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Index to Financial Statements

As filed with the Securities and Exchange Commission on June 24, 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

 

 

ZOSANO PHARMA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   2834   45-4488360

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code No.)

 

(I.R.S. Employer

Identification No.)

34790 Ardentech Court

Fremont, California 94555

(510) 745-1200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Vikram Lamba

President and Chief Executive Officer

34790 Ardentech Court

Fremont, California 94555

(510) 745-1200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

Copies to:

Robert W. Sweet, Jr., Esq.

Jeffrey L. Quillen, Esq.

Foley Hoag LLP

Seaport West

155 Seaport Boulevard

Boston, Massachusetts 02110

(617) 832-1000

 

John D. Hogoboom, Esq.

Lowenstein Sandler LLP

1251 Avenue of the Americas

New York, New York 10020

(212) 262-6700

 

 

 

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 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   x

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed

maximum aggregate

offering price (1)

  Amount of
registration fee (2)

Common Stock, par value $0.0001 per share

  $65,000,000   $8,372

 

 

(1) Estimated solely for the purpose of determining the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. Includes the offering price attributable to shares that the underwriters have the option to purchase from the registrant solely to cover over-allotments, if any.
(2) Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JUNE 24, 2014

PROSPECTUS

             Shares

Zosano Pharma Corporation

Common Stock

 

 

This is the initial public offering of the common stock of Zosano Pharma Corporation. No public market currently exists for our common stock.

We intend to apply to list our shares of common stock on the NASDAQ Global Market under the symbol “ZSAN.”

We expect that the initial public offering price will be between $         and $         per share.

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary — Implications of Being an Emerging Growth Company.”

Investing in our common stock involves risks. See “ Risk Factors ” beginning on page 12 of this prospectus.

 

 

 

     Per Share      Total  

Initial public offering price

   $                            $                        

Underwriting discounts and commissions(1)(2)

   $         $     

Proceeds to us (before expenses)

   $         $     

 

(1) We refer you to “Underwriting” beginning on page 151 of this prospectus for additional information regarding total underwriter compensation.
(2) The underwriters will also be reimbursed for certain expenses incurred in this offering.

We have granted the underwriters a thirty-day option to purchase up to             additional shares of our common stock on the same terms and conditions described herein, solely to cover over-allotments, if any.

Certain of our existing investors and             affiliated entities have indicated an interest in purchasing an aggregate amount of $         million worth of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these potential investors, or any of these potential investors may determine to purchase more, less or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these potential investors as they will on any other shares sold to the public in this offering.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares against payment therefor on or about                     , 2014.

 

 

 

Wedbush PacGrow Life Sciences
  Ladenburg Thalmann
    Roth Capital Partners

Prospectus dated                     , 2014.


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LOGO

ZP Patch
Titanium drug coated array
Adhesive
Load Press Apply
Zosano’s Transdermal Microprojection Delivery
System - Drug Coated & Ready to Use
Zosano Pharma


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TABLE OF CONTENTS

 

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     12   

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     44   

INDUSTRY AND MARKET DATA

     45   

USE OF PROCEEDS

     46   

DIVIDEND POLICY

     48   

CAPITALIZATION

     49   

DILUTION

     51   

SELECTED CONSOLIDATED FINANCIAL DATA

     53   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     55   

BUSINESS

     83   

MANAGEMENT

     119   

EXECUTIVE COMPENSATION

     126   

RELATED PERSON TRANSACTIONS

     135   

PRINCIPAL STOCKHOLDERS

     140   

DESCRIPTION OF CAPITAL STOCK

     142   

SHARES ELIGIBLE FOR FUTURE SALE

     145   

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

     147   

UNDERWRITING (CONFLICTS OF INTEREST)

     151   

NOTICE TO INVESTORS

     155   

LEGAL MATTERS

     157   

EXPERTS

     157   

WHERE YOU CAN FIND MORE INFORMATION

     157   

INDEX TO FINANCIAL STATEMENTS

     F-1   

You should rely only on the information contained in this prospectus and any related free writing prospectus that we may provide you in connection with this offering. We and the underwriters have not authorized anyone to provide you with information that is different. We and the underwriters are offering to sell shares of our common stock, and seeking offers to buy shares of our common stock, only in jurisdictions where such offers and sales are permitted. Regardless of the time of delivery of this prospectus or any related free writing prospectus that we may provide you in connection with this offering or any sale of our common stock, the information in this prospectus is accurate only as of the date of this prospectus, and the information in any related free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of that free writing prospectus. Our business, financial condition, results of operations and future growth prospects may have changed since those dates.

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 or any related free writing prospectus that we may provide you in connection with this offering 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 and any such free writing prospectus outside of the United States.


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PROSPECTUS SUMMARY

This summary provides an overview of selected information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our common stock. You should carefully read this prospectus and the registration statement of which this prospectus is a part in their entirety before investing in our common stock, including the information discussed under “Risk Factors” beginning on page 12 and our financial statements and notes thereto that appear elsewhere in this prospectus. We use the terms “Zosano,” “Company,” “we,” “us” and “our” in this prospectus to refer to Zosano Pharma Corporation and its subsidiaries.

Overview

We are a clinical stage specialty pharmaceutical company that has developed a proprietary transdermal microneedle patch system to deliver our proprietary formulations of existing drugs through the skin for the treatment of a variety of indications. Our microneedle patch system offers rapid onset, consistent drug delivery, improved ease of use and room-temperature stability, which we believe often are unavailable using oral formulations or injections. Our microneedle patch system has the potential to deliver numerous medications for a wide variety of indications in commercially attractive markets. By focusing our development efforts on the delivery of established molecules with known safety and efficacy and premium pricing, we plan to reduce our clinical and regulatory risk and development costs and accelerate our time to commercialization.

Our short-wear-time transdermal patch consists of an array of titanium microneedles that is coated with our proprietary formulation of an existing drug and attached to an adhesive patch. When the patch is applied with our hand-held applicator, the microneedles penetrate the skin to a depth of 200 microns or less, resulting in rapid dissolution and absorption of the drug coating through the capillary bed. We believe our system enables rapid and consistent delivery of the drug, with therapeutic effect typically occurring within 30 minutes or less, and easy, pain-free administration. We focus on developing specific formulations of approved drugs to be administered by our microneedle patch system, for indications in which rapid onset, ease of use and stability offer significant therapeutic and practical advantages. We target indications with patient populations that we believe will provide us with an attractive commercial opportunity. Our lead product candidates, and the indications they are expected to treat, are as follows:

 

    Weekly ZP-PTH , for severe osteoporosis;

 

    ZP-Glucagon, for severe hypoglycemia; and

 

    ZP-Triptan, for migraine.

Weekly ZP-PTH is our proprietary formulation of teriparatide, a synthetic form of parathyroid hormone, PTH 1-34 or, PTH, an anabolic product which regulates serum calcium, to be administered weekly for the treatment of severe osteoporosis in women. Osteoporosis is a disease, primarily affecting post-menopausal women, that is characterized by low bone mineral density and structural deterioration of bone tissue, which can lead to an increase in bone fractures. We believe the only anabolic product currently available in the United States is Eli Lilly & Company’s Forteo ® , which generates approximately $1.2 billion in annual revenues globally, with a relatively low patient penetration of approximately 6% of all severe osteoporosis patients.

We believe there is a significant opportunity for a new anabolic agent, such as Weekly ZP-PTH, that has the potential to offer equal or more effective bone fracture reduction with added advantages in safety, the convenience of a weekly administration and room temperature stability. Additionally, we intend to seek approval by the United States Food and Drug Administration, or FDA, of our Weekly ZP-PTH product candidate with a treatment window that is longer than Forteo ® or unlimited, and potentially without a black-box warning (which is a warning required by the FDA that appears on the package insert for or in literature describing certain prescription drugs, signifying that medical studies indicate that the drug carries a significant risk of serious

 

 

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adverse effects), currently required for Forteo ® . These attributes could significantly expand the size of the addressable market compared with that of Forteo ® .

In January 2014, we completed a Phase 1 clinical study in Australia to evaluate the pharmacokinetics, safety and tolerability of Weekly ZP-PTH patches in a range of doses. The study results demonstrated a rapid increase in serum concentration of PTH, quickly followed by a rapid decrease. This pulsatile pattern, which occurred with all patch doses, is important for efficacy of an anabolic agent. The study results also demonstrated dose proportionality and high bioavailability (which is the degree and rate at which an administered dose of unchanged drug is absorbed into the body and reaches the blood), with no serious adverse events. We expect to have a pre-IND meeting with the FDA, a meeting required for the filing of an investigational new drug application, or IND, in July 2014 to discuss the clinical study design for our planned Phase 2 and Phase 3 studies of Weekly ZP-PTH. Subject to the outcome of our discussions with the FDA, we expect to commence, or treat the first patient in, our Phase 2 Weekly PTH clinical study in the first half of 2015, and complete it by the end of 2015.

ZP-Glucagon is our proprietary formulation of glucagon, a hormone that raises blood glucose levels, intended for the emergency treatment of life-threatening, severe hypoglycemia. Severe hypoglycemia is a complication of diabetes treatment, often caused by insulin overdose, characterized by a very low level of blood glucose that can lead to loss of consciousness, seizure, coma and death. Time is of the essence in treatment of patients with severe hypoglycemia in an emergency situation. The currently available products on the market are injectables that require reconstitution at the time of need.

In January 2014 we completed a Phase 1 study in Australia designed to assess relative bioavailability with our microneedle patch system at various application sites on the body compared to a currently available form of glucagon administered by intramuscular injection. With each of the ZP-Glucagon treatments, we achieved a faster onset and a higher bioavailability during the first 30 minutes following application compared to the glucagon injection. Additionally, application of our microneedle patch with our easy-to-use applicator avoids the delay in treatment associated with reconstitution of the currently available injectable products. We believe these attributes will provide significant advantages in the emergency rescue of a potentially comatose patient.

We intend to conduct a second Phase 1 study to evaluate the performance of our ZP-Glucagon product in healthy volunteers at various doses, with and without induction of hypoglycemia, in comparison to comparable doses of glucagon administered by intramuscular injection. We expect to commence this Phase 1 study in Australia in the third quarter of 2014 and complete it by December 2014. We also expect to conduct a Phase 2 study to investigate the safety and efficacy of ZP-Glucagon in the treatment of insulin-induced hypoglycemia in diabetic patients (as opposed to the healthy volunteers used in our Phase 1 studies) after discussions with the FDA subsequent to completion of this second Phase 1 study.

ZP-Triptan is our proprietary formulation of zolmitriptan, one of a class of serotonin receptor agonists known as triptans used for the treatment of migraine, a debilitating neurological disease. Most triptans on the market have a long T MAX , or time after administration before maximum serum concentration is reached, and published data indicates a correlation between T MAX and onset and completeness of pain relief. ZP-Triptan has demonstrated a T MAX of nine minutes in preclinical studies and does not depend on gastrointestinal absorption. As a result, we believe it could provide an attractive alternative to currently marketed triptan products for the treatment of migraine.

In the fourth quarter of 2013, we completed preclinical animal studies that compared the pharmacokinetic profile of ZP-Triptan to that of zolmitriptan administered intravenously. In these preclinical studies, ZP-Triptan achieved rapid onset and bioavailability comparable to intravenous delivery. We intend to commence a Phase 1 study in the second half of 2014 to compare the pharmacokinetic and safety/tolerability profiles of escalated patch doses of zolmitriptan to those of one patch dose of sumatriptan, a synthetic triptan used for the treatment of

 

 

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migraine, and one subcutaneous injection of sumatriptan in healthy volunteers. Our Phase 2 study will be designed to assess the safety and efficacy of ZP-Triptan patches in the acute treatment of migraine in adults.

Our collaboration with Novo Nordisk. In January 2014, we entered into a strategic partnership and license agreement with Novo Nordisk A/S, or Novo Nordisk, to develop a microneedle patch product to administer semaglutide, Novo Nordisk’s investigational proprietary human glucagon-like peptide-1 analogue, or GLP-1, to be applied once weekly using our system for the treatment of type 2 diabetes. Under the terms of the agreement, we have granted Novo Nordisk a worldwide, exclusive license to develop and commercialize GLP-1 products, with the initial product candidate being Novo Nordisk’s semaglutide using our microneedle patch system. We received a $1 million upfront payment from Novo Nordisk, and we are eligible to receive payments upon achieving certain preclinical, clinical, regulatory and sales milestones which could total $60 million for the first product and $55 million for each additional product. We are also eligible to receive royalties on sales of GLP-1 products in the low to mid single digits and will receive development support, as well as reimbursement of all development and manufacturing costs relating to the Novo Nordisk program. Novo Nordisk will, pending successful outcomes of nonclinical and clinical testing, be responsible for commercialization of all products under the agreement.

Microneedle Patch System for Drug Delivery

Our microneedle patch painlessly delivers therapeutic compounds into the skin and provides rapid systemic drug delivery in a convenient, easy-to-use system that offers the following therapeutic and practical benefits, among others:

 

    rapid onset and high bioavailability

 

    room-temperature stability

 

    consistent delivery independent of the gastrointestinal tract

 

    convenience and ease of use

 

    short wear-time, typically 30 minutes or less, with near complete drug delivery (resulting in no drug overdose if the patient forgets to remove the patch); and

 

    avoidance of the biohazard disposal and safety risks associated with needle injections.

Our microneedle patch system consists of a 3 to 6 cm 2 array of titanium microneedles approximately 200-350 microns long, coated with a hydrophilic formulation of the relevant drug, and attached to an adhesive patch. The patch is applied with a hand-held applicator that painlessly presses the microneedles into the skin to a uniform depth in each application, close to the capillary bed, allowing for rapid and consistent dissolution and absorption of the drug coating, yet short of the nerve endings in the skin. The typical patch wear time is 30 minutes or less, avoiding skin irritation. We believe our applicator has an intuitive, simple and patient-friendly design and is available in reusable form for chronic indications or in a disposable, single-use form for acute indications.

 

LOGO    LOGO

 

 

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We believe our microneedle patch system has the potential to deliver a wide range of therapeutic compounds, including biologics and other large, complex molecules that have historically been difficult to deliver transdermally. Our patch is small and unobtrusive compared to existing transdermal products and our mechanical applicator is simple and easy to use, unlike some transdermal systems that involve cumbersome, complex and costly devices with external power sources.

We have tested our microneedle patch system in preclinical and clinical studies that demonstrated its technical feasibility with approximately 30 compounds, ranging from small molecules to proteins, including the following:

 

LOGO

Over 30,000 of our patches have been applied to over 400 patients in seven Phase 1 clinical studies and one Phase 2 study. Based on this research, we believe that our microneedle patch system can be used to deliver treatments for a wide variety of indications beyond those on which we are currently focused, where fast onset, room-temperature stability and ease of use will fill a significant unmet need.

We intend, independently or through strategic collaborations with others, to explore these and other potential applications of our microneedle patch system. We anticipate that our internal development programs will focus on delivery of premium-priced drugs, and that we will collaborate with third parties with respect to delivery of their proprietary drugs.

Our Strategy

Our goal is to make transdermal drug delivery a standard of care for delivering drugs requiring fast onset. The key elements of our strategy are to:

 

    Pursue indications with high unmet medical need and greater probability of clinical, regulatory and commercial success with a competitive pricing model.

 

    Maintain our focus on effective execution of our clinical trials.

 

 

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    Expand our manufacturing capabilities and reduce our cost of goods.

 

    Develop a targeted commercial infrastructure.

 

    Partner selectively to expand the utilization of our microneedle patch drug delivery platform.

Intellectual Property

As of June 15, 2014, we held exclusive licenses to 22 United States patents and eight United States patent applications, as well as numerous foreign counterparts to many of these patents and patent applications, covering key features of our microneedle patch system, such as formulation, coating, array design, patch anchoring, patch application, delivery, manufacturing and packaging. We believe that the remaining life of our patent portfolio may make our technology particularly attractive for third parties seeking to extend the lifecycle of profitable drugs nearing the expiration of their patent protection.

Risks Associated with our Business

Our ability to implement our business strategy is subject to numerous risks of which you should be aware before making an investment decision. These risks are described more fully in the section entitled “Risk Factors” beginning on page 12 of this prospectus. You are encouraged to read that section in its entirety before making an investment decision. These risks include, but are not limited to, the following:

 

    We have a history of losses. We expect to continue to incur losses over the next several years and may never achieve or maintain profitability.

 

    We have recognized only limited revenues and will need to raise additional capital to operate our business, which may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or lead product candidates.

 

    Our loan facility with Hercules Technology Growth Capital and our note payable to our largest stockholder, an affiliate of BioMed Realty Trust, or BMR, each impose restrictions on our business, and if we default on our obligations, Hercules or BMR’s affiliate would have a right to foreclose on substantially all of our assets, including our intellectual property and proceeds of this offering. We intend to use a portion of the proceeds of this offering to make required payments of interest and principal as they become due under the loan facility with Hercules and the note payable to BMR’s affiliate.

 

    The development and commercialization of our proposed products are subject to many risks. If we do not successfully develop and commercialize our proposed products, our business will be adversely affected.

 

    The commercialization of large dose products using our microneedle patch system may be dependent on the development of different size patches and/or different designs for our patch applicator. If we are not successful in implementing these developments in the time frames we expect, the commercialization of products that would benefit from such developments may be delayed and, as a result, our results of operations may be adversely affected.

 

    Clinical trials are very expensive, time-consuming and difficult to design and implement.

 

    We use our own customized equipment to coat and package our microneedle patch system, making us vulnerable to production and supply problems that could negatively impact our sales.

 

    We have no experience selling, marketing or distributing products and have limited internal capability to do so, and we have limited experience manufacturing our proposed products.

