shall be made by either Landlord or Tenant to bring the amount paid under the Tenant Improvement Allowance and the Level 400 Lab Space Allowance into compliance with the revised pro-rata share. Upon final completion of the Initial Tenant Improvements and receipt by Landlord of the items required under Section 8 above, Landlord shall pay to Tenant within thirty (30) days the remaining Tenant Improvement Allowance, plus the retainage (provided, however, that the retainage may not be released by Landlord until the punchlist items have been completed and, at Landlords election, sixty (60) days have elapsed since Tenants Contractor has properly recorded its Notice of Substantial Completion [in the form attached hereto as Schedule 1] in Middlesex South Registry of Deeds in accordance with MGL Ch 254 and has provided Landlord with satisfactory evidence that all subcontractors and vendors have been provided with a copy of the recorded Notice). Any and all costs for the construction of the Premises above the Tenant Improvement Allowance and the Level 400 Lab Space Allowance shall be paid by Tenant to the applicable contractors, subcontractors, and material suppliers. Landlord reserves the right to make any payment (or portion thereof) of the Tenant Improvement Allowance payable jointly to Tenant and its general contractor (or subcontractor or supplier) or directly to such contractor, subcontractor or supplier.
(b) Level 400 Lab Space Allowance . In addition to the Tenant Improvement Allowance, Landlord will make available to Tenant an additional allowance of up to a maximum of Eighty-five and 00/100 Dollars ($85.00) per actual square foot of Rentable Area of the Level 400 Lab Space, which in no event shall exceed Two Million Three Hundred Twenty-three Thousand Nine Hundred and 00/100 Dollars ($2,323,900.00) but shall be based on the actual rentable square footage of the Level 400 Lab Space (the Level 400 Lab Space Allowance ). The Level 400 Lab Space Allowance, or portion thereof, actually used by Tenant pursuant hereto shall be amortized on a level-monthly-payment-of- principal-and-interest basis over the Initial Lease Term, together with an interest factor equal to ten percent (10%), and repaid by Tenant on a monthly basis as Additional Rent with monthly installments of Base Rent. (For example, if Tenant uses the entire $2,323,900.00 Level 400 Lab Space Allowance, the monthly payment over an eighty-four (84) month period at the stated interest rate would be $38,579.49.) The Level 400 Lab Space Allowance shall be utilized first for so-called hard costs and building improvements to the Premises pursuant to Tenants Plans and then for so-called soft costs limited to architectural and design costs, construction management fees, reasonable moving costs, and legal fees relating directly to Tenants fit-up of and/or move into the Premises, but such soft costs shall be limited to as provided in Subsection (c). Subject to repayment as set forth above, so long as Tenant is not in default of the Lease beyond any applicable notice or cure period, payment of the Level 400 Lab Space Allowance shall be paid by Landlord to Tenant, based upon requests for payment submitted by Tenant not more often than monthly. Each request for payment shall be accompanied by a written certification satisfactory to Landlord by the Tenants Architect (or other licensed architect or engineer reasonably approved by Landlord) that all work up to the date of the request for payment has been completed, along with the releases (partial or complete) of liens from all of Tenants contractors
E - 6
Execution
and subcontractors for all work done and materials furnished up to the date of Tenants request for payment and Tenants final request for payment shall also be accompanied by the applicable items required under Section 8, above, along with any other support documentation reasonably required by Landlord in connection therewith. Upon receipt thereof, Landlord shall pay to Tenant, within thirty (30) days after submission of such items to Landlord, an amount equal to Landlords pro-rata share of such request for payment. Landlords pro-rata share shall mean the percentage that the sum of the Level 400 Lab Space Allowance and the Tenant Improvement Allowance bears to the total cost of the Initial Tenant Improvements and submitted to Landlord with reasonable support documentation relating thereto (less ten (10%) percent of each payment to be retained by Landlord pending final completion and less fees or expenses, if any, due to Landlord or its agents relating to such completed work). Landlords pro-rata share may be reviewed and recalculated by Landlord from time to time and upon any cumulative upgrade/change orders in and upon such recalculation the necessary credits or payments shall be made by either Landlord or Tenant to bring the amount paid under the Level 400 Lab Space Allowance and the Tenant Improvement Allowance into compliance with the revised pro- rata share. Upon final completion of the Initial Tenant Improvements and receipt by Landlord of the items required under Section 8 above, Landlord shall pay to Tenant within thirty (30) days the remaining Level 400 Lab Space Allowance, plus the retainage (provided, however, that the retainage may not be released by Landlord until the punchlist items have been completed and, at Landlords election, sixty (60) days have elapsed since Tenants Contractor has properly recorded its Notice of Substantial Completion [in the form attached hereto as Schedule 1 ] in Middlesex South Registry of Deeds in accordance with MGL Ch 254 and has provided Landlord with satisfactory evidence that all subcontractors and vendors have been provided with a copy of the recorded Notice). Any and all costs for the construction of the Premises above the Level 400 Lab Space Allowance and the Tenant Improvement Allowance shall be paid by Tenant to the applicable contractors, subcontractors, and material suppliers. Landlord reserves the right to make any payment (or portion thereof) of the Level 400 Lab Space Allowance payable jointly to Tenant and its general contractor (or subcontractor or supplier) or directly to such contractor, subcontractor or supplier.