 

    If we fail to comply with our obligations to our licensor in our intellectual property license, we could lose license rights that are important to our business.

 

 

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    Our failure to obtain and maintain patent protection for our technology and our products could permit our competitors to develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be adversely affected.

 

    We may not successfully manage our growth.

Corporate Information

We were incorporated under the laws of the State of Delaware as ZP Holdings, Inc. in January 2012, and changed our name to Zosano Pharma Corporation in June 2014. Our business was spun out of ALZA Corporation, a subsidiary of Johnson & Johnson, in October 2006. We were originally incorporated under the name The Macroflux Corporation, and changed our name to Zosano Pharma, Inc. in 2007 following the spin-off from Johnson & Johnson. In April 2012, in a transaction to recapitalize the business, a wholly-owned subsidiary of ZP Holdings was merged with and into Zosano Pharma, Inc., whereby Zosano Pharma, Inc. was the surviving entity and became a wholly-owned subsidiary of ZP Holdings. In June 2014, Zosano Pharma, Inc. changed its name to ZP Opco, Inc. Our principal executive offices are located at 34790 Ardentech Court, Fremont, California 94555. Our telephone number is (510) 745-1200. Our website address is www.zosanopharma.com. The information contained on our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock.

This prospectus contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork, and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate that we or their respective owners will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any such companies.

Implications of Being an Emerging Growth Company

As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

 

    being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” disclosure;

 

    not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

 

    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 auditor’s report providing additional information about the audit and the financial statements;

 

    reduced disclosure obligations regarding executive compensation; and

 

    not being required to hold a non-binding advisory vote on executive compensation or obtain stockholder 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 will cease to be an emerging growth company if we have more than $1 billion

 

 

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in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates or we issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of certain reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

 

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The Offering

 

Common stock offered by us

            shares

 

Common stock to be outstanding after this offering

            shares (             shares in the event the underwriters elect to exercise in full their over-allotment option to purchase additional shares from us).

 

Use of proceeds

We estimate that the net proceeds from this offering will be approximately $         million, or approximately $         million if the underwriters exercise in full their over-allotment option, based on the initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We plan to use the net proceeds from this offering to conduct a Phase 2 clinical trial of our Weekly ZP-PTH product candidate and Phase 2 and Phase 3 clinical trials of our ZP-Glucagon product candidate. We intend to use remaining amounts to fund research and development for ZP-Triptan and our preclinical pipeline, to make required payments of interest and principal as they become due under our loan facility with Hercules Technology Growth Capital and our note payable to our largest stockholder, an affiliate of BioMed Realty Trust, expand and enhance our manufacturing capabilities, and for working capital and other general corporate purposes. See “Use of Proceeds” on page 46 for additional information.

 

Risk factors

You should read the “Risk Factors” section beginning on page 12 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

“ZSAN”

Certain of our existing investors and              affiliated entities have indicated an interest in purchasing an aggregate amount of $         million worth of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these potential investors, or any of these potential investors may determine to purchase more, less or no shares in this offering. Any shares purchased by these potential investors will be subject to lock-up restrictions described in “Shares Eligible for Future Sale.”

The number of shares of our common stock to be outstanding after this offering set forth above is based on 20,552,251 shares of our common stock outstanding as of June 15, 2014, and includes an additional              shares of our common stock that will be issued upon the automatic conversion of our convertible promissory notes outstanding at June 15, 2014, assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated offering expenses payable by us. By their terms, if the closing of this offering occurs on or before September 9, 2014, these notes will convert into our common stock at a conversion price equal to 85% of our initial public offering price.

 

 

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The number of shares of common stock to be outstanding after this offering set forth above, excludes:

 

    126,696 shares of common stock issuable upon the exercise of a warrant outstanding as of June 15, 2014 at an exercise price of $2.21 per share;

 

    2,044,038 shares of common stock issuable upon the exercise of stock options outstanding under our 2012 Stock Incentive Plan as of June 15, 2014, at a weighted average exercise price of $0.35 per share;

 

    170,070 shares of common stock available for future issuance under our 2012 Stock Incentive Plan as of June 15, 2014; and

 

    an additional         shares of our common stock that will be made available for future issuance under our 2014 Equity and Incentive Plan to be adopted upon the closing of this offering.

Except as otherwise noted, all information in this prospectus:

 

    gives effect to a 1-for-         reverse split of our common stock effected on             ;

 

    assumes no exercise of outstanding options or the warrant described above;

 

    assumes no exercise by the underwriters of their over-allotment option; and

 

    gives effect to the amendment and restatement of our certificate of incorporation and bylaws upon the closing of this offering.

Conflicts of Interest

Theodore D. Roth, the President and an associated person of Roth Capital Partners, LLC, or Roth, one of the underwriters in this offering, is also a director of BMR. Under the rules of the Financial Regulatory Authority, Inc., a conflict of interest is deemed to exist with respect to Roth because Mr. Roth is deemed to “control” BMR (as a director of BMR) and BMR is deemed to “control” us (as an affiliate of a beneficial owner of in excess of 10% of our outstanding capital stock). A portion of the net proceeds of this offering will be used to make required payments of interest and principal as they become due under our note payable to our largest stockholder, which is an affiliate of BMR. See “Use of Proceeds.”

 

 

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Summary Financial Data

The following summary financial data should be read together with our audited consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. Our summary statements of operations data for the three months ended March 31, 2014 and 2013 and the selected balance sheet data as of March 31, 2014 are derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. Our summary statements of operations data for the years ended December 31, 2013 and 2012 are derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of results to be expected for any future period. The summary financial data in this section are not intended to replace our audited and unaudited consolidated financial statements and the related notes.

The pro forma balance sheet data as of March 31, 2014 gives effect to the automatic conversion to              shares of common stock of all of our convertible promissory notes outstanding at March 31, 2014 at a price equal to 85% of the assumed initial public offering price, upon the closing of this offering, resulting in our liability for such notes being reclassified to additional paid-in capital. The pro forma as adjusted balance sheet data as of March 31, 2014 gives effect to (1) the pro forma adjustments described above and (2) our receipt of estimated net proceeds of $         million from this offering, based on the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, as if each had occurred as of March 31, 2014. The pro forma as adjusted summary financial data are not necessarily indicative of what our financial position would have been if this offering had been completed as of the date indicated, nor are these data necessarily indicative of our financial position for any future date or period.

 

     Three Months
Ended March 31,
    Year Ended
December 31,
 
     2014     2013     2013     2012  
    

(unaudited)

             
    

(in thousands except per share data)

 

Statements of Operations Data:

        

Revenue:

        

License fees revenue

   $ 1,375      $ 2,563      $ 4,250      $ 9,250   

Collaborative development support services

     226        —          —          2,374   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     1,601        2,563        4,250        11,624   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Cost of license fees revenue

     100        —          —          —     

Research and development

     1,507        1,098        6,502        3,050   

Manufacturing services

     1,378        114        1,135        2,349   

General and administrative

     1,184        809        4,582        3,077   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     4,169        2,021        12,219        8,476   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (2,568     542        (7,969     3,148   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other (expense) income:

        

Interest expense, net

     (301     (168     (760     (663

Warrant revaluation income

     —          —          —          71   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity in gain (loss) of joint venture, gain on termination of joint venture, and gain on debt forgiveness

     (2,869     374        (8,729     2,556   

Equity in loss of joint venture

     —          89        (366     (738

Gain on termination of joint venture

     —          —          3,487        —     

Gain on debt forgiveness

     497        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (2,372     463      $ (5,608   $ 1,818   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share—basic

   $ (0.12   $ 0.02      $ (0.27   $ 0.12   

Net income (loss) per common share—diluted

   $ (0.12   $ 0.02      $ (0.27   $ 0.12   

Weighted-average shares outstanding—basic

     20,427        20,427        20,427        15,630   

Weighted-average shares outstanding—diluted

     20,427        20,427        20,427        15,630   

Pro forma net loss per common share-basic and diluted (unaudited) (1)

   $          $       

Weighted-average pro forma shares used in computing pro forma net loss per common share—basic and diluted (unaudited) (1)

        

 

 

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     As of March 31, 2014  
     Actual     Pro Forma      Pro Forma
As Adjusted
 
     (unaudited; in thousands)  

Balance Sheet Data:

       

Cash and cash equivalents

   $ 5,608      $                    $                

Working capital (deficit)

   $ (3,170   $         $     

Total assets

   $ 17,869      $         $     

Long-term debt

   $ 9,930      $         $     

Accumulated deficit

   $ (126,595   $         $     

Total stockholders’ equity (deficit)

   $ (1,842   $         $     

 

(1) Pro forma weighted-average shares outstanding and net loss per common share for the year ended December 31, 2013 reflect the conversion of all of our convertible promissory notes outstanding at December 31, 2013 into shares of common stock at a conversion price equal to 85% of the assumed initial public offering price, as if the conversion had occurred at the beginning of the period. Does not give effect to the issuance of shares from this proposed initial public offering or the potential effect of dilutive securities, because the impact of such issuance would be anti-dilutive. See Note 2 to our audited consolidated financial statements included elsewhere in this prospectus.

 

(2) A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets 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, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, but giving effect to the terms of our convertible promissory notes which provide that such notes will convert automatically at a price equal to 85% of our initial public offering price. Similarly, a one million share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders’ equity (deficit) by $         million, assuming the assumed initial public offering price of $         per share (the midpoint of the price range set forth on the cover page of this prospectus) remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. Before you invest in our common stock, you should carefully consider the following risks and uncertainties, as well as general economic and business risks, and all of the other information contained in this prospectus. Any of the following risks could have a material adverse effect on our business, operating results, financial condition and prospects and cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment. When determining whether to invest, you should also refer to the other information contained in this prospectus, including our audited consolidated financial statements and the related notes thereto.

RISKS RELATED TO OUR FINANCIAL POSITION AND NEED FOR ADDITIONAL CAPITAL

We have a history of losses. We expect to continue to incur losses over the next several years and may never achieve or maintain profitability.

Since inception, we have incurred significant operating losses. For the year ended December 31, 2013 we had net losses of $5.6 million, and for the three months ended March 31, 2014 we had net losses of $2.4 million. As of March 31, 2014, we had an accumulated deficit of $126.6 million. We expect to continue to incur additional significant operating and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future as we continue the development of our lead product candidates, Weekly ZP-PTH, ZP-Glucagon and ZP-Triptan. These expenditures will be incurred for development, clinical trials, regulatory compliance, infrastructure, manufacturing and additional employees. Even if we succeed in developing, obtaining regulatory approval for and commercializing one or more of our lead product candidates, because of the numerous risks and uncertainties associated with our commercialization efforts, we are unable to predict that we will ever be able to manufacture, distribute and sell any of our products profitably, and we may never generate revenue that is significant enough to achieve or maintain profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on an ongoing basis.

We have generated only limited revenues and will need to raise additional capital to operate our business, which may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or lead product candidates.

Since inception, we have generated no revenues from product sales. For the year ended December 31, 2013, we had total revenue of $4.3 million, and for the three months ended March 31, 2014, we had total revenue of $1.6 million. Substantially all of this revenue resulted from payments by Asahi Kasei Pharma Corporation, or Asahi, in connection with our strategic partnership, which ended in January 2014. We are not approved to make and have not made any commercial sales of products. We expect that our product development activities will require additional significant operating and capital expenditures resulting in negative cash flow for the foreseeable future. Further, after completing this offering, we do not have any committed external source of funds. The net proceeds from this offering and our existing cash and cash equivalents will not be sufficient to fund all of the efforts that we plan to undertake or to fund completion of clinical development of any of our product candidates. Accordingly, unless and until we generate revenues and become profitable, we will need to raise additional capital to continue to operate our business, including after the consummation of this offering.

We expect to finance our cash needs through a combination of equity offerings, debt financing and license and collaboration agreements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. However, adequate and additional funding may not be available to us on acceptable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends on our common stock.

 

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If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our research programs or drug candidates or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings or other arrangements with third parties when needed, we may be required to delay, limit, reduce or terminate our development or future commercialization efforts or partner with third parties to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our loan facility with Hercules Technology Growth Capital, or Hercules, and our note payable to our largest stockholder, an affiliate of BioMed Realty Trust, or BMR, each impose restrictions on our business, and if we default on our obligations, Hercules or BMR would have a right to foreclose on substantially all of our assets, including our intellectual property and proceeds of this offering.

In June 2014, we entered into a senior term loan facility with Hercules, under which Hercules made a $4 million loan to us that matures in June 2017 and bears interest at a per annum rate equal to the greater of (i) 12.05% and (ii) 12.05% plus the “prime rate” as reported in The Wall Street Journal minus 5.25%. In connection with our reorganization in April 2012, we issued a promissory note to BMR in the original principal amount of approximately $8.6 million. The BMR note is subordinated to the Hercules loan, due in April 2016 (but is not permitted to be repaid while the Hercules loan is outstanding) and bears interest at the same rate as the Hercules loan during the period that the Hercules loan remains outstanding, and otherwise at the annual rate of 8%. We also agreed to covenants in connection with the Hercules loan and the BMR note that may limit our ability to take some actions without the consent of Hercules or BMR, as applicable. In particular, without Hercules’ or BMR’s consent under the terms of loan facility or the note, as applicable, we are restricted in our ability to:

 

    incur indebtedness;

 

    create liens on our property;

 

    make payments on any subordinated debt, including the BMR note while the Hercules loan remains outstanding;

 

    make investments in or loans to others;

 

    acquire assets other than in the ordinary course; and

 

    dispose of the collateral that secures the Hercules loan and the BMR note.

Our indebtedness to Hercules and to BMR may limit our ability to finance future operations or capital needs or to engage in, expand or pursue our business activities. It may also prevent us from engaging in activities that could be beneficial to our business and our stockholders unless we repay the outstanding debt, which may not be desirable or possible.

We intend to use a portion of the proceeds from this offering to make required payments of interest and principal as they become due under the loan facility with Hercules and the note payable to BMR. We have pledged substantially all of our assets, including our intellectual property, to secure our obligations to Hercules under the loan facility and to BMR under the promissory note. If we default on our obligations prior to repaying this indebtedness, and are unable to obtain a waiver for such default, Hercules or BMR would have a right to accelerate our payments under the loan facility or the note, as applicable, and possibly foreclose on the collateral, which would potentially include our intellectual property and proceeds of this offering. Any such action on the part of Hercules or BMR would significantly harm our business and our ability to operate.

We have limited operating history upon which to base an investment decision.

Although our business was formed in 2006, we have had limited operations since that time. We do not currently have the ability to perform the sales, marketing and manufacturing functions necessary for the production

 

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and sale of our products on a commercial scale. Our most advanced product is our Weekly ZP-PTH, which will be required to undergo significant additional clinical trials before it can be commercialized, if at all. The successful commercialization of any of our product candidates will require us to perform a variety of functions, including:

 

    continuing to conduct clinical development of our lead product candidates;

 

    obtaining required regulatory approvals;

 

    formulating and manufacturing products; and

 

    conducting sales and marketing activities.

Our operations continue to be focused on organizing and staffing our company, acquiring, developing and securing our proprietary technology and undertaking preclinical and clinical trials of our products. In addition, our previous strategic partnership with Asahi, which terminated in January 2014, has accounted for substantially all of our revenues to date. As a result, investors have a limited operating history on which to evaluate the merits of an investment in our common stock.

We expect our financial condition and operating results to continue to fluctuate from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. We will need to transition at some point from a company with a research and development focus to a company capable of undertaking commercial activities. We may encounter unforeseen expenses, difficulties, complications and delays and may not be successful in such a transition.

The report of our independent registered public accounting firm on our 2013 audited consolidated financial statements contains an explanatory paragraph regarding our ability to continue as a going concern.

Our recurring losses from operations and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern without additional debt or equity financing. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our audited consolidated financial statements for 2013 with respect to this uncertainty. Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common stock and make it more difficult for us to obtain financing. If we are unable to obtain sufficient capital in this offering, our business, financial condition and results of operations will be materially and adversely affected and we will need to obtain alternative financing or significantly modify our operational plans to continue as a going concern. Further, if we successfully complete and receive the net proceeds from this offering, given our planned expenditures for the next several years, including without limitation, expenditures in connection with our planned clinical trials of our lead product candidates, our independent registered public accounting firm may conclude, in connection with the preparation of our financial statements for 2014 or any subsequent period that there continues to be substantial doubt regarding our ability to continue as a going concern.

We have prepared our financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should we be unable to continue in existence.

RISKS RELATED TO THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCT CANDIDATES

The development and commercialization of our product candidates is subject to many risks. If we do not successfully develop and commercialize our product candidates, our business will be adversely affected.

We are focusing our development efforts on three lead product candidates, Weekly ZP-PTH, ZP-Glucagon, and ZP-Triptan. The development and commercialization of each of these product candidates is subject to many risks including:

 

    we may be unable to obtain additional funding to develop our product candidates;

 

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    we may experience delays in regulatory review and approval of product candidates in clinical development;

 

    the results of our clinical studies may not meet the level of statistical or clinical significance required by the FDA for marketing approval;

 

    the FDA may disagree with the number, design, size, conduct or implementation of our clinical studies;

 

    the FDA may not find the data from preclinical studies and clinical studies sufficient to demonstrate that clinical and other benefits outweigh its safety risks;

 

    the FDA may disagree with our interpretation of data from our preclinical studies and clinical studies or may require that we conduct additional studies;

 

    the FDA may not accept data generated at our clinical study sites;

 

    we may be unable to obtain and maintain regulatory approval of our product candidates in the United States and foreign jurisdictions;

 

    potential side effects of our product candidates could delay or prevent commercialization, limit the indications for any approved drug, require the establishment of a risk evaluation and mitigation strategy, or REMS, or cause an approved drug to be taken off the market;

 

    the FDA may identify deficiencies in our manufacturing processes or facilities or those of our third-party manufacturers;

 

    the FDA may change its approval policies or adopt new regulations;

 

    we may need to depend on third-party manufacturers, or CMOs, to supply or manufacture our products;

 

    we depend on clinical research organizations, or CROs, to conduct our clinical trials;

 

    we may experience delays in the commencement of, enrollment of patients in and timing of our clinical trials;

 

    we may not be able to demonstrate that any of our product candidates are safe and effective as a treatment for their respective indications to the satisfaction of the United States Food and Drug Administration, or FDA, or other similar regulatory bodies;

 

    we may be unable to establish or maintain collaborations, licensing or other arrangements;

 

    the market may not accept our product candidates;

 

    we may be unable to establish and maintain an effective sales and marketing infrastructure, either through the creation of a commercial infrastructure or through strategic collaborations;

 

    we may experience competition from existing products or new products that may emerge; and

 

    we and our licensors may be unable to successfully obtain, maintain, defend and enforce intellectual property rights important to protect our products.

If any of these risks materializes, we could experience significant delays or an inability to successfully commercialize our drug candidates, which would have a material adverse effect on our business, financial condition and results of operations.

We will not be able to sell our products if we do not obtain required United States or foreign regulatory approvals.

We cannot assure you that we will receive the approvals necessary to commercialize any of our product candidates, including Weekly ZP-PTH, ZP-Glucagon, ZP-Triptan or any product candidate we acquire or develop in the future. We will need FDA approval to commercialize our product candidates in the United States

 

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and approvals from the FDA-equivalent regulatory authorities in foreign jurisdictions to commercialize our product candidates in those jurisdictions. In order to obtain FDA approval of any product candidate, we expect that we will have to submit to the FDA a new drug application, or NDA, demonstrating that the product candidate is safe for humans and effective for its intended indication and indicated use. This demonstration requires significant research and animal tests, which are referred to as preclinical studies, as well as human tests, which are referred to as clinical trials. Satisfaction of the FDA’s regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product candidate and requires substantial resources for research, development and testing. We cannot predict whether our research and clinical approaches will result in drugs that the FDA considers safe for humans and effective for indicated uses. The FDA has substantial discretion in the drug approval process and may require us to conduct additional preclinical and clinical testing or to perform post-marketing studies. The approval process may also be delayed by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or during its regulatory review. Delays in obtaining regulatory approvals may:

 

    delay commercialization of, and our ability to derive product revenues from, our products;

 

    impose costly procedures on us; and

 

    diminish any competitive advantages that we may otherwise enjoy.

We may never obtain regulatory clearance for any of our product candidates. Failure to obtain approval of any of our product candidates will severely undermine our business by leaving us without a saleable product, and therefore without any source of revenues, unless other products can be developed. There is no guarantee that we will ever be able to develop or acquire another product.

In foreign jurisdictions, we must receive approval from the appropriate regulatory authorities before we can commercialize any drugs. Foreign regulatory approval processes generally include all of the risks associated with the FDA approval procedures described above. We cannot assure you that we will receive the approvals necessary to commercialize any of our product candidates for sale outside the United States.

Clinical trials are very expensive, time-consuming and difficult to design and implement.

Human clinical trials are very expensive, time-consuming and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. We estimate that clinical trials of Weekly ZP-PTH will take at least four years to complete and that completion of preclinical and clinical trials of ZP-Glucagon and ZP-Triptan will each take two or more years to complete. Furthermore, failure of any product candidate can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including:

 

    changes in government regulation, administrative action or changes in FDA policy with respect to clinical trials that change the requirements for approval;

 

    unforeseen safety issues;

 

    determination of dosing issues;

 

    lack of effectiveness during clinical trials;

 

    slower than expected rates of patient recruitment and enrollment;

 

    inability to monitor patients adequately during or after treatment; and

 

    inability or unwillingness of medical investigators to follow our clinical protocols.

In addition, we, the FDA, or other regulatory authorities and ethics committees with jurisdiction over our studies may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the FDA or other authorities find deficiencies in our regulatory submissions or the conduct of

 

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these trials. Therefore, we cannot predict with any certainty the schedule for existing or future clinical trials. Any such unexpected expenses or delays in our clinical trials could increase our need for additional capital, which may not be available on favorable terms or at all.

If we are required to conduct additional clinical trials or other testing of our drug candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these clinical trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

 

    be delayed in obtaining marketing approval for our drug candidates;

 

    not obtain marketing approval at all;

 

    obtain approval for indications or patient populations that are not as broad as intended or desired;

 

    obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;

 

    be subject to additional post-marketing testing requirements; or

 

    have the drug removed from the market after obtaining marketing approval.

Our development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring drugs to market before we do, and thereby impair our ability to successfully commercialize our product candidates.

As an organization, we have only conducted one Phase 2 clinical trial and have never conducted a Phase 3 clinical trial or submitted an NDA, and may be unable to do so for any product candidates we are developing, including our three leading product candidates, Weekly ZP-PTH, ZP-Glucagon or ZP-Triptan.

We will need to successfully complete additional Phase 2 and Phase 3 clinical trials and submit to the FDA for approval one or more NDAs in order to obtain FDA approval to market each of our product candidates. The conduct of later-stage clinical trials and the submission of a successful NDA is a complicated process. As an organization, we have conducted only one Phase 2 clinical trial, have not conducted a Phase 3 clinical trial before, have limited experience in preparing, submitting and prosecuting regulatory filings, and have not previously submitted an NDA for any product candidate. We also have had limited interactions with the FDA and have not discussed our clinical trial designs or implementation with the FDA. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to NDA submission and approval of Weekly ZP-PTH or any other product candidate we are developing. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of products that we develop. Failure to commence or complete, or delays in, our planned clinical trials, would prevent us from or delay us in commercializing Weekly ZP-PTH or any other product candidate we are developing.

The results of our clinical trials may not support our product claims.

Even if our clinical trials are completed as planned, we cannot be certain that the results will support our product claims. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and preclinical testing. The clinical trial process may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. This failure would cause us to abandon a product candidate and may delay development of other product candidates. Any delay in, or termination of, our clinical trials will delay the filing of our NDAs with the FDA and, ultimately, our ability to commercialize our product candidates and generate revenues. In addition, our clinical trials to date have involved small patient populations. Because of the small sample sizes, the results of these clinical trials may not be indicative of future results.

 

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Clinical failure can occur at any stage of clinical development. Because the results of earlier clinical trials are not necessarily predictive of future results, any product candidate we advance through clinical trials may not have favorable results in later clinical trials or receive regulatory approval.

Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical or preclinical trials. In addition, data obtained from trials are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will generate the same results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. Frequently, product candidates that have shown promising results in early clinical trials have subsequently suffered significant setbacks in later clinical trials. In addition, 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. While members of our management team have experience in designing clinical trials, our company has limited experience in designing clinical trials and we may be unable to design and execute a clinical trial to support regulatory approval. Further, clinical trials of potential products often reveal that it is not practical or feasible to continue development efforts. For example, if the results of our Weekly ZP-PTH trial do not achieve the primary efficacy endpoints or demonstrate expected safety, the prospects for approval of Weekly ZP-PTH would be materially and adversely affected. If Weekly ZP-PTH or our other product candidates are found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for them and our business would be harmed.

We are conducting, and may in the future conduct, clinical trials for product candidates in sites around the world, and government regulators, including the FDA in the United States, may choose to not accept data from trials conducted in such locations.

We have conducted, and may in the future choose to conduct, one or more of our clinical trials outside the United States. For example, our Phase 1 clinical trial for Weekly ZP-PTH was conducted in Australia.

There is no guarantee that data from these clinical trials will be accepted by regulators approving our product candidates for commercial sale. In the case of the United States, although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance with ethical principles. The study population must also adequately represent the United States population, and the data must be applicable to the United States population and United States medical practice in ways that the FDA deems clinically meaningful. Generally, the patient population for any clinical studies conducted outside of the United States must be representative of the population for whom we intend to label the product in the United States. In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will be dependent upon its determination that the studies also complied with all applicable U.S. laws and regulations. There can be no assurance the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from our clinical trials, it would likely result in the need for additional trials, which would be costly and time-consuming and delay or permanently halt our development of Weekly ZP-PTH or any future product candidates. Similar regulations and risks apply to other jurisdictions as well.

In addition, the conduct of clinical trials outside the United States could have a significant impact on us. Risks inherent in conducting international clinical trials include:

 

    foreign regulatory requirements that could restrict or limit our ability to conduct our clinical trials;

 

    administrative burdens of conducting clinical trials under multiple foreign regulatory schema;

 

    foreign exchange fluctuations; and

 

    diminished protection of intellectual property in some countries.

 

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Even if our product candidates receive regulatory approval, we may still face future development and regulatory difficulties.

The manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for our product candidates 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, current good manufacturing practices, or cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. The regulatory approvals for our product candidates may be subject to limitations on the indicated uses for which the products may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product candidate. The FDA closely regulates the post-approval marketing and promotion of drugs and drug delivery devices to ensure they are marketed 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 do not market our products for their approved indications, we may be subject to enforcement action for off-label marketing.

The FDA has the authority to require a REMS as part of an NDA or after approval, which may impose further requirements or restrictions on the distribution or use of an approved drug, such as limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria or requiring patient testing, monitoring and/or enrollment in a registry. The FDA currently requires a REMS for Forteo ® and will likely require a REMS be included as part of the NDA for Weekly ZP-PTH.

With respect to sales and marketing activities by us or any future partner, advertising and promotional materials must comply with FDA rules in addition to other applicable federal, state and local laws in the United States and similar legal requirements in other countries. In the United States, the distribution of product samples to physicians must comply with the requirements of the U.S. Prescription Drug Marketing Act. Application holders must obtain FDA approval for product and manufacturing changes, depending on the nature of the change. We may also be subject, directly or indirectly through our customers and partners, to various fraud and abuse laws, including, without limitation, the U.S. Anti-Kickback Statute, U.S. False Claims Act, and similar state laws, which impact, among other things, our proposed sales, marketing, and scientific/educational grant programs. If we participate in the U.S. Medicaid Drug Rebate Program, the Federal Supply Schedule of the U.S. Department of Veterans Affairs, or other government drug programs, we will be subject to complex laws and regulations regarding reporting and payment obligations. All of these activities are also potentially subject to U.S. federal and state consumer protection and unfair competition laws. Similar requirements exist in many of these areas in other countries.

In addition, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. If we receive marketing approval for our products, physicians may nevertheless legally prescribe our products to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability and government fines. 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 sanctions, including revocation of its marketing approval. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees of permanent injunctions under which specified promotional conduct is changed or curtailed.

 

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In addition, later discovery of previously unknown problems with our product candidates, manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

 

    restrictions on such product candidate, or manufacturing processes;

 

    restrictions on the labeling or marketing of a product;

 

    restrictions on product distribution or use;

 

    requirements to conduct post-marketing clinical trials;

 

    warning or untitled letters;

 

    withdrawal of the products from the market;

 

    refusal to approve pending applications or supplements to approved applications that we submit;

 

    recall of products;

 

    fines, restitution or disgorgement of profits or revenue;

 

    suspension or withdrawal of marketing approvals;

 

    refusal to permit the import or export of our products;

 

    product seizure; or

 

    injunctions or the imposition of civil or criminal penalties.

The occurrence of any event or penalty described above may inhibit our ability to commercialize our products and generate revenue. Adverse regulatory action, whether pre- or post-approval, can also potentially lead to product liability claims and increase our product liability exposure.

We or our partners may choose not to continue developing or commercialize a product or product candidate at any time during development or after approval, which would reduce or eliminate our potential return on investment for that product or product candidate.

We currently do not have any products approved for sale. We have three product candidates in early stages of research and development. In addition, we have recently entered into a strategic partnership and license agreement with Novo Nordisk A/S, or Novo Nordisk, to commercialize Novo Nordisk’s proprietary GLP-1 using our microneedle patch system.

At any time, we or our partners may decide to discontinue the development of a marketed product or product candidate or not to continue commercializing a marketed product or a product candidate for a variety of reasons, including the appearance of new technologies that make our product obsolete, the position of our partner in the market, competition from a competing product, or changes in or failure to comply with applicable regulatory requirements. For example, from 2011 to 2013, we were a party to a strategic partnership and exclusive license agreement with Asahi to commercialize Asahi’s Teribone TM product using our microneedle patch system. In January 2014, this relationship with Asahi was terminated. If we or our partners terminate a program in which we have invested significant resources, we will not receive any return on our investment and we will have lost the opportunity to allocate those resources to potentially more productive uses. If one of our partners terminates a development program or ceases to market an approved or commercial product, we will not receive any future milestone payments or royalties relating to that program or product under our partnership agreement with that party.

We are dependent on the successful development of our three leading product candidates.

We are dependent on the successful development of our three leading product candidates, Weekly ZP-PTH, ZP-Glucagon and ZP-Triptan. We cannot assure you that we will be able to complete the clinical trials required for each product candidate in a timely manner, or at all, and ultimately obtain regulatory approval for any of these product candidates. If we are unable to complete clinical trials of and obtain regulatory approval for our product candidates, our business will be significantly affected.

 

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The commercialization of large dose products using our microneedle patch system may be dependent on the development of different size patches and/or different designs for our patch applicator. If we are not successful in implementing these developments in the time frames we expect, the commercialization of products that would benefit from such developments may be delayed and, as a result, our results of operations may be adversely affected.

Our microneedle patch system can be used to deliver numerous medications for a wide variety of indications. Our ability to successfully commercialize any given drug product using our microneedle patch system may be dependent on large scale development of different patch sizes or different designs for our patch applicator. Delays in the development of different size patches and/or different designs for our patch applicator, may adversely affect our business, financial condition and results of operations.

Our long-term growth will be limited unless we successfully develop a pipeline of additional product candidates.

Our long-term growth will be limited unless we successfully develop a pipeline of additional product candidates. We do not have internal new drug discovery capabilities, and our primary focus is on developing improved transdermal drug delivery systems by reformulating drugs previously approved by the FDA using our proprietary technologies.

If we are unable to expand our product candidate pipeline and obtain regulatory approval for our product candidates on the timelines we anticipate, we will not be able to execute our business strategy effectively and our ability to substantially grow our revenues will be limited, which would harm our long-term business, results of operations, financial condition and prospects.

We may expend our limited resources to pursue a particular product candidate and fail to capitalize on product candidates that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we have decided to focus on developing product candidates that we identified for treatment of severe osteoporosis, severe hypoglycemia and migraine. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial product candidates or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

If serious adverse or inappropriate side effects are identified during the clinical trials of our product candidates, we may need to abandon our development of some of these candidates.

All of our product candidates are still in preclinical or clinical development. Our products may have undesirable side effects, or have characteristics that are unexpected.

If Weekly ZP-PTH or any of our other product candidates cause serious adverse events or undesirable side effects:

 

    regulatory authorities may impose a clinical hold which could result in substantial delays and adversely impact our ability to continue development of the product;

 

    regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

 

    we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;

 

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    we may be required to implement a risk minimization action plan, which could result in substantial cost increases and have a negative impact on our ability to commercialize the product;

 

    we may be required to limit the patients who can receive the product;

 

    we may be subject to limitations on how we promote the product;

 

    sales of the product may decrease significantly;

 

    regulatory authorities may require us to take our approved product off the market;

 

    we may be subject to litigation or product liability claims; and

 

    our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from the sale of our products.

We manufacture our products internally and may encounter manufacturing failures that could impede or delay supply for our clinical trials or our product candidates.

Any failure in our internal manufacturing operations could cause us to be unable to meet the demand for product candidates for our clinical trials and delay the development or regulatory approval of our product candidates. Our internal manufacturing operations may encounter difficulties involving, among other things, production yields, regulatory compliance, quality control and quality assurance, and shortages of qualified personnel. Regulatory approval of our product candidates could be impeded, delayed, limited or denied if the FDA does not maintain the approval of our manufacturing processes and facilities.

In addition, once approved, we plan to manufacture our products for commercial sale internally. We have no experience producing our microneedle patch system in commercial quantities, which would require additional manufacturing equipment and space. Upon commercialization, there will be a need for additional infrastructure at our Fremont manufacturing facility and there will be additional regulatory requirements for the aseptic manufacturing required by the FDA for commercialization.

Proceeds from this offering in part will be used to develop and expand our internal manufacturing capabilities. Difficulties could result in commercial supply shortfalls of our products, delay in the commercial launch of any of our product candidates, if approved, delay in our preclinical studies, clinical trials and regulatory submissions, or the recall or withdrawal of our products from the market.

Even if we receive regulatory approval for any product candidate, we still may not be able to successfully commercialize it and the revenue that we generate from its sales, if any, may be limited.

If approved for marketing, the commercial success of our products will depend upon their acceptance by the medical community, including physicians, patients and health care payors. The degree of market acceptance of any product candidate will depend on a number of factors, including:

 

    demonstration of clinical safety and efficacy of our products generally;

 

    relative convenience and ease of administration;

 

    prevalence and severity of any adverse effects;

 

    willingness of physicians to prescribe our product and of the target patient population to try new therapies and routes of administration;

 

    efficacy and safety of our products compared to competing products;

 

    introduction of any new products, including generics, that may in the future become available to treat indications for which our products may be approved;

 

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    new procedures or methods of treatment that may reduce the incidences of any of the indications in which our products may show utility;

 

    pricing and cost-effectiveness;

 

    effectiveness of our or any future collaborators’ sales and marketing strategies;

 

    limitations or warnings contained in FDA-approved labeling; and

 

    our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors.