(c) Remaining Unused Improvement Allowance; Soft Costs . In the event Tenant does not use the entire Tenant Improvement Allowance or Level 400 Lab Space Allowance, then so long as no default by Tenant exists (beyond any applicable notice or cure period, then Tenant shall be entitled to use any such remaining unused balance thereof as a credit against Base Rent; provided such credit shall not exceed in the aggregate $10.00 per rentable square foot of the Premises ($449,790.00). Any remaining unused balance of the Tenant Improvement Allowance or the Level 400 Lab Space Allowance, after the application of the foregoing Base Rent credit, shall be made available to Tenant during the first four (4) Lease Years, so long as no default by Tenant exists (beyond any applicable notice or cure period, for an allowance for subsequent Tenant Work (as defined in the Lease) which allowance, if requested by Tenant, shall be paid in accordance with the terms and conditions of this Work Letter and, in such event, such requested portion thereof actually used by Tenant pursuant hereto shall be amortized on a level-payment-of principal-and-interest basis over the then remaining Initial Lease Term, together with an interest factor equal to ten percent (10%), and repaid by Tenant on a monthly basis as Additional Rent with monthly installments of Base Rent. In addition, Tenant shall have the right to apply a portion of the Tenant Improvement Allowance and the Level 400 Lab Space Allowance for so-called soft costs limited to architectural and design costs, construction management fees, reasonable moving costs, and legal fees relating directly to Tenants fit-up of and/or move into the Premises; provided that such aggregate portion shall be limited to a maximum of $3.00 per rentable square foot.
E - 7
Execution
(d) If upon completion of the Initial Tenant Improvements Landlord has failed to make any payments of the Tenant Improvement Allowance, the Level 400 Lab Space Allowance or the Tenants Supplemental HVAC Contribution, as required hereunder as a result of the bankruptcy, insolvency or default of Landlord, and Landlord shall not have cured such failure within thirty (30) days after written notice thereof (provided, however, that if any notice or demand is prohibited, proscribed, stayed or barred by applicable law without obtaining court, trustee or other partys approval [e.g., the automatic stay in the event of a bankruptcy of Landlord] no such notice or opportunity to cure or demand shall be required), then Tenant shall be entitled, at any time thereafter prior to such cure, to make such payment for the account of Landlord or take such credit as provided herein. Any amount paid by or credited to Tenant in the exercise of its rights under this Subsection 10(d) shall be reimbursed by Landlord within thirty (30) days after demand therefor (provided, however, that if any notice or demand is prohibited, proscribed, stayed or barred by applicable law without obtaining court, trustee or other partys approval [e.g., the automatic stay in the event of a bankruptcy of Landlord] no such notice or opportunity to cure or demand shall be required), failing which any amount due to Tenant hereunder may be offset against payments of Base Rent due to Landlord under this Lease until Tenant has been fully reimbursed. As used in this Subsection 10(d), the Rent Offset Cap shall mean that Tenant shall only be entitled to offset up to ten percent (10%) of any and each respective Basic Rent payment due to Landlord under this Lease until Tenant has been fully reimbursed. The Rent Offset Cap applies solely to Tenants right to offset against Base Rent pursuant to this Subsection and shall not be deemed to apply to or limit any other provision of this Lease.