If any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, health care payors and patients, we may not generate sufficient revenue and we may not be able to achieve or sustain profitability. Our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.

Even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize our product candidates successfully. For example, if the approval process takes too long, we may miss market opportunities and give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render our product candidates not commercially viable. For example, regulatory authorities may approve our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our product candidates, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve our product candidates with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that indication. Further, the FDA may place conditions on approvals including potential requirements or risk management plans and the requirement for a REMS to assure the safe use of the drug or black-box warnings. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS; the FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. A black-box warning will limit how we are able to market and advertise our product. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of our product candidates. Moreover, product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following the initial marketing of the product. Any of the foregoing scenarios could materially harm the commercial success of our product candidates.

Our future growth depends, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

Our future profitability will depend, in part, on our ability to commercialize our product candidates in foreign markets for which we intend to rely on collaborations with third parties. If we commercialize our products in foreign markets, we would be subject to additional risks and uncertainties, including:

 

    our customers’ ability to obtain reimbursement for our product candidates in foreign markets;

 

    our inability to directly control commercial activities because we are relying on third parties;

 

    the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;

 

    different medical practices and customs in foreign countries affecting acceptance in the marketplace;

 

    import or export licensing requirements;

 

    longer accounts receivable collection times;

 

    longer lead times for shipping;

 

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    language barriers for technical training;

 

    reduced protection of intellectual property rights in some foreign countries;

 

    foreign currency exchange rate fluctuations; and

 

    interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

Foreign sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs, any of which may adversely affect our results of operations.

RISKS RELATED TO OUR DEPENDENCE ON THIRD PARTIES

If we are not able to establish collaborations, we may have to alter our development plans.

Our product development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. We may decide to collaborate with third parties for the development and potential commercialization of some of those product candidates.

We face significant competition in seeking appropriate collaborators. Collaborations are complex and time-consuming to negotiate and document. We may also be restricted under collaboration agreements from entering into agreements on certain terms with other potential collaborators. We may not be able to negotiate collaborations on acceptable terms, or at all. If that were to occur, we may have to curtail the development of a particular product candidate, reduce or delay its development or one or more of our other development programs, delay its potential commercialization or reduce the scope of our 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 will not be able to bring our product candidates to market and generate product revenue.

We use customized equipment to coat and package our microneedle patch system, making us vulnerable to production and supply problems that could negatively impact our sales.

We presently use customized equipment for the coating and packaging of our microneedle patch system. Because of the customized nature of our equipment, and the fact that we rely on third parties to manufacture our equipment, if the equipment malfunctions and we do not have adequate inventory of spare parts or qualified personnel to repair the equipment, we may encounter delays in the manufacture of our microneedle patch system and may not have sufficient inventory to meet our customers’ demands, which could adversely affect our business, financial condition and results of operations.

We may form strategic partnerships and collaborations in the future, and we may not realize the benefits of such alliances.

We may form strategic partnerships, create joint ventures or collaborations or enter into licensing arrangements with third parties that we believe will complement or augment our existing business. These relationships may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex.

The process of establishing and maintaining collaborative relationships is difficult, time-consuming and involves significant uncertainty, including:

 

    a collaboration partner may seek to renegotiate or terminate their relationships with us due to unsatisfactory clinical results, manufacturing issues, a change in business strategy, a change of control or other reasons;

 

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    a collaboration partner may shift its priorities and resources away from our product candidates due to a change in business strategies, or a merger, acquisition, sale or downsizing;

 

    a collaboration partner may not devote sufficient resources towards, or cease development in, therapeutic areas which are the subject of our strategic collaboration;

 

    a collaboration partner may change the success criteria for a product candidate thereby delaying or ceasing development of such candidate;

 

    a collaboration partner could develop a product that competes, either directly or indirectly, with our product candidate;

 

    a significant delay in initiation of certain development activities by a collaboration partner will also delay payment of milestones tied to such activities, thereby impacting our ability to fund our own activities;

 

    a collaboration partner with commercialization obligations may not commit sufficient financial or human resources to the marketing, distribution or sale of a product;

 

    a collaboration partner with manufacturing responsibilities may encounter regulatory, resource or quality issues and be unable to meet demand requirements;

 

    a dispute may arise between us and a collaboration partner concerning the research, development or commercialization of a product candidate resulting in a delay in milestones, royalty payments or termination of an alliance and possibly resulting in costly litigation or arbitration which may divert management attention and resources;

 

    a collaboration partner may use our products or technology in such a way as to invite litigation from a third party; and

 

    a collaboration partner may exercise a contractual right to terminate a strategic alliance.

For example, under our strategic partnership and license agreement with Novo Nordisk, we and Novo Nordisk are currently conducting a feasibility study to evaluate the feasibility of using our microneedle patch system for the delivery of Novo Nordisk’s proprietary GLP-1. Following the completion of this feasibility study, Novo Nordisk will decide, in its sole discretion, whether to continue or terminate the license agreement. If Novo Nordisk elects to not continue the license agreement, then we will not be eligible to receive any milestone or royalty payments from Novo Nordisk under the agreement.

We rely on third party manufacturers for various components of our microneedle patch system, and our business could be harmed if those third parties fail to provide us with sufficient quantities of those components at acceptable quality levels and prices.

We rely on third party manufacturers for various components of our microneedle patch system, including active pharmaceutical ingredients, or API, raw materials used in manufacturing, and capital equipment. Reliance on third party manufacturers entails additional risks, including reliance on the third party for regulatory compliance and quality assurance. In addition, third party manufacturers may not be able to comply with cGMP, or similar regulatory requirements outside the United States. Our failure, or the failure of our third party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates or any other product candidates or products that we may develop.

Any failure or refusal to supply the components for our product candidates that we may develop could delay, prevent or impair our clinical development or commercialization efforts. If our contract manufacturers were to fail to fill our purchase orders, the development or commercialization of the affected products or product candidates could be delayed, which could have an adverse effect on our business. Any change in our

 

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manufacturers could be costly because the commercial terms of any new arrangement could be less favorable and because the expenses relating to the transfer of necessary technology and processes could be significant.

We rely on third parties to conduct our clinical trials and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.

We rely on a third-party contract research organization, or CRO, to conduct our clinical trials. In addition, we rely on other third parties, such as clinical data management organizations, medical institutions and clinical investigators, to conduct those clinical trials. While we have agreements governing their activities, we will have limited influence over their actual performance and we will control only certain aspects of their activities. Further, agreements with such third parties might terminate for a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, that would delay our product development activities.

Our reliance on these third parties for research and development activities will reduce our control over these activities, but will not relieve us of our responsibilities. For example, we will 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 good clinical practices, or GCPs, 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 GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CRO fail to comply with applicable GCPs, 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 any marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs. In addition, our clinical trials will require a sufficiently large number of test subjects to evaluate the safety and effectiveness of a product candidate. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, our clinical trials may be delayed or we may be required to repeat such clinical trials, which would delay the regulatory approval process.

Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or if the quality of the clinical data they obtain is compromised due to the failure to conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our drug candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our drug candidates.

RISKS RELATED TO MARKETING AND SALE OF OUR PRODUCTS

We have no experience selling, marketing or distributing products and have limited internal capability to do so.

We currently have no sales, marketing or distribution capabilities. We do not anticipate having the resources in the foreseeable future to allocate to the sales and marketing of our proposed products. Although we intend to develop a targeted commercial infrastructure to market and distribute our proprietary products, our future success may depend, in part, on our ability to enter into and maintain collaborative relationships to provide such capabilities, on the collaborators’ strategic interest in the product candidates under development and on such collaborators’ ability to successfully market and sell any such products. We intend to pursue collaborative arrangements regarding the sales and marketing of any approved products. However, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that our collaborators will have effective sales forces. To the extent that we decide not to, or are unable to, enter into collaborative arrangements with respect to the sales and marketing of our proposed products, significant capital expenditures, management resources and time will be required to establish and develop an in-house marketing and sales force with the needed technical expertise. There can also be no assurance that we will be able to establish or maintain relationships with third-party collaborators or develop in-house sales and distribution

 

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capabilities. To the extent that we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third parties, and there can be no assurance that such efforts will be successful. In addition, there can also be no assurance that we will be able to market and sell our products in the United States or overseas.

We have limited experience manufacturing our proposed products.

We have limited experience manufacturing our product candidates. If we are unable to establish a new manufacturing facility or expand existing manufacturing facilities, we may be unable to produce commercial materials or meet demand, if any should develop, for our products. Any such failure could delay or prevent our development of any product candidates and would have a material adverse effect on our business, financial condition and results of operations.

If our product candidates do not obtain sufficient market share against competitive products, we may not achieve substantial product revenues and our business will suffer.

The markets for our product candidates are characterized by intense competition and rapid technological advances. All of our product candidates will, if approved, compete with a number of existing and future drug delivery systems and therapies developed, manufactured and marketed by others. Existing or future competing products may provide greater therapeutic convenience or clinical or other benefits for a specific indication than our products, or may offer comparable performance at a lower cost. If our products fail to capture and maintain market share, we may not achieve sufficient product revenues and our business will suffer.

We will compete against fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. Many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs or have substantially greater financial and other resources than we do, as well as significantly greater experience in:

 

    developing drugs;

 

    undertaking preclinical testing and human clinical trials;

 

    obtaining FDA and other regulatory approvals of drugs;

 

    formulating and manufacturing drugs; and

 

    launching, marketing and selling drugs.

Products developed or under development by competitors may render our product candidates or technologies obsolete or non-competitive.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Our product candidates will have to compete with existing therapies, new formulations of existing drugs and new therapies that may be developed in the future. We face competition from pharmaceutical, biotechnology and medical device companies, including transdermal delivery companies, in the United States and abroad. In addition, companies pursuing different but related fields represent substantial competition. Many of these organizations competing with us have substantially greater capital resources, larger research and development staffs and facilities, longer drug development history in obtaining regulatory approvals and greater manufacturing and marketing capabilities than we do. These organizations also compete with us to attract qualified personnel and parties for acquisitions, joint ventures or other collaborations, and therefore, we may not be able to hire or retain qualified personnel to run all facets of our business.

 

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Our ability to generate product revenues will be diminished if we are unable to obtain third party coverage and adequate levels of reimbursement for any approved product.

Our ability to commercialize any product candidate for which we receive regulatory approval, alone or with collaborators, will depend in part on the extent to which coverage and reimbursement for the product will be available from:

 

    government and health administration authorities;

 

    private health maintenance organizations and health insurers; and

 

    other healthcare payers.

Significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Healthcare payers, including Medicare, are challenging the prices charged for medical products and services. Government and other healthcare payers increasingly attempt to contain healthcare costs by limiting both coverage and the level of reimbursement for drugs. Even if one of our product candidates is approved by the FDA, insurance coverage may not be available, and reimbursement levels may be inadequate, to cover such drug. If government and other healthcare payers do not provide adequate coverage and reimbursement levels for one of our product candidates, once approved, market acceptance of such product could be reduced.

We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability and may have to limit development of a product candidate or commercialization of an approved product.

The use of our product candidates in clinical trials and the sale of any products for which we may obtain marketing approval expose us to the risk of product liability claims. Product liability claims may be brought against us by participants enrolled in our clinical trials, patients, healthcare providers or others using, administering or selling our products. If we cannot successfully defend ourselves against any such claims, we would incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:

 

    withdrawal of clinical trial participants;

 

    termination of clinical trial sites or entire trial programs;

 

    costs of related litigation;

 

    substantial monetary awards to patients or other claimants;

 

    decreased demand for an approved product and loss of revenue;

 

    impairment of our business reputation;

 

    diversion of management and scientific resources from our business operations; and

 

    the inability to commercialize an approved product.

Insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability. We intend to expand our insurance coverage for products to include the sale of commercial products if we obtain marketing approval for our product candidates, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could cause our stock price to decline and could adversely affect our results of operations and business.

We may be exposed to liability claims associated with the use of hazardous materials and chemicals.

Our research and development activities may involve the controlled use of hazardous materials and chemicals. Although we believe that our safety procedures for using, storing, handling and disposing of these materials comply

 

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with federal, state and local laws and regulations, we cannot completely eliminate the risk of accidental injury or contamination from these materials. In the event of such an accident, we could be held liable for any resulting damages and any liability could materially adversely affect our business, financial condition and results of operations. In addition, the federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste products may require us to incur substantial compliance costs that could materially adversely affect our business, financial condition and results of operations.

Business disruptions could seriously harm our future revenues, results of operations and financial condition and increase our costs and expenses.

Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters or business interruptions, for which we are predominantly self-insured. We do not carry insurance for all categories of risk that our business may encounter. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.

RISKS RELATED TO OUR INTELLECTUAL PROPERTY

If we fail to comply with our obligations to our licensor in our intellectual property license, we could lose license rights that are important to our business.

We are a party to an Intellectual Property License Agreement dated October 5, 2006, as amended, with ALZA Corporation and we may enter into additional license agreements in the future. Our existing license agreement imposes, and we expect that any future license agreements will impose, various diligence, product payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, our licensors may have the right to terminate these agreements, in which event we might not be able to develop and market any product that is covered by these agreements. Termination of these licenses or reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms. The occurrence of such events could have a material adverse effect on our business, financial condition and results of operations.

Our failure to obtain and maintain patent protection for our technology and our products could permit our competitors to develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be adversely affected.

Our commercial success is significantly dependent on intellectual property related to our product portfolio. We are either the licensee or assignee of numerous issued and pending patent applications that cover various aspects of our assets, including, most importantly, our microneedle patch system and our products.

Our success depends in large part on our and our licensor’s ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and products. In some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology or products that we license from third parties. Therefore, we cannot be certain that these patents and applications will be prosecuted and enforced in a manner consistent with the best interests of our business. In addition, if third parties who license patents to us fail to maintain such patents, or lose rights to those patents, the rights we have licensed may be reduced or eliminated.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our and our licensor’s patent rights are highly uncertain. Our and our licensor’s pending and future patent applications may not result in patents being issued which protect our technology or products or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

 

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The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. 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 or our licensor were the first to make the inventions claimed in our owned and licensed patents or pending patent applications, or that we or our licensor were the first to file for patent protection of such inventions. Assuming the other requirements for patentability are met, the first to file a patent application is entitled to the patent. We may become involved in opposition or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such proceeding could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.

Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. The issuance of a patent is not conclusive as to its scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop or prevent us from stopping others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

The costs and other requirements associated with prosecution of pending patent applications and maintenance of issued patents are material to us. Bearing these costs and complying with these requirements are essential to procurement and maintenance of patents integral to our proposed product offerings.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or patent applications will come due for payment periodically throughout the lifecycle of patent applications and issued patents. In order to help ensure that we comply with any required fee payment, documentary and/or procedural requirements as they might relate to any patents for which we are an assignee or co-assignee, we employ legal help and related professionals as needed to comply with those requirements. Failure to meet a required fee payment, document production or procedural requirement can result in the abandonment of a pending patent application or the lapse of an issued patent. In some instances the defect can be cured through late compliance but there are situations where the failure to meet the required deadline cannot be cured. Such an occurrence could compromise the intellectual property protection around a preclinical or clinical candidate and possibly weaken or eliminate our ability to protect our eventual market share for that product.

Our business will be harmed if we do not successfully protect the confidentiality of our trade secrets.

In addition to our patented technology and products, we rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties that have access to them, such as our corporate collaborators, outside scientific collaborators, sponsored researchers, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. In addition, any of these parties may breach the agreements and disclose our proprietary information, 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, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If

 

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any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them 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 competitive position would be harmed.

We could be prevented from selling products and could be forced to pay damages and defend against litigation, if we infringe the rights of third parties.

If our products, methods, processes or other technologies infringe the proprietary rights of other parties, we could incur substantial costs and may have to:

 

    obtain licenses, which may not be available on commercially reasonable terms, if at all;

 

    abandon an infringing product;

 

    redesign our products or processes to avoid infringement;

 

    stop using the subject matter claimed in the patents held by others;

 

    pay damages; or

 

    defend litigation or administrative proceedings which may be costly whether we win or lose and which could result in a substantial diversion of our financial and management resources.

We may pursue Section 505(b)(2) regulatory approval filings with the FDA for our product candidates where applicable. Such filings involve significant costs, and we may also encounter difficulties or delays in obtaining regulatory approval for our product candidates under Section 505(b)(2).

We may pursue regulatory approval of certain of our product candidates pursuant to Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or the FDCA. A Section 505(b)(2) application is a type of NDA that enables the applicant to rely, in part, on the FDA’s findings of safety and efficacy of an existing previously approved product for which the applicant has no right of reference, or published literature, in support of its application. Section 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Such filings involve significant filing costs, including filing fees.

To the extent that a Section 505(b)(2) NDA relies on clinical trials conducted for a previously approved drug product or the FDA’s prior findings of safety and effectiveness for a previously approved drug product, the Section 505(b)(2) applicant must submit patent certifications in its Section 505(b)(2) application with respect to any patents for the previously approved product on which the applicant’s application relies and that are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Specifically, the applicant must certify for each listed patent that, in relevant part, (1) the required patent information has not been filed by the original applicant; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is not sought until after patent expiration; or (4) the listed patent is invalid, unenforceable or will not be infringed by the proposed new product. A certification that the new product will not infringe the previously approved product’s listed patent or that such patent is invalid or unenforceable is known as a Paragraph IV certification. If the applicant does not challenge one or more listed patents through a Paragraph IV certification, the FDA will not approve the Section 505(b)(2) NDA application until all the listed patents claiming the referenced product have expired.