11. Tenants Supplemental HVAC Contribution . Tenant shall be entitled to be reimbursed by Landlord for a portion of the so-called hard costs incurred by Tenant in connection with Tenants Supplemental HVAC (the Tenants Supplemental HVAC Contribution ) in an amount not to exceed $800,000.00 (the Maximum Contribution ) as and to the extent set forth herein. So long as no default by Tenant exists (beyond any applicable notice or cure period), Tenants Supplemental HVAC Contribution shall be determined and made by Landlord in accordance with payment procedures outlined in Section 10 of this Exhibit E (made applicable hereto by such changes and modifications as are required given the application hereof), not to exceed the Maximum Contribution, based on actual aggregate hard costs actually incurred by Tenant for the purchase and installation of Tenants Supplemental HVAC as evidenced by a written certification satisfactory to Landlord by Tenants Architect (or other licensed architect or engineer reasonably approved by Landlord) that all work relating to Tenants Supplemental HVAC has been completed and that Tenants Supplemental HVAC is fully operational in conformance with its plans and specifications, along with the complete and final releases of liens from all of Tenants contractors and subcontractors for all work done in connection therewith and such other reasonable supporting documentation as Landlord may reasonably require including, without limitation, Tenants third party invoices therefor and evidence of payment of same).
12. Punchlist . In or within seven (7) business days of Substantial Completion of the Initial Tenant Improvements, the parties shall schedule a meeting(s) to jointly inspect the Premises and the Initial Tenant Improvements in order to identify those incomplete items or unfinished details that will be part of the punchlist for the Initial Tenant Improvements. Such punchlist items shall be completed by Tenant as soon as practicable thereafter and in any event not later than thirty (30) days following the completion of the applicable punchlist (except for such item(s) that by its nature or due to circumstances beyond the reasonable control of the party charged with doing such work, cannot be completed within such 30 day period).
E - 8
Execution
IN WITNESS WHEREOF, the parties have caused this Work Letter to be executed as of the date first above written.
TENANT: | LANDLORD: | |||||||
CONCERT PHARMACEUTICALS, INC. | ONE LEDGEMONT LLC, | |||||||
By: | /s/ Roger Tung | By: | /s/ Robert L. Beal | |||||
|
|
|||||||
Name: | Roger Tung | Name: | Robert L. Beal | |||||
|
|
|||||||
Title: | President & CEO | Title: | Manager | |||||
|
|
|||||||
Hereunto duly authorized | Hereunto duly authorized |
E - 9
Execution
IN WITNESS WHEREOF, the parties have caused this Work Letter to be executed as of the date first above written.
TENANT: | LANDLORD: | |||||||
CONCERT PHARMACEUTICALS, INC. | ONE LEDGEMONT LLC, | |||||||
By: | /s/ R. Silverman | By: | ||||||
|
|
|||||||
Name: | ROBERT SILVERMAN | Name: | ||||||
|
|
|||||||
Title: | V.P. & GENERAL COUNSEL | Title: | ||||||
|
|
|||||||
Hereunto duly authorized | Hereunto duly authorized |
E - 9
Execution
Schedule 1
NOTICE OF SUBSTANTIAL COMPLETION
M.G.L. Chapter 254, Section 2A
Notice is hereby given that the work performed by virtue of a written contract dated , 2008 between as owner, and , as contractor, for the erection, alteration, repair or removal of a building, structure, or other improvement of real estate as described below, has been substantially completed as of the date of filing or recording of this notice. The lot of land or other interest in real property which is the subject of such contract is described as follows:
Tenant Improvements for Concert Pharmaceuticals, Inc
One Ledgemont Center, 99 Hayden Avenue
Lexington, Mass.
The undersigned owner hereby states that he has served written notice of the recording or filing of this notice of substantial completion upon every person who has filed or recorded, prior to the date of this Notice is filed or recorded, a notice of contract under section four of chapter two hundred and fifty four of the General Laws.
The undersigned contractor hereby states that he has served written notice of the recording or filing of this Notice of Substantial Completion upon every person who has entered into a written contract directly with the contractor or who has given written notice of identification to the contractor prior to the date this Notice is filed or recorded as provided in said section four of chapter two hundred and fifty four of the General Laws.