If the Section 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the owner of the referenced NDA for the previously approved product and relevant patent holders within 20 days after the Section 505(b)(2) NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement suit against the Section 505(b)(2) applicant. Under the FDCA, the filing of a patent infringement lawsuit within 45 days of receipt of the notification regarding a Paragraph IV certification automatically prevents the FDA from approving the Section 505(b)(2) NDA until the earliest to occur of 30 months beginning on the date the patent holder

 

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receives notice, expiration of the patent, settlement of the lawsuit, or until a court deems the patent unenforceable, invalid or not infringed.

If we rely in our Section 505(b)(2) regulatory filings on clinical trials conducted, or the FDA’s prior findings of safety and effectiveness, for a previously approved drug product that involves patents referenced in the Orange Book, then we will need to make the patent certifications or the Paragraph IV certification described above. If we make a Paragraph IV certification and the holder of the previously approved product that we referenced in our application initiates patent litigation within the time periods described above, then any FDA approval of our Section 505(b)(2) application would be delayed until the earlier of 30 months, resolution of the lawsuit, or the other events described above. Accordingly, our anticipated dates of commercial introduction of our product candidates would be delayed. In addition, we would incur the expenses, which could be material, involved with any such patent litigation. As a result, we may invest a significant amount of time and expense in the development of our product only to be subject to significant delay and patent litigation before our product may be commercialized, if at all.

In addition, even if we submit a Section 505(b)(2) application that relies on clinical trials conducted for a previously approved product where there are no patents referenced in the Orange Book for such other product with respect to which we have to provide certifications, we are subject to the risk that the FDA could disagree with our reliance on the particular previously approved product, conclude that such previously approved product is not an acceptable reference product, and require us instead to rely as a reference product on another previously approved product that involves patents referenced in the Orange Book, requiring us to make the certifications described above and subjecting us to additional delay, expense and the other risks described above.

We may become involved in costly and time-consuming lawsuits with uncertain outcomes to protect or enforce our patents.

Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, our licensors may have rights to file and prosecute such claims and we may be reliant on them to do so.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Some of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

There is a great deal of litigation concerning intellectual property in our industry, and we could become involved in litigation. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual

 

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property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our business, financial condition, results of operations and ability to compete in the marketplace.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a “first to file” system in which the first inventor to file a patent application will be entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the U.S. Patent and Trademark Office, or the USPTO, and may become involved in opposition, derivation, reexamination, inter-partes review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, which could adversely affect our competitive position.

The USPTO is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, did not become effective until March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, results of operations, financial condition and cash flows and future prospects.

Intellectual property rights do not necessarily address all potential threats to any competitive advantage we may have.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

 

    Others may be able to make compounds that are the same as or similar to our product candidates, which are aimed initially at the generic market and are not covered by the claims of the patents that we own or have exclusively licensed.

 

    We or any of our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed.

 

    Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights.

 

    It is possible that our pending patent applications will not lead to issued patents.

 

    Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.

 

   

Our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development

 

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activities, as well as in countries where we do not have patent rights, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets.

RISKS RELATED TO LEGISLATION AND ADMINISTRATIVE ACTIONS

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 product candidates for which we obtain marketing approval. Our future arrangements with third party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:

 

    the federal 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 of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;

 

    the federal False Claims Act imposes criminal and civil penalties, including 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 government program, or making a false statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government;

 

    the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 

    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;

 

    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;

 

    federal law requires applicable manufacturers of covered drugs to report payments and other transfers of value to physicians and teaching hospitals;

 

    the federal transparency requirements under the Patient Protection and Affordable Care Act, or the PPACA, requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; and

 

    analogous state laws and regulations such as state anti-kickback and false claims laws and analogous non-U.S. fraud and abuse laws and regulations, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s 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.

 

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State and non-U.S. 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.

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.

The implementation of the reporting and disclosure obligations of the Physician Payments Sunshine Act/Open Payments provisions of the Patient Protection and Affordable Care Act could adversely affect our business.

A PPACA provision, generally referred to as the Physician Payments Sunshine Act or Open Payments Program, has imposed new reporting and disclosure requirements for applicable drug and device manufacturers of covered products and those entities under common ownership that provide assistance and support to the applicable manufacturers, with regard to payments or other transfers of value made to certain practitioners (including physicians, dentists and teaching hospitals), and certain investment/ownership interests held by physicians in the reporting entity. On February 1, 2013, Centers for Medicare & Medicaid Services, or CMS, released the final rule to implement the Physician Payments Sunshine Act.

The final rule implementing the Physician Payments Sunshine Act is complex, ambiguous, and broad in scope. When and if our product candidates become approved, we will within a defined time period become subject to the reporting and disclosure provisions of the Physician Payments Sunshine Act. Accordingly, we will be required to collect and report detailed information regarding certain financial relationships we have with physicians, dentists and teaching hospitals. It is difficult to predict how the new requirements may impact existing relationships among manufacturers, distributors, physicians, dentists and teaching hospitals. The Physician Payments Sunshine Act preempts similar state reporting laws, although we may also be required to continue to report under certain provisions of such state laws. While we expect to have substantially compliant programs and controls in place to comply with the Physician Payments Sunshine Act requirements, our compliance with the new final rule will impose additional costs on us. Additionally, failure to comply with the Physician Payment Sunshine Act may subject the Company to civil monetary penalties.

Healthcare reform may have a material adverse effect on our industry and our results of operations.

From time to time, legislation is implemented to reign in rising healthcare expenditures. In March 2010, President Obama signed into law the PPACA, as amended by the Health Care and Education Reconciliation Act. The PPACA includes a number of provisions affecting the pharmaceutical industry, including annual, non-deductible fees on any entity that manufactures or imports certain branded prescription drugs and biologics and increases in Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program. In addition, among other things, the PPACA also establishes a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research. Congress has also proposed a number of legislative initiatives, including possible repeal of the PPACA. At this time, it remains unclear whether there will be any changes made to certain provisions of the PPACA or its entirety. In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. Most recently, on August 2, 2011, President Obama signed into law the Budget Control Act of 2011, which may result in such changes as aggregate reductions to Medicare payments to providers of up to two percent per fiscal year, starting in 2013. The full impact on our business of the PPACA and the Budget Control Act is uncertain. We cannot predict whether other legislative changes will be adopted, if any, or how such changes would affect the pharmaceutical industry generally.

 

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If any of our products becomes subject to a product recall it could harm our reputation, business and financial results.

The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design, manufacture or labeling. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that the product would cause serious injury or death. In addition, foreign governmental bodies have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacture. Manufacturers may, under their own initiative, recall a product if any material deficiency in a product is found. A government-mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations. The FDA requires that certain classifications of recalls be reported to the FDA within 10 working days after the recall is initiated. Companies are required to maintain records of recalls, even if they are not reportable to the FDA. We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, we could be required to report those actions as recalls. A recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted.

Governments outside the United States may impose strict price controls, which may adversely affect our revenue, if any.

In some countries, particularly in 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 coverage and reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our drug candidate to other available therapies. If reimbursement of our drugs is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.

RISKS RELATED TO EMPLOYEE MATTERS, OUR OPERATIONS AND MANAGING GROWTH

We may not successfully manage our growth.

Our success will depend upon the expansion of our operations and the effective management of our growth, which will place a significant strain on our management and on administrative, operational and financial resources. To manage this growth, we may be required to expand our facilities, augment our operational, financial and management systems and hire and train additional qualified personnel. Our inability to manage this growth could have a material adverse effect on our business, financial condition and results of operations.

Our business and operations would suffer in the event of computer system failures or security breaches.

Despite the implementation of security measures, our internal computer systems, and those of our CROs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, fire, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development and manufacturing programs. For example, the loss of clinical trial data from completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and development of our product candidates could be delayed.

 

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Our employees may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of individually identifiable information, including, without limitation, information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Effective upon the completion of this offering, we will adopt a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent improper activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions, including civil, criminal or administrative.

We may enter into or seek to enter into business partnerships, combinations and/or acquisitions which may be difficult to integrate, disrupt our business, divert management attention or dilute stockholder value.

We may enter into business partnerships, combinations and/or acquisitions. We have limited experience in making acquisitions, which are typically accompanied by a number of risks, including:

 

    the difficulty of integrating the operations and personnel of the acquired companies;

 

    the potential disruption of our ongoing business and distraction of management;

 

    potential unknown liabilities and expenses;

 

    the failure to achieve the expected benefits of the combination or acquisition;

 

    the maintenance of acceptable standards, controls, procedures and policies; and

 

    the impairment of relationships with employees as a result of any integration of new management and other personnel.

If we are not successful in completing acquisitions that we may pursue in the future, we would be required to reevaluate our business strategy and we may have incurred substantial expenses and devoted significant management time and resources in seeking to complete the acquisitions. In addition, we could use substantial portions of our available cash as all or a portion of the purchase price, or we could issue additional securities as consideration for these acquisitions, which could cause our stockholders to suffer significant dilution.

We rely on key executive officers and their knowledge of our business and technical expertise would be difficult to replace.

We are highly dependent on our chief executive officer, our chief scientific officer and our chief financial officer. We do not have “key person” life insurance policies for any of our officers. The loss of the technical knowledge and management and industry expertise of any of our key personnel could result in delays in product development, loss of customers and sales and diversion of management resources, which could have a material adverse effect on our business, financial condition and results of operations.

 

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If we are unable to hire additional qualified personnel, our ability to grow our business may be harmed.

We will need to hire additional qualified personnel with expertise in preclinical testing, clinical research and testing, government regulation, formulation and manufacturing and sales and marketing. We compete for qualified individuals with numerous biopharmaceutical companies, universities and other research institutions. Competition for such individuals is intense, and we cannot be certain that our search for such personnel will be successful. Attracting and retaining qualified personnel will be critical to our success.

RISKS RELATING TO AN INVESTMENT IN OUR COMMON STOCK

There is no public market for our common stock and an active trading market for our common stock may not develop and you may not be able to resell your shares of our common stock at or above the initial offering price, if at all.

Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock was determined through negotiations with the underwriters and may not be indicative of the price at which our common stock will trade upon the completion of this offering. Although we intend to apply to have our common stock listed, and expect our common stock to be approved for listing, on The NASDAQ Global Market, an active trading market for our shares may never develop or be sustained following this offering. If an active market for our common stock does not develop or is not sustained, it may be difficult for you to sell shares you purchased in this offering at an attractive price, if at all.

The trading price of the shares of our common stock may be volatile, and purchasers of our common stock could incur substantial losses.

Our stock price may be volatile. The stock market in general and the market for biopharmaceutical 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, investors may not be able to sell their common stock at or above the price paid for the shares. The market price for our common stock may be influenced by many factors, including:

 

    announcements relating to development, regulatory approvals or commercialization of our product candidates or those of competitors;

 

    results of clinical trials of our products or those of our competitors;

 

    announcements by us or our competitors of significant strategic partnerships or collaborations or terminations of such arrangements;

 

    actual or anticipated variations in our operating results;

 

    changes in financial estimates by us or by any securities analysts who might cover our stock;

 

    conditions or trends in our industry;

 

    changes in laws or other regulatory actions affecting us or our industry;

 

    stock market price and volume fluctuations of comparable companies and, in particular, those that operate in the biopharmaceutical industry;

 

    announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;

 

    capital commitments;

 

    investors’ general perception of our company and our business;

 

    disputes concerning our intellectual property or other proprietary rights;

 

    recruitment or departure of key personnel; and

 

    sales of our common stock, including sales by our directors and officers or specific stockholders.

 

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In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the companies whose shares trade in the stock market. These fluctuations may be even more pronounced in the trading market for our stock shortly following this offering. In the past, stockholders have initiated class action lawsuits against pharmaceutical and biotechnology companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources from our business.

If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that equity research analysts publish about us and our business. Equity research analysts may elect not to provide research coverage of our common stock after the completion of this offering, and such lack of research coverage may adversely affect the market price of our common stock. In the event we do have equity research analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.

If you purchase shares of our common stock in this offering, you will suffer immediate dilution of your investment.

We expect the initial public offering price of our common stock to be 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 pro forma as adjusted net tangible book value per share after this offering. Based on an assumed initial public offering price of $         per share, which is the midpoint of the price range on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, you will experience immediate dilution of $         per share, representing the difference between our pro forma as adjusted net tangible book value per share after this offering and the assumed initial public offering price.

In addition, as of June 15, 2014, we had outstanding stock options to purchase an aggregate of 2,044,038 shares of common stock at a weighted average exercise price of $0.35 per share and an outstanding warrant to purchase a number of shares, at the election of the warrant holder, of our common stock or the class and series of capital stock that we issue in any non-public equity financing prior to the closing of this offering resulting in gross proceeds of at least $3 million, equal to $280,000 divided by the lower of the lowest price per share paid in such non-public equity financing and $2.21 per share. To the extent these outstanding options or warrant are exercised, there will be further dilution to investors in this offering.

A significant portion of our total outstanding shares are restricted from immediate resale, but may be sold into the market in the near future. Such sales, or the perception that such sales may occur, could negatively impact the market price of our common stock.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell, or if the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decline significantly.

Upon the completion of this offering, the             shares sold in this offering will be freely tradable to the extent purchased by nonaffiliates and the remaining outstanding shares of common stock will be available for sale in the public market beginning 180 days after the date of this prospectus following the expiration of lock-up agreements between some of our stockholders and the underwriters. The representatives of the underwriters may release these stockholders from their lock-up agreements with the underwriters at any time, which would allow for earlier sales of shares in the public market.

 

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In addition, following the completion of this offering, we intend to file one or more registration statements on Form S-8 registering the issuance of approximately             million shares of common stock subject to options or other equity awards issued or reserved for future issuance under our equity incentive plans. Shares registered under these registration statements on Form S-8 will be available for sale in the public market subject to vesting arrangements and exercise of options, the lock-up agreements described above and the restrictions of Rule 144 in the case of our affiliates.

Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

Upon the completion of this offering, our executive officers, directors and current beneficial owners of 5% or more of our common stock and their respective affiliates will, in the aggregate, beneficially own approximately     % of our outstanding common stock, assuming they purchase all of the shares they have indicated an interest in purchasing in this offering, and giving effect to the conversion of our outstanding convertible promissory notes assuming the closing of this offering occurs on or before September 9, 2014. Of the foregoing beneficial owners, funds controlled by one investor, New Enterprise Associates, or NEA, will beneficially own approximately     % of our common stock, and funds controlled by a second investor, BMR, will beneficially own approximately     % of our common stock. As a result, NEA and BMR, acting together, will be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors, any merger, consolidation, sale of all or substantially all of our assets or other significant corporate transactions.

Some of these persons or entities may have interests different than yours. For example, because many of these stockholders purchased their shares at prices substantially below the price at which shares are being sold in this offering and have held their shares for a longer period, they may be more interested in selling our company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other stockholders.

We are an “emerging growth company,” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including:

 

    being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” disclosure;

 

    not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

 

    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 auditor’s report providing additional information about the audit and the financial statements;

 

    reduced disclosure obligations regarding executive compensation; and

 

    not being required to hold a non-binding advisory vote on executive compensation or obtain stockholder approval of any golden parachute payments not previously approved.

We cannot predict whether investors will find our common stock less attractive because we will 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. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion

 

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of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th or (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Under Section 107(b) of the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards 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.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.

After the completion of this offering, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, certain provisions of the Sarbanes-Oxley Act and the rules and regulations of The NASDAQ Global Market. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. Commencing with our fiscal year ending December 31, 2015, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. This will require that we incur substantial additional professional fees and internal costs, which we estimate will be approximately $300,000 to $400,000 annually, to expand our accounting and finance functions and that we expend significant management efforts. Prior to this offering, we have never been required to assess our internal controls within a specified period, and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner.

We may discover weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities.

Our disclosure controls and procedures may not be effective to ensure that we make all required disclosures.

Upon consummation of this offering, we will become subject to the periodic reporting requirements of the Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.

 

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We will have broad discretion in the use of proceeds from this offering and may invest or spend the proceeds in ways with which you do not agree and in ways that may not increase the value of your investment.

We will have broad discretion over the use of proceeds from this offering. You may not agree with our decisions, and our use of the proceeds may not yield any return on your investment. We expect to use the net proceeds to us from this offering to conduct clinical trials of Weekly ZP-PTH and ZP-Glucagon, to fund the research and development of our preclinical pipeline, including ZP-Triptan, to make required payments of interest and principal as they become due under our loan facility with Hercules and our note payable to BMR, expand our manufacturing capability, and for working capital and general corporate purposes. Our failure to apply the net proceeds from this offering effectively could compromise our ability to pursue our business strategy and we might not be able to yield a significant return, if any, on our investment of these net proceeds. In addition, the net proceeds from this offering may not be sufficient for our anticipated uses, and we may need additional resources to progress our product candidates to the stage we expect. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.

Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be your sole source of gains and you may never receive a return on your investment.

You should not rely on an investment in our common stock to provide dividend income. We have not declared or paid cash dividends on our common stock to date. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of our existing and any future debt agreements may 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. Investors seeking cash dividends should not purchase our common stock.

We will incur increased costs and demands upon management as a result of being a public company.

As a public company, we will incur significant additional legal, accounting and other costs. These additional costs, which we estimate will be approximately $1 million annually, will decrease our net income or increase our consolidated net loss. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and The NASDAQ Stock Market, may increase legal and financial compliance costs and make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We will need to invest significant resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative expenses and may divert management’s time and attention from revenue-generating activities to compliance activities. If we do not comply with new laws, regulations and standards, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

Failure to comply with these rules might also make it more difficult for us to obtain some types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.

 

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Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions in Delaware law, might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:

 

    providing for three classes of directors with the term of office of one class expiring each year, commonly referred to as a staggered board;

 

    authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;

 

    limiting the liability of, and providing indemnification to, our directors;

 

    limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;

 

    requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;

 

    controlling the procedures for the conduct and scheduling of board and stockholder meetings;

 

    limiting the determination of the number of directors on our board and the filling of vacancies or newly created seats on the board to our board of directors then in office; and

 

    providing that directors may be removed by stockholders only for cause.

These provisions, alone or together, could delay hostile takeovers and changes in control or changes in our management.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that our stockholders could receive a premium for their common stock in an acquisition.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2013, we had $133.1 million of federal and $129.6 million of state net operating loss carryforwards available to offset future taxable income. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have not performed a detailed analysis to determine whether an ownership change under Section 382 of the Code has previously occurred or will occur as a result of this offering. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to offset U.S. federal taxable income may become subject to limitations, which could potentially result in increased future tax liability to us.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “could,” “should,” “would,” “intend,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “continue,” “plan,” “potential” “predict,” “project” or the negative of those terms or similar words. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. You should read these statements carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial condition or state other “forward-looking” information. These forward-looking statements include, among other things, statements about:

 

    the anticipated timing, costs and conduct of our planned clinical trials for our Weekly ZP-PTH, ZP-Glucagon and ZP-Triptan lead product candidates;

 

    our expectations regarding the clinical effectiveness of our product candidates;

 

    our commercialization, marketing and manufacturing capabilities and strategy;

 

    our intellectual property position;

 

    our competitive position;

 

    our expectations related to the use of proceeds from this offering; and

 

    our estimates regarding expenses, future revenues, capital requirements and needs for additional financing.

These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this prospectus and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. 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. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make.

The sections in this prospectus titled “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as other Items and sections in this prospectus, discuss some of the factors that could contribute to these differences.

You should read this prospectus and the documents that we have filed as exhibits to the registration statement of which this prospectus is a part completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

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INDUSTRY AND MARKET DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate, including our general expectations, market position, market opportunity and market size, is based on information from various sources, including independent industry publications and market surveys by third parties privately commissioned by us that we believe to be reliable. In presenting this information, we have also made assumptions that we believe to be reasonable based on such data and other similar sources and on our knowledge of, and our experience to date in, the markets for our product candidates. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us. See “Cautionary Note Regarding Forward-Looking Statements.”

 

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USE OF PROCEEDS

We estimate that the net proceeds from our issuance and sale of shares of our common stock in this offering will be approximately $         million, or approximately $         million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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, after deducting estimated underwriting discounts and commissions.

Similarly, a one million share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us by $         million, assuming the assumed initial public offering price of $         per share (the midpoint of the price range set forth on the cover page of this prospectus) remains the same, and after deducting estimated underwriting discounts and commissions.

We expect to use the net proceeds from this offering, together with cash and cash equivalents on hand, to conduct planned clinical trials for our lead product candidates, fund research and development of our preclinical pipeline, service our debt obligations, expand and enhance our manufacturing capabilities and for working capital and general corporate purposes. Specifically, we intend to apply the net proceeds of this offering as follows:

 

    approximately $         million to complete our planned clinical development of our ZP-Glucagon product candidate;

 

    approximately $         million to complete our planned Phase 2 clinical trial of our Weekly ZP-PTH product candidate;

 

    approximately $         million to complete a Phase 1 clinical trial and a Phase 2 clinical trial of our ZP-Triptan product candidate;

 

    approximately $         million to expand and enhance our manufacturing capabilities by purchasing new equipment, enlarging our manufacturing facilities and refining our manufacturing processes and systems to enable commercial-scale production;

 

    approximately $         million to make required payments of interest and principal as they become due under our term loan facility with Hercules Technology Growth Capital (which bears interest per annum at a floating rate equal to the greater of (i) 12.05% and (ii) 12.05% plus the “prime rate” as reported in The Wall Street Journal minus 5.25%, and which matures in June 2017) and under our note payable to our largest stockholder, an affiliate of BioMed Realty Trust (which bears interest at the same rate as the Hercules loan while the Hercules loan is outstanding and otherwise at 8% per annum, and which matures in April 2016 but is not permitted to be repaid while the Hercules loan is outstanding); and

 

    the remainder for working capital and general corporate purposes.

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. We cannot predict with certainty all of the particular uses for the net proceeds to be received upon the closing of this offering or the amounts that we will actually spend on the uses set forth above. Many variables are inherent in the development of our lead product candidates at this time, such as the timing and results of preclinical animal studies and clinical trials and the timing of regulatory submissions and evolving regulatory requirements. The amount and timing of our actual expenditures will depend upon such variables and we cannot currently predict the stage of development we expect the net proceeds of this offering to achieve for our clinical studies and product candidates.

 

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As a result, we will have broad discretion over the use of the net proceeds from this offering, and investors will be relying on our judgment regarding the application of the net proceeds of this offering. In addition, we might decide to postpone or not pursue certain clinical trials or preclinical activities if the net proceeds from this offering and the other sources of cash are less than expected.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, to finance the growth and development of our business. We do not expect to pay any cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in any future financing instruments, provisions of applicable law and other factors the board deems relevant. See “Risk Factors—Risks related to this offering and ownership of our common stock—We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on the appreciation in the price of our common stock.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2014 on:

 

    An actual basis;

 

    A pro forma basis giving effect to the conversion of our convertible promissory notes outstanding at March 31, 2014 into             shares of common stock upon the closing of this offering assuming the closing occurs on or before September 9, 2014, resulting in the liability for such notes being reclassified to additional paid-in capital, each upon the closing of this offering; and

 

    A pro forma as adjusted basis, giving additional effect to the sale of             shares of our common stock offered in this offering, assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and the filing and effectiveness of a restated certificate of incorporation upon the closing of this offering.

The pro forma information below is illustrative only and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read the following table in conjunction with our financial statements and related notes, “ Selected Consolidated Financial Data ” and “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” appearing elsewhere in this prospectus.

 

     As of March 31, 2014  
     Actual     Pro Forma      Pro Forma as
Adjusted
 
     (in thousands, except par value)  

Cash and cash equivalents

   $ 5,608      $                    $                

Short-term investment

     391        
  

 

 

   

 

 

    

 

 

 

Convertible promissory notes payable, current

   $ 5,687      $         $     

Secured promissory note

     9,930        

Stockholders’ equity (deficit):

       

Common stock, $0.0001 par value: 30,000 shares authorized; 20,427,              and              shares issued and outstanding, actual, pro forma and pro forma as adjusted, respectively,

     2        

Additional paid-in capital

     124,751        

Accumulated deficit

     (126,595     
  

 

 

   

 

 

    

 

 

 

Total stockholders’ equity

     (1,842     
  

 

 

   

 

 

    

 

 

 

Total capitalization

   $ 13,775      $         $     
  

 

 

   

 

 

    

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents and total stockholders’ (deficit) equity by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and giving effect to the terms of the notes which provide that the notes convert into our common stock at a conversion price equal to 85% of our initial public offering price if the closing of this offering occurs on or before September 9, 2014. Similarly, a one million share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalent and total stockholders’ equity (deficit) and total capitalization by $         million, assuming the assumed initial public offering price of $         per share (the midpoint of the price range set forth on the cover page of this prospectus) remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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The table above does not include the following potentially dilutive shares of common stock outstanding:

 

    1,792,016 shares of our common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $0.36 per share as of March 31, 2014;

 

    422,092 shares of our common stock reserved for future issuance under our 2012 stock incentive plan as of March 31, 2014; and

 

    126,696 shares of our common stock issuable upon the exercise of a warrant outstanding as of June 15, 2014 at an exercise price of $2.21 per share.

 

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DILUTION

If you invest in our common stock, your equity interest in our company will be diluted immediately to the extent of the difference between the initial public offering price per share you will pay in this offering and the pro forma as adjusted net tangible book value (deficit) per share of our common stock after this offering.

Our historical net tangible book value (deficit) as of March 31, 2014 was $(1.8 million), or $(0.09) per share of common stock. Our pro forma historical net tangible book value (deficit) as of March 31, 2014 was $         million, or $         per share of common stock. Our pro forma net tangible book value (deficit) per share set forth below represents our total assets, excluding intangible assets, less our total liabilities, divided by the number of shares of our common stock outstanding on March 31, 2014, after giving effect to the conversion of our convertible promissory notes outstanding at March 31, 2014 into         shares of common stock, resulting in the liability for such notes being reclassified to additional paid-in capital, upon the closing of this offering. For purposes of this calculation, we use a conversion price equal to 85% of the assumed initial public offering price set forth in the next paragraph.

After giving effect to the 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 price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value (deficit) as of March 31, 2014 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 and an immediate dilution of $         per share to new investors participating in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this per share dilution:

 

Assumed initial public offering price

      $                

Historical net tangible book value (deficit) per share

   $ (0.09)      

Pro forma net tangible book value (deficit) per share as of March 31, 2014

   $                   

Increase per share attributable to sale of shares of common stock in this offering

   $        

Pro forma as adjusted net tangible book value per share

      $     

Dilution per share to new investors

      $     
     

 

 

 

If the underwriters exercise their over-allotment option in full, the pro forma as adjusted net tangible book value (deficit) will increase to $         per share, representing an immediate increase in pro forma as adjusted net tangible book value (deficit) to existing stockholders of $         per share and an immediate dilution of $         per share to new investors.

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share would increase (decrease) the pro forma as adjusted net tangible book value (deficit) by $         million, the pro forma as adjusted net tangible book value (deficit) per share by $         per share (giving effect to the change in the conversion price at which our convertible promissory notes would convert to common stock) and the dilution in pro forma net tangible book value (deficit) per share to investors in this offering by $         per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

A one million share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value (deficit) per share after this offering by approximately $         and decrease (increase) the dilution per share to investors participating in this offering by approximately $        , assuming the assumed initial public offering price of $         per share remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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If any shares are issued upon exercise of outstanding options or warrants, you will experience further dilution.

The following table summarizes, on the pro forma as adjusted basis described above as of March 31, 2014, 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 at the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, 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

               $                             $                

New investors

             $     
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

Total

        100   $                  $     
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) total consideration paid by new investors by $         million and increase (decrease) the percent of total consideration paid by new investors by     %, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering.

If the underwriters’ overallotment option is exercised 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 after this offering.

The number of shares purchased from us by existing stockholders is based on 20,427,251 shares of our common stock outstanding as of March 31, 2014, includes an additional              shares of our common stock that will be issued upon the automatic conversion of our outstanding convertible promissory notes, assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated offering expenses payable by us, and giving effect to the terms of the notes which provide that the notes convert into our common stock at a conversion price equal to 85% of our initial public offering price if the closing occurs on or before September 9, 2014, and excludes:

 

    1,792,016 shares of common stock issuable upon the exercise of stock options outstanding under our 2012 Stock Incentive Plan as of March 31, 2014, at a weighted average exercise price of $0.36 per share;

 

    422,092 shares of common stock available for future issuance under our 2012 Stock Incentive Plan as of March 31, 2014;

 

    an additional              shares of our common stock that will be made available for future issuance under our 2014 Equity and Incentive Plan to be adopted upon the closing of this offering; and

 

    126,696 shares of common stock issuable upon exercise of a warrant outstanding as of June 15, 2014 at an exercise price of $2.21 per share.

Certain of our existing investors and              affiliated entities have indicated an interest in purchasing an aggregate amount of $         million worth of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these potential investors, or any of these potential investors may determine to purchase more, less or no shares in this offering. The foregoing discussion and tables do not reflect any potential purchases by these potential investors.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following table summarizes our selected consolidated financial data for the periods and as of the dates indicated. Our selected statements of operations data for each of the years ended December 31, 2013 and 2012, and our selected balance sheet data as of December 31, 2013, have been derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. Our selected statements of operations data for the three months ended March 31, 2014 and 2013, and our selected balance sheet data as of March 31, 2014, have been derived from our unaudited interim condensed consolidated financial statements and related notes included elsewhere in this prospectus. Our unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly our financial position as of March 31, 2014 and the results of our operations for the three months ended March 31, 2014 and 2013. Our selected financial data should be read together with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our financial statements and their related notes, which are included elsewhere in this prospectus. Our historical results are not indicative of the results that may be expected in the future.

 

     Three Months
Ended March 31,
    Year ended
December 31,
 
     2014     2013         2013             2012      
     (unaudited)              
    

(in thousands, except per share amounts)

 

Statements of Operations Data:

        

License fees revenue

   $ 1,375      $ 2,563      $ 4,250      $ 9,250   

Collaborative development support services

     226        —          —          2,374   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     1,601        2,563        4,250        11,624   

Operating expenses:

        

Cost of license fees revenue

     100        —          —          —     

Research and development

     1,507        1,098        6,502        3,050   

Manufacturing services

     1,378        114        1,135        2,349   

General and administrative

     1,184        809        4,582        3,077   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     4,169        2,021        12,219        8,476   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (2,568     542        (7,969     3,148   

Other income (expense):

        

Interest expense, net

     (301     (168     (760     (663

Warrant revaluation income

     —          —          —          71   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity in loss of joint venture, gain on termination of joint venture, and gain on debt forgiveness

     (2,869     374        (8,729     2,556   

Equity in loss of joint venture

     —          89        (366     (738

Gain on termination of joint venture

     —          —          3,487        —     

Gain on debt forgiveness

    
497
  
    —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (2,372     463      $ (5,608   $ 1,818   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share – basic

   $ (0.12   $ 0.02      $ (0.27   $ 0.12   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share – diluted

   $ (0.12   $ 0.02      $ (0.27   $ 0.12   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net income (loss) per common share – basic

     20,427        20,427        20,427        15,630   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net income (loss) per share – diluted

     20,427        20,427        20,427        15,630   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per common share – basic and diluted (1) (2)

   $          $       
  

 

 

     

 

 

   

Weighted-average shares used in computing pro forma net loss per common share – basic and diluted (1) (2)

        
  

 

 

     

 

 

   

 

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     As of
March 31,
2014
    As of December 31,  
       2013     2012  
     (unaudited)              
     (in thousands)  

Balance Sheet Data:

      

Cash and cash equivalents

   $ 5,608      $ 5,913      $ 4,973   

Working capital (deficit)

     (3,170     (1,368     1,925   

Total assets

     17,869        22,084        19,628   

Long-term debt

     9,930        9,711        9,026   

Accumulated deficit

     (126,595     (124,223     (118,615

Total stockholders’ equity (deficit)

     (1,842     477        6,020   

Total liabilities and stockholders’ equity

     17,869        22,084        19,628   

 

(1) Pro forma weighted-average shares outstanding and net loss per common share, basic and diluted, for the year ended December 31, 2013 and the three months ended March 31, 2014 reflect the conversion of our convertible promissory notes outstanding at such dates into shares of common stock, as if the conversion had occurred at the beginning of the respective period.
(2) Does not give effect to the issuance of shares from this proposed initial public offering or the potential effect of outstanding dilutive securities where the impact of such issuance would be anti-dilutive. See Note 2 to our audited consolidated financial statements included elsewhere in this prospectus.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “Selected Financial Data” and our financial statements and related notes included 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. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those described below. You should read the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to 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 specialty pharmaceutical company that has developed a proprietary transdermal microneedle patch system to deliver our proprietary formulations of existing drugs through the skin for the treatment of a variety of indications. Our microneedle patch system offers rapid onset, consistent drug delivery, improved ease of use and room-temperature stability, which we believe often are unavailable using oral formulations or injections. Our microneedle patch system has the potential to deliver numerous medications for a wide variety of indications in commercially attractive markets. By focusing our development efforts on the delivery of established molecules with known safety and efficacy and premium pricing, we plan to reduce our clinical and regulatory risk and development costs and accelerate our time to commercialization.

In October 2006, our business, originally named The Macroflux Corporation, was spun out of ALZA Corporation, a subsidiary of Johnson & Johnson. Since inception, we have devoted substantially all of our resources to the development and commercialization of our microneedle patch system. Our lead product candidates are Weekly ZP-PTH, for the treatment of severe osteoporosis, ZP-Glucagon, for the treatment of severe hypoglycemia and ZP-Triptan, for the treatment of migraine. These lead product candidates are generic drugs specifically formulated to be administered by our microneedle patch system, and are proposed treatments for indications in which we believe rapid onset, ease of use and stability offer particularly important therapeutic and practical advantages, and have patient populations that we believe will provide us with an attractive commercial opportunity.

We are actively engaged in research and preclinical and clinical development for these lead product candidates. Of these product candidates, the most advanced is our Weekly ZP-PTH, for which we have recently completed a Phase 1 clinical study in Australia. For ZP-Glucagon, we have completed a Phase 1 clinical study designed to assess relative bioavailability (which is the degree and rate at which an administered dose of unchanged drug is absorbed into the body and reaches the blood) with our microneedle patch system compared to a currently available form of glucagon administered by intramuscular injection. We intend to conduct a second Phase 1 clinical study to evaluate the performance of ZP-Glucagon in the third quarter of 2014. In the fourth quarter of 2013, we completed a preclinical animal study of ZP-Triptan, our proprietary formulation of zolmitriptan, one of a class of serotonin receptor agonists known as triptans used for the treatment of migraine.

We have no product sales to date, and we will not have product sales unless and until we receive approval from the United States Food and Drug Administration, or FDA, or equivalent foreign regulatory bodies, to market and sell one or more of our product candidates. Accordingly, our success depends not only on the development, but also on our ability to finance the development, of these products. We will require substantial additional funding to complete development and seek regulatory approval for these products. Additionally, we currently have no sales, marketing or distribution capabilities and thus our ability to market our products in the future will depend in part on our ability to develop such capabilities either alone or with collaboration partners.