Owner: |
|
Contractor: The Richmond Group Inc | ||||||
By: |
|
By: |
|
|||||
Its: |
|
Its: |
|
COMMONWEALTH OF MASSACHUSETTS
SS |
|
|||||
(date) |
Then personally appeared the above named of who acknowledged the foregoing instrument to be his / her free act and deed and the free act and deed of before me,
|
||
Notary Public |
My Commission Expires: |
|
E - 10
Execution
COMMONWEALTH OF MASSACHUSETTS
SS |
|
|||||
(date) |
Then personally appeared the above named of who acknowledged the foregoing instrument to be his / her free act and deed and the free act and deed of before me,
|
||
Notary Public |
My Commission Expires: |
|
E - 11
Execution
Exhibit F
Construction Documents
1. Preparation of Construction Documents . The Construction Documents shall include all architectural, mechanical, electrical and structural drawings and detailed specifications for the Tenant Work and shall show all work necessary to complete the Tenant Work including all cutting, fitting, and patching and all connections to the mechanical and electrical systems and components of the Building. Tenants leasing partial floors shall design entrances, doors and any other elements which visually integrate with the elevator lobbies and common areas in a manner and with materials and finishes which are compatible with the common area finishes for such floor. Landlord reserves the right to reject Construction Documents which in its reasonable opinion fail to comply with this provision. The Construction Documents shall include:
(a) Major Work Information: A list of any items or matters which might require structural modifications to the Building, including the following:
(i) | Location and details of special floor areas exceeding 150 pounds of live load per square foot; |
(ii) | Location and weights of storage files, batteries, HVAC units and technical areas; |
(iii) | Location of any special soundproofing requirements; |
(iv) | Existence of any extraordinary HVAC requirements necessitating perforation of structural members; and |
(v) | Existence of any requirements for heavy loads, dunnage or other items affecting the structure. |
(b) Plans Submission: Two (2) blackline drawings and one (1) CAD disk showing all architectural, mechanical and electrical systems, including cutsheets, specifications and the following:
CONSTRUCTION PLANS:
(1) | All partitions shall be shown; indicate ratings of all partitions; indicate all non-standard construction and details referenced; |
(2) | Dimensions for partition shall be shown to face of stud; critical tolerances and ± dimensions shall be clearly noted; |
(3) | All doors shall be shown on and shall be numbered and scheduled on door schedule; indicate ratings of all doors; |
(4) | All non-standard construction, non-standard materials and/or installation shall be explicitly noted; equipment and finishes shall be shown and details referenced; and |
(5) | All plumbing fixtures or other equipment requirements and any equipment requiring connection to Building plumbing systems shall be noted. |
F - 1
Execution
REFLECTED CEILING PLAN:
(1) | Layout suspended ceiling grid pattern in each room, describing the intent of the ceiling working point, origin and/or centering; and |
(2) | Locate all ceiling-mounted lighting fixtures and air handling devices including air dampers, fan boxes, etc., lighting fixtures, supply air diffusers, wall switches, down lights, special lighting fixtures, special return air registers, special supply air diffusers, and special wall switches. |
TELECOMMUNICATIONS AND ELECTRICAL EQUIPMENT PLAN:
(1) | All telephone outlets required; |
(2) | All electrical outlets required; note non-standard power devices and/or related equipment; |
(3) | All electrical requirements associated with plumbing fixtures or equipment; append product data for all equipment requiring special power, temperature control or plumbing considerations; |
(4) | Location of telecommunications equipment and conduits; and |
(5) | Components and design of the Antennas (including associated equipment) as installed, in sufficient detail to evaluate weight, bearing requirements, wind-load characteristics, power requirements and the effects on Building structure, moisture resistance of the roof membrane and operations of pre-existing telecommunications equipment. |
DOOR SCHEDULE:
(1) | Provide a schedule of doors, sizes, finishes, hardware sets and ratings; and |
(2) | Non-standard materials and/or installation shall be explicitly noted. |
HVAC:
(1) | Areas requiring special temperature and/or humidity control requirements; |
(2) | Heat emission of equipment (including catalogue cuts), such as CRTs, copy machines, etc.; |
(3) | Special exhaust requirements - conference rooms, pantry, toilets, etc.; and |
(4) | Any extension of system beyond demised space. |
ELECTRICAL:
(1) | Special lighting requirements; |
(2) | Power requirements and special outlet requirements of equipment; |
(3) | Security requirements; |
(4) | Supplied telephone equipment and the necessary space allocation for same; and |
(5) | Any extensions of tenant equipment beyond demised space. |
F - 2
Execution
PLUMBING:
(1) | Remote toilets; |
(2) | Pantry equipment requirements; |
(3) | Remote water and/or drain requirements such as for sinks, ice makers, etc.; and |
(4) | Special drainage requirements, such as those requiring holding or dilution tanks. |
ROOF:
Detailed plan of any existing and proposed roof equipment showing location and elevations of all equipment.
SITE:
Detailed plan, including fencing, pads, conduits, landscaping and elevations of equipment.
SPECIAL SERVICES:
Equipment cuts, power requirements, heat emissions, raised floor requirements, fire protection requirements, security requirements, and emergency power.
2. Plan Requirements . The Construction Documents shall be fully detailed and fully coordinated with each other and with existing field conditions, shall show complete dimensions, and shall have designated thereon all points of location and other matters, including special construction details and finish schedules. All drawings shall be uniform size and shall incorporate the standard electrical and plumbing symbols and be at a scale of 1/8 = 10 or larger. Materials and/or installation shall be explicitly noted and adequately specified to allow for Landlord review, building permit application, and construction. All equipment and installations shall be made in accordance with standard materials and procedures unless a deviation outside of industry standards is shown on the Construction Documents and approved by Landlord. To the extent practicable, a concise description of products, acceptable substitutes, and installation procedures and standards shall be provided. Product cuts must be provided and special mechanical or electrical loads noted. Landlords approval of the plans, drawings, specifications or other submissions in respect of any work, addition, alteration or improvement to be undertaken by or on behalf of Tenant shall create no liability or responsibility on the part of Landlord for their completeness, design sufficiency or compliance with requirements of any applicable laws, rules or regulations of any governmental or quasi-governmental agency, board or authority.
3. Drawing and Document Production . Landlord shall provide Tenant with two (2) blackline drawings and one (1) CAD disk showing the Building and site outline, core walls and columns, together with corridor and demising wall location plans.
F - 3
Execution
4. Change Orders . The Construction Documents shall not be materially changed or modified by Tenant after approval by Landlord without the further approval in writing by Landlord, which approval shall not be unreasonably withheld or delayed. Landlord shall not be obligated to approve any change or modification of the Construction Documents which in Landlords sole opinion shall cause any additional cost or expense to Landlord for which Tenant has not agreed to reimburse Landlord.
F - 4
Execution
Exhibit G
Reserved Parking Plan
G - 1
Execution
Exhibit H
Specific Aspects of the Initial Tenant Improvements
Installation of new supplemental HVAC system serving the Level 400 Lab Space.
H - 1
Execution
Exhibit I
Plan Showing Additional Space
I - 1
Execution
I - 2
Execution
I - 3
Execution
Exhibit J
Landlords Work
400 & 500 Levels C Bldg
1. | Exterior Entrance- 400 Level |
a. | The existing light fixtures at the entrance within the exterior ceiling are to be removed and replaced with new exterior grade light fixtures. |
b. | The exterior ceiling shall be patched and painted. |
c. | The exterior concrete columns are to be wrapped with fiberglass enclosures from floor to the exterior ceiling. |
d. | The exterior entry doors and window system are to be replaced with a new aluminum Storefront system that matches the size and dimensions of the existing system in place. |
e. | The existing exterior concrete walkway is to receive an Epoxy performance coating. |
2. | Toilet Rooms: |
a. | The existing Mens and Womens toilet room interiors are to be demolished and replaced with the following |
i. | Toilet Fixtures Sloan brand or equal. |
ii. | Solid surface laminate counter with under the counter mounted sink basins, auto faucets and manual soap dispensers. |
iii. | Mirrors above counter. |
iv. | Floor and wall ceramic tile approximately 4-6 feet up wall. |
v. | Ceiling hung metal toilet partitions. |
vi. | Acoustical ceiling with water resistant ceiling tiles. |
vii. | Cove lighting above counter within the acoustical ceiling. |
viii. | Toilet accessories to include toilet paper holder and paper towel dispenser. |
b. | A new Unisex ADA Toilet is to be created, as shown on Schedule 1 of Exhibit J. and include the following: |
i. | Toilet Fixtures to be Sloan brand or equal |
ii. | Solid surface linoleum counterwith under the counter mounted sink basin with ADAfaucet and soap dispenser. |
iii. | Mirror above counter. |
iv. | Floor and wall ceramic tile. |
v. | Acoustical ceiling with water resistant ceiling tiles. |
vi. | Cove lighting above counter within the acoustical ceiling with ADA rated light switch |
vii. | Toilet accessories including ADA accessories. |
3. | Exterior Courtyard |
a. | Replace existing planter bed trees and shrubs with new shrubs and flower beds. |
b. | Replace existing planter bed light fixtures along masonry wall. |
c. | Replace water fountain spray assembly. |
J - 1
Execution
4. | Office areas- |
a. | L |
500 Level- Landlord to provide and install up to (10)ten electric reheat coils to be fed from
tenants electric submeter and up to (10) ten VAVs as specified on tenants mechanical plans.