In addition to developing our lead product candidates, we are actively seeking opportunities to collaborate with biopharmaceutical companies to explore other therapeutic uses for our microneedle patch system. During

 

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2011, 2012 and 2013, we were a party to a strategic partnership and license agreement with Asahi Kasei Pharma Corporation, or Asahi, to develop and commercialize our microneedle patch system for delivery of Asahi’s Teribone™ product for the treatment of severe osteoporosis in Japan, China, Taiwan and South Korea. This partnership and related license agreement ended in January 2014 and as a result, we have recaptured global commercialization rights on our microneedle patch system for the delivery of parathyroid hormone. In January 2014, we entered into an agreement with Novo Nordisk A/S, or Novo Nordisk, to develop a new transdermal formulation of semaglutide, an investigational proprietary human GLP-1 (Glucagon-Like Peptide-1) analogue, to be administered once a week using our microneedle patch system for the treatment of type 2 diabetes.

For the immediate future, our efforts and resources will be focused primarily on developing our leading product candidates and our preclinical pipeline, building manufacturing infrastructure, raising capital and recruiting key personnel.

Key Developments Important to Understanding Our Financial Statements

The audited consolidated financial statements, unaudited interim condensed consolidated financial statements and the following discussion include the consolidated accounts of Zosano Pharma Corporation and subsidiaries, and our 100% interest in ZP Group LLC, the entity we operated as a joint venture with Asahi until its termination in December 2013. All intercompany balances and transactions have been eliminated in consolidation in our audited consolidated financial statements and our unaudited interim condensed consolidated financial statements.

2012 recapitalization

Since inception in 2006, we have been financed primarily by the sale of preferred stock and debt to private investors. In January 2012, Zosano Pharma Corporation was formed (under the name ZP Holdings, Inc.). In April 2012, in a transaction to recapitalize the business, a wholly-owned subsidiary of Zosano Pharma Corporation was merged with and into ZP Opco, Inc. (then named Zosano Pharma, Inc.), whereby ZP Opco, Inc. was the surviving entity and became a wholly-owned subsidiary of Zosano Pharma Corporation. As part of this reorganization, Zosano Pharma Corporation issued shares of its common stock to the stockholders and optionholders of ZP Opco, Inc. in exchange for the cancellation of all outstanding common and preferred stock and all outstanding stock options of ZP Opco, Inc. Also, in connection with this reorganization, all outstanding debt and related accrued interest of ZP Opco, Inc. held by investors was cancelled, and all outstanding warrants to purchase capital stock were terminated. The recapitalization included a stock purchase and loan restructuring agreement with two entities affiliated with BioMed Realty Trust, or BMR, under which we issued shares of our common stock to these two BMR affiliates and a secured promissory note to one of these BMR affiliates, as more fully described under the caption “ Restructuring of lease agreement with BMR ” below. BMR, through its affiliated entities, is the landlord for our Fremont, California subsidiary and one of our stockholders and creditors.

Restructuring of lease agreement with BMR

Our operations are conducted in a 55,000 square foot facility in Fremont, California, where we operate our manufacturing operations and house our engineering, research and development and administrative employees. In April 2012, we amended the lease agreement with BMR to reduce future rent obligations to amounts ranging from approximately $600,000 to $891,000 per year over a new lease term of seven years. In addition, ZP Group LLC, the entity operating our previous joint venture with Asahi, signed the new lease as a sub-tenant. In consideration of these amendments, BMR waived all outstanding principal, accrued interest and unpaid rent as of April 2012. We issued a new four-year non-callable secured promissory note to BMR with an original principal amount of $8.6 million bearing interest at the rate of 8% per annum, compounded annually. All principal and interest will become due and payable to BMR in April 2016. The note, which we refer to herein as the BMR secured promissory note, is secured by substantially all of our assets, including intellectual property. In June 2014, we amended the BMR secured promissory note to increase the interest rate during the period that the Hercules loan remains outstanding to match the interest rate of the Hercules loan, as described under the caption “ Hercules loan ” below, and to provide that any failure by us to pay any amount under the BMR secured

 

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promissory note during the period from the maturity date of the BMR secured promissory note through the date that the Hercules loan is repaid in full will not constitute a default under the BMR secured promissory note. In addition to the note, we issued shares of our common stock to two entities affiliated with BMR in connection with the lease restructuring. As a result, BMR affiliates hold approximately 39.6% of our outstanding shares as of June 15, 2014. In exchange for BMR’s agreement to subordinate the BMR secured promissory note to the Hercules loan, we issued 125,000 shares of our common stock to the BMR affiliate that is the holder of the BMR secured promissory note.

Asahi license and collaboration agreement

In February 2011, we entered into a strategic partnership and license agreement with Asahi whereby we granted to Asahi an exclusive license to use our microneedle patch system for the treatment and prevention of osteoporosis in Japan, China, Taiwan and South Korea. As consideration for the license, Asahi paid us an upfront license fee of $7.5 million and agreed to pay contingent payments, based upon the achievement of certain contractually specified milestones, and additional cash royalty payments on sales of future products to be commercialized by Asahi using our microneedle patch system. As of December 31, 2013, Asahi had paid us a total of $16.5 million in additional milestone payments. As part of the collaboration, Asahi also agreed to reimburse us for costs to develop and commercialize our microneedle patch system for delivery of Asahi’s Teribone™ product. Under the license agreement, we were responsible for all product development, including manufacturing of the clinical trial material in support of development activities and clinical trials planned to be conducted by Asahi in Japan.

In April 2012, we reached agreement with Asahi to amend the license agreement and transfer the manufacturing responsibilities from us to ZP Group LLC, a new entity created to grant increased management control to Asahi and its affiliates. ZP Group LLC was a joint venture of AKP USA, Inc., or AKPUS, an affiliate of Asahi, and us, with each holding 50% of the equity interests. We contributed fixed assets to ZP Group LLC necessary for production of clinical trial material. In addition, all of our manufacturing and engineering personnel and some other employees terminated their employment with us and became employees of ZP Group LLC. ZP Group LLC then served as a contract manufacturing organization to both Asahi and us.

As part of the agreement to form ZP Group LLC, the original license agreement with Asahi was amended to eliminate the product milestones and to reduce the future royalties payable to us on sales of products governed by the agreement. In addition, AKPUS provided ZP Group LLC with a line of credit for working capital needs, and we had the right to receive quarterly cash distributions from ZP Group LLC based on depreciation and utilization of the equipment assets contributed by us to the joint venture.

In connection with our collaboration, Asahi conducted Phase 1 clinical studies in Japan using our microneedle patch system to deliver a patch formulation of Asahi’s Teribone™ product. One of Asahi’s requirements for the Phase 1 clinical studies was that the patch formulation of Teribone™ delivered using our microneedle patch system demonstrate bioavailability equal to or greater than the existing Teribone™ injection. In the most recent Phase 1 clinical study conducted by Asahi, which ended in the second half of 2013, our microneedle patch system did not demonstrate bioavailability of the coated drug formulation at or above these levels. These results brought into question the need for further studies to demonstrate the correlation, or lack thereof, between the bioavailability of Teribone™ and its efficacy, as measured by the increase in bone mineral density, or BMD. Despite our belief, based in part on our previous 2008 Phase 2 clinical study involving our daily dose of ZP-PTH, that there is no direct correlation between bioavailability of PTH and BMD, we came to an agreement with Asahi not to pursue further development of this program.

In December 2013, we entered into a termination agreement with Asahi to terminate our joint venture, which effectively caused ZP Group LLC to cease all operations. As a result, certain employees of ZP Group LLC were hired by us. In connection with the termination, Asahi agreed to pay us $2.4 million as a termination payment, an additional $3.5 million for the settlement of employee-related termination costs, including salaries and benefits, severance payments, and other termination-related fees and expenses, and reimbursement for

 

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certain out-of-pocket expenses and non-cancelable purchase commitments of ZP Group LLC. At December 31, 2013, we recorded accounts receivable from joint venture of $3.4 million related to these agreements. In January 2014, also in connection with the termination agreement, our strategic partnership and license agreement was terminated, which included a termination of the exclusive license to Asahi to use our microneedle patch system for the treatment and prevention of osteoporosis in Japan, China, Taiwan and South Korea.

Bridge financing

In September 2013, we raised approximately $3 million through the sale of convertible promissory notes to current investors, including affiliates of BMR, New Enterprise Associates 12, Limited Partnership, ProQuest Investments IV, L.P., and ProQuest Management LLC. In February 2014, we sold an additional $2.5 million of the same series of convertible promissory notes to affiliates of BMR and New Enterprise Associates 12, Limited Partnership. The convertible promissory notes, which we refer to herein as the convertible bridge notes, are unsecured, subordinated notes which mature on September 9, 2014 and accrue simple interest at the rate of 8% per annum. In June 2014, we amended the convertible bridge notes to provide that any failure by us to pay any amount under the convertible bridge notes during the period from maturity of the convertible bridge notes through the date that the Hercules loan is repaid in full will not constitute a default under the convertible bridge notes. The convertible bridge notes will automatically convert into our common stock at a price equal to 85% of the initial public offering price, upon the closing of our initial public offering if the closing occurs on or before September 9, 2014. Our selected consolidated financial data on page 53 reflects the impact, on a pro forma basis, of the conversion of these notes outstanding at December 31, 2013 on our net loss per common share, given certain assumptions described therein.

Acquisition of Eco Planet Corp.

In October 2013, we entered into a Stock Purchase Agreement with Eco Planet Corp. (currently named Zosano, Inc.), a Delaware corporation with common stock quoted for trading on OTC Markets, pursuant to which Zosano, Inc. issued and sold to ZP Holdings, for an aggregate cash purchase price of $365,000, newly issued shares of common stock equal to 99.9% of the issued and outstanding common stock of Zosano, Inc. as of immediately following the transaction. In connection with our acquisition of Zosano, Inc., we planned to raise new capital through the sale of additional common stock or other securities to institutional investors in a private placement, or the PIPE financing. We had anticipated that in connection with the PIPE financing we would enter into a registration rights agreement pursuant to which the public company would agree to file a registration statement with the SEC to register for resale the securities it planned to issue in the PIPE financing. As of December 31, 2013, we decided not to undertake the PIPE financing as planned and we are actively pursuing the sale of Zosano, Inc.

Collaboration with Novo Nordisk

In January 2014, we entered into a strategic partnership and license agreement with Novo Nordisk A/S, or Novo Nordisk, to develop a new transdermal presentation of semaglutide, an investigational proprietary human GLP-1 (Glucagon-Like Peptide-1) analogue, to be administered once a week using our microneedle patch system for the treatment of Type 2 diabetes. Initially, we will collaborate with Novo Nordisk on nonclinical experiments to verify delivery of semaglutide using our microneedle patch system.

Under the terms of the agreement, we have granted Novo Nordisk a worldwide, exclusive license to develop and commercialize Novo Nordisk’s proprietary GLP-1 analogues using our microneedle patch system. Novo Nordisk will, pending successful outcomes of nonclinical and clinical testing, be responsible for commercialization of all products under the agreement. We received an upfront payment of $1 million from Novo Nordisk upon entering into the strategic partnership and license agreement.

 

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The agreement also provides for potential milestone payments upon achieving certain nonclinical, clinical, regulatory and sales milestones of $60 million for the first product and $55 million for each additional product. Novo Nordisk has also agreed to pay us royalties on sales of products in the low to mid single digits and we will receive development support, as well as reimbursement of all development and manufacturing costs relating to the Novo Nordisk program.

Hercules loan

In June 2014, we entered into a $4 million term loan facility with Hercules Technology Growth Capital. The $4 million loan, which we refer to as the Hercules loan, is a senior secured loan that bears interest at a per annum rate equal to the greater of (i) 12.05% and (ii) 12.05% plus the “prime rate” as reported in The Wall Street Journal minus 5.25%. The interest rate floats, and will be determined in accordance with the preceding sentence based on changes to the prime rate as reported in The Wall Street Journal. We are required to pay interest on the outstanding principal balance of the Hercules loan on a monthly basis, beginning July 1, 2014. Repayment of the $4 million principal amount of the Hercules loan is amortized over a 30-month period in equal monthly installments of principal and interest, beginning on January 1, 2015, with all outstanding amounts (including a $100,000 end of term charge) due and payable on June 1, 2017. We are permitted to prepay the full outstanding principal balance of the Hercules loan and all unpaid accrued interest thereon, together with the $100,000 end of term charge plus a prepayment charge equal to 1% of the principal balance repaid, after June 3, 2015. The Hercules loan is secured by a senior security interest in substantially all of our assets. Under the terms of the loan facility, we agreed not to incur, be liable for or prepay any other indebtedness, with limited exceptions.

The BMR secured promissory note and the convertible bridge notes are subordinated in right of payment to the Hercules loan, and BMR’s security interest in substantially all of our assets under the BMR secured promissory note is subordinate to Hercules’ security interest under the Hercules loan. Under the terms of the loan facility, we agreed to give Hercules prior written notice of any amount we propose to pay in respect of the BMR secured promissory note, even if the subordination with Hercules and BMR allows for the payment. Any such payment will give Hercules the right to accelerate any or all of the Hercules loan. In exchange for BMR’s agreement to subordinate the BMR secured promissory note to the Hercules loan, we issued 125,000 shares of our common stock to the BMR affiliate that is the holder of the BMR secured promissory note.

Financial Operations Overview

Summary

Our revenue to date has been generated primarily from license and development revenue and termination fees under our collaboration and license agreement with Asahi, which was terminated in January 2014. We have not generated any commercial product revenue. As of March 31, 2014, we had an accumulated deficit of approximately $126.6 million. We have incurred significant losses and expect to incur significant and increasing losses in the foreseeable future as we advance our product candidates into later stages of development and, if approved, commercialization. We cannot assure you that we will receive additional collaboration revenue in the future, whether pursuant to our agreement with Novo Nordisk or any other partnership that we might pursue.

We expect our research and development expenses and manufacturing expenses to increase as we continue to advance our product candidates through clinical and manufacturing development. Because of the numerous risks and uncertainties associated with our technology and drug development, we are unable to predict the timing or amount of expenses incurred or when, or if, we will be able to achieve profitability.

After this offering, additional capital will be required to undertake our planned research and manufacturing development activities and to meet our operating requirements through 2014 and beyond. We intend to raise such capital through the issuance of additional equity through public or private offerings, borrowings of debt, and strategic alliances with partner companies. However, if such financing is not available at adequate levels or on acceptable terms, we could be required to significantly reduce our operating expenses and delay or reduce the

 

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scope of or eliminate some of our development programs, enter into a collaboration or other similar arrangement with respect to commercialization rights to Weekly ZP-PTH or any of our other product candidates, out-license intellectual property rights to our transdermal delivery technology and sell unsecured assets, or a combination of the above, which may have a material adverse effect on our business, results of operations, financial condition and/or our ability to fund our scheduled obligations on a timely basis or at all.

Revenue

Our revenue to date has been generated primarily from non-refundable license fee payments and reimbursements for research and development expenses under our collaboration and license agreements with Asahi and Novo Nordisk. In addition to upfront license payments, we also received from Asahi other contingent payments upon the occurrence of certain contractually defined events. As of March 31, 2014, we had received a non-refundable upfront license fee payment of $1.0 million from Novo Nordisk under the strategic partnership and license agreement, which was recorded as deferred revenue and will be recognized over the performance period as determined by us. In addition, reimbursements from Novo Nordisk for development support services and out-of-pocket expenses in connection with the strategic partnership will be recognized as service revenue when service is rendered and cost of material is incurred. During the three months ended March 31, 2014, we recognized approximately $250,000 of license fees revenue and approximately $226,000 of collaborative development support services revenue from Novo Nordisk. As of December 31, 2013, we had received an aggregate of $16.5 million under the license agreement with Asahi. Reimbursements for research and development expenses under our prior license agreement with Asahi for research and development and out-of-pocket expenses were based on expenses actually incurred and these payments were recognized as revenue on a time and material basis and recorded as service revenue in the consolidated statement of operations.

Cost of license fees revenue

We are a party to an intellectual property license agreement dated October 5, 2006, as amended, with ALZA Corporation, or ALZA, where we licensed certain patents and patent applications from ALZA on an exclusive basis worldwide. Under the terms of the license agreement with ALZA, we are obligated to pay ALZA royalties on sales by us of products that would otherwise infringe one of the licensed patents or that is developed by us based on certain ALZA know-how or inventions, and to pay ALZA royalties on sales by our sublicensees of such products. We are also obligated to pay ALZA a percentage of non-royalty revenue, defined as upfront payments, milestone payments and all other considerations (other than royalties), that we receive from our sublicensees on third party products where no generic equivalent is available to the public. The license agreement will terminate upon the expiration of our obligations to make the royalty and other payments described above. We may terminate the agreement at any time upon prior written notice to ALZA.

Pursuant to the intellectual property license agreement with ALZA, we are therefore obligated to make the respective payments to ALZA for each milestone received under our agreement with Novo Nordisk beginning with the upfront payment we received upon execution of the agreement. The payment of $100,000 is charged to expense in our condensed consolidated statement of operations for the three months ended March 31, 2014.

Research and development expenses

Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our proprietary product candidates. We recognize all research and development costs as they are incurred.