400 Level- Landlord to replace in current office locations any existing hot water reheat coils
with new hot water reheat coils and provide up to (7)seven VAV boxes.
b. | AHU 96 AC-2 to be equipped with a variable frequency drive at Landlords expense. |
J - 2
Execution
J - 3
Execution
Exhibit K
Form of Term Commencement Date Agreement
COMMENCEMENT DATE AGREEMENT
( Tenant ) hereby certifies that it has entered into a lease with [One/Two] Ledgemont LLC ( Landlord ) dated as of 20 and verifies the following information as of the day of , 20 :
Address of Building: | 128 Spring Street, Lexington, Massachusetts | |||||
Number of Rentable Square Feet in Premises: |
|
|||||
Commencement Date: |
|
|||||
Rent Commencement Date: |
|
|||||
Lease Termination Date: |
|
|||||
Tenants Pro Rata Share: |
|
|||||
Billing Address for Tenant: |
|
|||||
Attention: |
|
|||||
Telephone Number: | ( ) |
|
||||
Federal Tax I.D. No.: |
|
Tenant acknowledges and agrees that all improvements Landlord is obligated to make to the Premises, if any, have been completed to Tenants satisfaction, that Tenant has accepted possession of the Premises, and that as of the date hereof, there exist no offsets or defenses to the obligations of Tenant under the Lease.
TENANT: | ||
|
||
By: |
|
|
Name: |
|
|
Title: |
|
|
Hereunto duly authorized | ||
LANDLORD: | ||
[One/Two] Ledgemont LLC | ||
By: |
|
|
Name: |
|
|
Title: |
|
|
Hereunto duly authorized |
K - 1
Execution
Exhibit L
Form of Letter of Credit
IRREVOCABLE STANDBY LETTER OF CREDIT NO.
DATE:
BENEFICIARY:
ONE LEDGEMONT LLC
c/o The Beal Companies, LLP
177 Milk Street
Boston, Massachusetts 02109
AS LANDLORD
APPLICANT:
|
|
|
AS TENANT
AMOUNT: US $ ( AND 00/100 U.S. DOLLARS)
EXPIRATION DATE:
LOCATION: AT OUR COUNTERS IN BOSTON, MASSACHUSETTS
DEAR SIR/MADAM:
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. IN YOUR FAVOR AVAILABLE BY YOUR DRAFT DRAWN ON US AT SIGHT IN THE FORM OF EXHIBIT B 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 SIGNED BY AN AUTHORIZED OFFICER OR AGENT, FOLLOWED BY ITS DESIGNATED TITLE, STATING THE FOLLOWING:
(A) THE AMOUNT REPRESENTS FUNDS DUE AND OWING TO US FROM APPLICANT PURSUANT TO THAT CERTAIN LEASE BY AND BETWEEN BENEFICIARY, AS LANDLORD, AND APPLICANT, AS TENANT.
OR
L - 1
Execution
(B) WE HEREBY CERTIFY THAT WE HAVE RECEIVED NOTICE FROM BANK THAT LETTER OF CREDIT NO. WILL NOT BE RENEWED, AND THAT WE HAVE NOT RECEIVED A REPLACEMENT OF THIS LETTER OF CREDIT FROM APPLICANT SATISFACTORY TO US AT LEAST THIRTY (30) DAYS PRIOR TO THE EXPIRATION DATE OF THIS LETTER OF CREDIT.
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.
OUR OBLIGATION UNDER THIS CREDIT SHALL NOT BE AFFECTED BY ANY CIRCUMSTANCES, CLAIM OR DEFENSE, REAL OR PERSONAL, OF ANY PARTY AS TO THE ENFORCEABILITY OF THE LEASE BETWEEN YOU AND TENANT, IT BEING UNDERSTOOD THAT OUR OBLIGATION SHALL BE THAT OF A PRIMARY OBLIGOR AND NOT THAT OF A SURETY, GUARANTOR OR ACCOMMODATION MAKER. IF YOU DELIVER THE WRITTEN CERTIFICATE REFERENCED ABOVE TO US, (I) WE SHALL HAVE NO OBLIGATION TO DETERMINE WHETHER ANY OF THE STATEMENTS THEREIN ARE TRUE, (II) OUR OBLIGATIONS HEREUNDER SHALL NOT BE AFFECTED IN ANY MANNER WHATSOEVER IF THE STATEMENTS MADE IN SUCH CERTIFICATE ARE UNTRUE IN WHOLE OR IN PART, AND (HI) OUR OBLIGATIONS HEREUNDER SHALL NOT BE AFFECTED IN ANY MANNER WHATSOEVER IF TENANT DELIVERS INSTRUCTIONS OR CORRESPONDENCE TO WHICH EITHER (A) DENIES THE TRUTH OF THE STATEMENT SET FORTH IN THE CERTIFICATE REFERRED TO ABOVE, OR (B) INSTRUCTS US NOT TO PAY BENEFICIARY ON THIS CREDIT FOR ANY REASON WHATSOEVER.
PARTIAL AND MULTIPLE DRAWS ARE ALLOWED. EXCEPT AS EXPRESSLY SET FORTH HEREIN, 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 OR EACH FUTURE EXPIRATION DATE UNLESS AT LEAST SIXTY (60) DAYS PRIOR TO THE THEN CURRENT EXPIRATION DATE WE NOTIFY YOU BY REGISTERED MAIL/OVERNIGHT COURIER SERVICE AT THE ABOVE ADDRESSES 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 SIX (6) MONTHS BEYOND LEASE EXPIRATION.
THIS LETTER OF CREDIT MAY BE TRANSFERRED WITHOUT COST TO THE BENEFICIARY, ONE OR MORE TIMES BUT IN EACH INSTANCE TO A SINGLE
L - 2
Execution
BENEFICIARY AND ONLY IN THE FULL AMOUNT AVAILABLE TO BE DRAWN UNDER THE LETTER OF CREDIT AT THE TIME OF THE TRANSFER AND ONLY BY THE ISSUING BANK UPON OUR RECEIPT OF THE ATTACHED EXHIBIT A DULY COMPLETED AND EXECUTED BY THE BENEFICIARY AND ACCOMPANIED BY THE ORIGINAL LETTER OF CREDIT AND ALL AMENDMENTS, IF ANY.
ALL DEMANDS FOR PAYMENT SHALL BE MADE BY PRESENTATION OF THE ORIGINAL APPROPRIATE DOCUMENTS PRIOR TO 10:00 A.M. E.S.T. TIME, ON A BUSINESS DAY AT OUR OFFICE (THE BANKS OFFICE ) AT: , BOSTON, MASSACHUSETTS , ATTENTION: OR BY FACSIMILE TRANSMISSION AT: (617) - ; AND SIMULTANEOUSLY UNDER TELEPHONE ADVICE TO: (617) - , ATTENTION: WITH ORIGINALS TO FOLLOW BY OVERNIGHT COURIER SERVICE.
PAYMENT AGAINST CONFORMING PRESENTATIONS HEREUNDER SHALL BE MADE BY BANK DURING NORMAL BUSINESS HOURS OF THE BANKS OFFICE WITHIN ONE (1) BUSINESS DAY AFTER PRESENTATION.
WE HEREBY AGREE WITH THE DRAWERS, ENDORSERS AND BONAFIDE 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.
THIS LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500.
|
|
|||||||
AUTHORIZED SIGNATURE | AUTHORIZED SIGNATURE |
L - 3
Execution
EXHIBIT A
DATE: | ||||||
TO: | RE: STANDBY LETTER OF CREDIT | |||||
NO. | ISSUED BY | |||||
ATTN: | L/C AMOUNT: |
LADIES AND GENTLEMEN:
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 LETTER 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 LETTER 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.
SINCERELY, |
|
(BENEFICIARYS NAME) |
SIGNATURE OF BENEFICIARY |
SIGNATURE AUTHENTICATED |
(NAME OF BANK) |
AUTHORIZED SIGNATURE |
L - 4
Execution
EXHIBIT B
DATE: |
REF. NO. |
AT SIGHT OF THIS DRAFT
PAY TO THE ORDER OF US$
USDOLLARS |
|
|
DRAWN UNDER BANK, BOSTON, MASSACHUSETTS, STANDBY LETTER OF CREDIT NUMBER NO. DATED |
TO: |
|
BANK | ||||||||||
|
|
|||||||||||
|
, MA |
|
(BENEFICIARYS NAME) | |||||||||
|
||||||||||||
Authorized Signature |
L - 5
Execution
Exhibit M
List of Lease(s) Having Rights to Additional Space
Rights of First Offer
Tenant: Pulmatrix, Inc.
Space: 300 Level C Building and East Wing
Rights: Right of First Offer on space located on the 300 C Building containing approximately
5,000 rsf as shown on Exhibit I attached hereto
Initial Term Lease expiration: 10/31/12 (subject to extension rights)
Extension Rights: One (1) additional term of five (5) years
Tenant: Febit, Inc.
Space: 600 Level B Building
Rights: Right of First Offer on space located on the 500 B Building as shown on Exhibit I attached hereto
Initial Term Lease expiration: 06/30/ 13 (anticipated)(subject to extension rights)
Extension Rights: One (1) additional term of five (5) years
M - 1
Execution
M - 2
Execution
Execution
Exhibit N
Location of Tenants Monument Sign
N - 1
Execution
Exhibit O
Location of Tenants Supplemental HVAC
O - 1
Exhibit 10.19
S UMMARY OF E XECUTIVE B ONUS P ROGRAM
The board of directors (the Board ) of Concert Pharmaceuticals, Inc. (the Company ) may, in its discretion, award bonuses to the Companys named executive officers from time to time. These bonuses have typically been based on annual bonus targets and sets of specified corporate goals for the Companys named executive officers established by the Board, followed by a performance review by the Board to determine the attainment of such goals. The Companys management may propose bonus awards to the Compensation Committee of the Board or the Board primarily based on such review process. The Board makes the final determination of the eligibility requirements for and the amount of such bonus awards.
Exhibit 10.20
S UMMARY OF D IRECTOR C OMPENSATION P ROGRAM
The board of directors (the Board ) of Concert Pharmaceuticals, Inc. (the Company ) has approved a director compensation program to be effective at the time of the Companys initial public offering. Under this director compensation program, the Company will pay its non-employee directors retainers in cash. Each non-employee director will receive a cash retainer for service on the Board and for service on each committee of which the director is a member. The chairmen of the Board and of each committee will receive higher retainers for such service. These fees are payable quarterly in arrears. The fees paid to non-employee directors for service on the Board and for service on each committee of the Board of which the director is a member are as follows:
Member
Annual Fee |
Chairman
Annual Fee |
|||||||
Board of Directors |
$ | 30,000 | $ | 60,000 | ||||
Audit Committee |
$ | 7,500 | $ | 15,000 | ||||
Compensation Committee |
$ | 5,000 | $ | 10,000 | ||||
Nominating and Corporate Governance Committee |
$ | 3,000 | $ | 7,000 |
The Company will also reimburse its non-employee directors for reasonable travel and out-of-pocket expenses incurred in connection with attending Board and committee meetings.
In addition, under the Companys director compensation program, each director elected to the Board after the closing of the Companys initial public offering will receive an option to purchase 25,000 shares of the Companys common stock. Each of these options will vest in equal quarterly installments over a three-year period measured from the date of grant, subject to the directors continued service as a director, and will become exercisable in full upon a change in control of the Company. Further, on the date of the first Board meeting held after each annual meeting of stockholders, each director that has served on the Board for at least six months will receive an option to purchase 10,000 shares of the Companys common stock. Each of these options will vest in equal quarterly installments over a one-year period measured from the date of grant, subject to the directors continued service as a director, and will become exercisable in full upon a change in control of the Company. The exercise price of these options will equal the fair market value of the Companys common stock on the date of grant.
Exhibit 21.1
Subsidiaries of the Registrant
Name |
Jurisdiction of Organization |
|
Concert Pharmaceuticals 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 November 5, 2013, in the Registration Statement (Form S-1) and related Prospectus of Concert Pharmaceuticals, Inc. dated January 13, 2014.
/s/ Ernst & Young LLP
Boston, Massachusetts
January 9, 2014