Research and development expenses consist of:

 

    employee-related expenses, which include salaries, benefits and stock-based compensation;

 

   

fees paid to clinical consultants, clinical trial sites and vendors, including clinical research organizations, or CROs, in conjunction with implementing and monitoring our clinical trials and

 

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acquiring and evaluating clinical trial data, including all related fees, such as for investigator grants, patient screening fees, laboratory work and statistical compilation and analysis;

 

    fees paid to conduct nonclinical studies, drug formulation, and cost of consumables for used in nonclinical and clinical trials;

 

    other consulting fees paid to third parties; and

 

    allocation of certain shared costs, such as facilities-related costs and IT support services.

We expect our research and development expenses to substantially increase as we begin to plan and initiate Phase 2 and Phase 3 clinical trials on our Weekly ZP-PTH product candidate, a second Phase 1 study and future Phase 2 studies to investigate the safety and efficacy of ZP-Glucagon, and Phase 1 and Phase 2 studies on ZP-Triptan starting in the second half of 2014.

We began tracking our external costs by project in 2006, and implemented a timesheet tracking system for personnel-related costs in the first quarter of 2011. The following table summarizes our research and development expenses incurred during the three months ended March 31, 2014 and 2013, during the years ended December 31, 2013 and 2012, and from our inception to December 31, 2013:

 

     Three Months
Ended March 31,
     Year Ended
December 31,
     From Inception
in October 2006
to
March 31, 2014
 
     2014      2013      2013      2012     
     (unaudited)                       
     (in thousands)  

Product candidate:

              

Weekly ZP-PTH (1)

   $ 279       $ —         $ 1,679       $ —         $ 1,958   

ZP-Glucagon (2)

     359         156         2,529         83         2,971  

ZP-Triptan (3)

     200         —           118         —           318  

ZP-PTH (Daily) (4)

     —           —           —           —           16,504  

Other research and development projects (5)

     388         557         900         1,776         7,624   

Unallocated research and development expenses (6)

     281         385         1,276         1,191         25,505  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 1,507       $ 1,098       $ 6,502       $ 3,050       $ 54,880  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Spending to date on Weekly ZP-PTH reflects spending since project initiation in the second quarter of 2013.
(2) Spending to date on ZP-Glucagon reflects spending since project initiation in the third quarter of 2012.
(3) We initiated our ZP-Triptan project in September 2013.
(4) We completed Phase 2 clinical studies on a ZP-PTH Daily dosing product candidate prior to 2012. Our research and development focus has since changed to the weekly ZP-PTH program.
(5) Our other research projects include our research and development efforts on compounds other than our lead product candidates and projects in connection with potential partnership and collaboration development.
(6) Unallocated costs include research and development expenses not allocated to a specific program or product candidate, and personnel-related costs prior to the implementation of our timesheet tracking system in 2011.

The project-specific expenses summarized in the table above include costs directly attributable to our product candidates. We allocate research and development salaries, benefits, stock-based compensation and indirect costs to our product candidates on a project-specific basis, and we include these costs in the project-specific expenses. We expect our research and development expenses to increase in the future. The process of conducting the necessary clinical studies to obtain regulatory approval is costly and time consuming. We consider the active management and development of our clinical pipeline to be crucial to our long-term success. The actual probability of success for each product candidate and clinical program may be affected by a variety of factors including but not limited to: the quality of the product candidate, early clinical data, investment in the program, competition, manufacturing capability and commercial viability. Furthermore, we have entered into collaborations with major biopharmaceutical companies (Asahi, previously, and Novo Nordisk) to participate in

 

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the development and commercialization of our microneedle patch system, and we may enter into additional collaborations in the future. In situations in which third parties have control over the clinical development of a product candidate, the estimated completion dates are largely under the control of such third parties and not under our control. Additionally our collaborative partner may only be interested in applying our technology in the development and advancement of their own product candidates, as we have previously experienced. We cannot forecast with any degree of certainty which of our product candidates, if any, will be subject to future collaborations or how such arrangements would affect our development plans or capital requirements. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

Manufacturing services expenses

Manufacturing services expenses prior to the formation of ZP Group LLC in April 2012, and subsequent to the termination of the joint venture in December 2013, consist of the costs of our manufacturing related activities, including personnel costs, consulting fees, fees paid to contract manufacturing organizations, or CMOs, active pharmaceutical ingredients, clinical trial materials and supplies, allocations of facilities-related costs, as well as equipment depreciation expense. Beginning with the formation of ZP Group LLC in April 2012, we paid ZP Group LLC on a pay-per-use basis when we engaged ZP Group LLC as a CMO to manufacture the applicator, coat the active pharmaceutical ingredients on the transdermal microneedles, and assemble the patches in room temperature stable packages for our nonclinical studies and clinical trials. Effective December 2013, ZP Group LLC ceased providing CMO services to us and became a wholly owned subsidiary of ZP Opco, Inc.

General and administrative expenses

General and administrative expenses consist primarily of salaries and related expenses for executive, finance, human resources management and other administrative personnel, legal and accounting fees, business insurance, allocation of facilities-related costs, costs of maintaining our intellectual property portfolio and other corporate expenses. We expect to incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities and other administration and professional services.

Interest expense, net

Interest expense, net of interest income, consists primarily of interest costs related to our short-term and long-term borrowings. Interest expense for 2012 consists of interest paid to Silicon Valley Bank for the debt facility we paid off in connection with our recapitalization in April 2012 and accrued interest on the BMR secured promissory note. For 2013, interest expense reflects accrued interest on both the convertible bridge notes issued in September 2013 and the BMR secured promissory note as well as interest on the line of credit. For the three months ended March 31, 2014, interest expense reflects accrued interest on the convertible bridge notes issued in September 2013 and February 2014, as well as accrued interest on the BMR secured promissory note.

Warrant revaluation income

Warrant revaluation income in 2012 resulted from the re-measurement of our preferred stock warrant liability associated with the warrants to purchase preferred stock issued to lenders under our debt facilities and certain of the former preferred stockholders of ZP Opco, Inc. prior to the 2012 reorganization. We recorded changes to the estimated fair value of the preferred stock warrants as income or loss at each balance sheet date until they were exercised, expired or converted into shares of our common stock. All outstanding warrants were retired in connection with our 2012 recapitalization.

 

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Equity in loss of joint venture

Equity in loss of joint venture reflects our share of ZP Group LLC’s net loss for the applicable reporting period. Through December 20, 2013, we owned a 50% equity interest in ZP Group LLC. Under the terms of ZP Group LLC’s operating agreement, we recorded our share of ZP Group LLC’s net loss after reimbursement of depreciation expense on our contributed capital equipment.

Gain on termination of joint venture

We recorded a one-time gain in 2013 in connection with the termination of the joint venture in ZP Group LLC. The gain primarily consists of a notice period termination payment and excess personnel termination reimbursement from Asahi, partially offset by the net deficit of our investment in ZP Group LLC.

Gain on debt forgiveness

Our termination agreement with Asahi for the termination of joint venture provides for the cancellation of ZP Group LLC’s revolving line of credit facility with Asahi, and the discharge, release and forgiveness of all outstanding principal and interest under such line of credit as of March 14, 2014. Accordingly, we recorded a gain on debt forgiveness of approximately $497,000 in the first quarter of 2014.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our audited consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are those that are most critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Revenue recognition

To date, we have generated revenue from collaboration and license agreements for the development of our technology for proposed indications utilizing our microneedle patch system. Collaboration and license agreements may include non-refundable upfront payments, partial or complete reimbursement of research and development costs, contingent payments based on the occurrence of specified events under our collaboration arrangements and royalties on sales of product candidates if they are successfully approved and commercialized.

Our performance obligations under the collaborations may include the transfer or license of intellectual property rights, provision of research and development services and related materials, and participation on development and/or commercialization committees with the collaboration partners. We make judgments that affect the periods over which we recognize revenue. We periodically review our estimated periods of performance based on the progress under each arrangement and account for the impact of any changes in estimated periods of performance on a prospective basis.

We adopted an accounting standard that provides guidance on revenue recognition using the milestone method. Payments that are contingent upon achievement of a substantive milestone are recognized in their entirety in the period in which the milestone is achieved. Milestones are defined as events that can only be achieved based on our partner’s performance and there is substantive uncertainty about whether the event will be

 

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achieved at the inception of the arrangement. Events that are contingent only on the passage of time or only on counterparty performance are not considered milestones subject to this guidance. Accordingly, we have not recorded any milestone revenue on our consolidated financial statements as the contingent payments received did not meet the definition of milestone revenue.

Amounts related to research and development services are recognized as the related services or activities are performed, in accordance with the contract terms. Payments to us are typically based on the number of full-time equivalent personnel assigned to the collaboration project and the related research and development expenditures incurred.

Accrued research and development and manufacturing expenses

As part of the process of preparing financial statements, we are required to estimate and accrue expenses, the largest of which are research and development expenses. This process involves:

 

    communicating with our applicable 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 actual cost;

 

    estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time; and

 

    periodically confirming the accuracy of our estimates with selected service providers and making adjustments, if necessary.

Examples of estimated research and development and manufacturing expenses that we accrue include:

 

    fees paid to CROs and other service providers in connection with nonclinical studies and clinical trials;

 

    fees paid to investigative sites in connection with clinical studies;

 

    fees paid to CMOs in connection with the production of nonclinical and clinical study materials; and

 

    professional service fees for consulting and related services.

We base our expense accruals related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with research institutions and CROs that conduct and manage nonclinical and clinical studies on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under these contracts often depend on factors such as the successful enrollment of patients and the completion of certain clinical study milestones. Our service providers invoice us in arrears for services performed. In accruing clinical costs, we estimate the time period over which patient enrollment will be completed and the progress of patient enrollment through completion in each period. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the number of patients enrolled or the costs of patient enrollment, our actual expenses could differ from our estimates.

To date, we have not experienced significant changes in our estimates of accrued clinical trial expenses after a reporting period. However, due to the nature of the estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other research activities.

Stock-based compensation

We account for our stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation . ASC 718 establishes accounting for stock-based awards exchanged for employee services. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service/vesting period. Determining

 

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the appropriate fair value model and calculating the fair value of stock-based payment awards require the use of highly subjective assumptions, including the expected life of the stock-based awards and stock price volatility.

We account for stock-based compensation to non-employees in accordance with the recognition provisions of ASC 505-50, Equity-Based Payments to Non-Employees , using a fair value approach. The fair value of these awards is subject to re-measurement over the vesting period at each reporting date based upon the valuation of our common stock at that time.

We account for stock-based compensation to employees of ZP Group LLC, our prior joint venture with Asahi, in accordance with ASC 323-10-25 and ASC 323-10-35, Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee , using a fair value approach. Under the guidance, a reporting entity should recognize stock-based compensation expense at fair value under ASC 718 if it grants awards in the reporting entity’s stock to employees of the investee, in this case ZP Group LLC, if other investors do not make proportionate awards and the reporting entity’s ownership interest does not increase by a proportionate amount. The fair value of these awards is subject to re-measurement over the vesting period at each reporting date based upon the valuation of our common stock at that time. As a result of the termination of our joint venture with Asahi and the resultant termination of all ZP Group LLC employees, all outstanding unvested stock options granted to employees of ZP Group LLC as of December 20, 2013 were canceled. Vested stock options granted to employees of ZP Group LLC are subject to the exercise provisions under our 2012 Stock Incentive Plan. In February 2014, the board of directors extended the exercise period on the vested stock options by 60 days to allow for more time to exercise, if elected by the former employees of ZP Group LLC.

We estimate the fair value of our stock options and awards and the related compensation expense using the Black-Scholes option valuation model. This option valuation model requires the input of subjective assumptions including: (1) estimated period of time outstanding, or expected term, of the options granted, (2) volatility, (3) risk-free interest rate and (4) expected dividend yield. Because stock-based compensation expense is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeiture rates differ from those estimates. We have estimated expected forfeitures of stock options based on our historical employment turnover rate and expected turnover in developing a future forfeiture rate. If our actual forfeiture rate varies from our estimates, additional adjustments to compensation expense may be required in future periods. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if facts change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Information pertaining to the Black-Scholes valuation assumptions used for stock options granted to employees and to employees of our previous joint venture, ZP Group LLC, during 2014, 2013 and 2012 is as follows:

 

     Three Months Ended
March 31,
    Year Ended December 31,  
For valuation of employees and joint venture employees grants (1) :        2014              2013             2013             2012      

Assumptions:

         

Expected volatility

     —           89.00     89.00     89.00

Expected term in years

     —           6.08        6.08        6.08   

Risk-free interest rate

     —           1.74     1.74     0.97

Expected dividend yield

     —           0.00     0.00     0.00

 

(1) No options or restricted stock awards were granted during the three-month period ended March 31, 2014

 

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Information pertaining to the Black-Scholes valuation of common stock options granted to non-employees during 2014, 2013 and 2012 is as follows:

 

     Three Months Ended
March 31,
    Year Ended December 31,  
For valuation of non-employee grants:        2014             2013             2013             2012      

Assumptions:

        

Expected volatility

     89.00     89.00     89.00     89.00

Expected term in years

     10.00        10.00        10.00        10.00   

Risk-free interest rate

     2.89     3.01     3.01     1.78

Expected dividend yield

     0.00     0.00     0.00     0.00

The dividend yield is based upon the assumption that we will not declare a dividend over the life of the options. We have been unable to use historical employee exercise and option expiration data to estimate the expected term assumption for the Black-Scholes grant-date valuation. We have therefore utilized the “simplified” method, as prescribed by the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment, to estimate on a formula basis the expected term of our stock options considered to have “plain vanilla” characteristics. The risk-free interest rate is based on the U.S. Treasury strip rate on the date of the grant. We compute volatility under the “guideline public company method” by utilizing the average of a peer group comprised of publicly-traded companies and expect to continue to do so until we have adequate historical data regarding the volatility of our traded stock price. The peer group was determined based upon companies considered to be direct competition or having been presented by independent parties as a “comparable” company based upon market sector. In determining a comparable, we have excluded “large-cap” entities. Forfeitures are estimated at the time of the grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Share-based compensation expense recognized in the statement of operations for the years ended December 31, 2012 and 2013 does not record tax-related effects on stock-based compensation given our historical and anticipated operating losses and offsetting changes in its valuation allowance that fully reserves against potential deferred tax assets.

 

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Stock option grants during 2012, 2013 and 2014

The following summarizes all stock options and restricted stock awards granted during the years ended December 31, 2012 and 2013:

 

Type of Grant

  Grant Date   

Reason For Grant

  Shares
Underlying
Grants
    Exercise
Price of
Shares
    Grant Date
Fair Value
Per Share
    Total Stock-
Based
Compensation
Expense
 
                   (in $)     (in $)     ($ in thousands)  

Stock options

  June 15, 2012    Awards to founder     283,014        0.35        0.26        73   

Stock options

  July 1, 2012    Awards to founding CEO     566,027        0.39 (1)       0.25        143   

Stock options

  July 25, 2012    Awards to employees     168,303        0.35        0.26        43   

Stock options

  July 25, 2012    Awards to non-employee advisor and consultant     9,675        0.35             (2)            (2)  

Stock options

  July 25, 2012    Awards to employees of joint venture     120,434        0.35             (3)            (3)  

Stock options

  December 11, 2012    Awards to employees     91,667        0.35        0.26        24   

Restricted stock

  December 11, 2012    Awards to officer employees     50,000        —          0.35        18   

Stock options

  December 11, 2012    Awards to employees of joint venture     11,000        0.35             (3)            (3)  

Stock options

  December 11, 2012    Awards to non-employee advisor and consultant     9,674        0.35             (2)            (2)  
      

 

 

       

Total number of shares granted in 2012

    1,309,794         
      

 

 

       

Stock options

  February 15, 2013    Awards to employees     75,448        0.35        0.24        18   

Stock options

  February 15, 2013    Awards to employees of joint venture     42,286        0.35             (3)            (3)  

Stock options

  April 19, 2013    Awards to a director     113,207        0.35        0.24        27   

Stock options

  May 24, 2013    Awards to employees     220,451        0.35        0.24        53   

Stock options

  June 19, 2013    Awards to employees     30,000        0.35        0.24        7   

Stock options

  June 19, 2013    Awards to employees of joint venture     4,000        0.35             (3)            (3)  

Stock options

  July 12, 2013    Awards to employees     318,414        0.35        0.24        77   

Stock options

  July 12, 2013    Awards to employees of joint venture     2,000        0.35             (3)            (3)  

Stock options

  July 12, 2013    Awards to non-employee advisor and consultant     10,000        0.35             (2)            (2)  
            
      

 

 

       

Total number of shares granted in 2013

    815,806         
      

 

 

       

 

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The following summarizes all stock options and restricted stock awards granted subsequent to December 31, 2013 through the date of this prospectus:

 

Type of Grant

  Grant Date   

Reason For Grant

  Shares
Underlying
Grants
    Exercise
Price of
Shares
    Grant Date
Fair Value
Per Share
    Total Stock-
Based
Compensation
Expense
 
                   (in $)     (in $)     ($ in thousands)  

Stock options

  April 15, 2014    Awards to employees     230,500        0.32        0.24        55   

Stock options

  April 30, 2014    Awards to employees     179,433        0.32        0.24        43   
      

 

 

       

Total number of shares granted in 2014

    409,933         
      

 

 

       

 

(1) Incentive stock option granted to a 10% stockholder. Pursuant to Section 422 of the Internal Revenue Code, incentive stock options granted to 10% stockholders must have an exercise price no less than 110% of fair value.
(2) We account for stock options issued to non-employees in accordance with the recognition provisions of ASC 505-50, Equity-Based Payments to Non-Employees , using a fair value approach. The fair value of these awards is subject to re-measurement over the vesting period at each reporting date based upon the valuation of our common stock at that time.
(3) We account for stock options granted to employees of our previous joint venture, ZP Group LLC, in accordance with the recognition provisions of ASC 323-10-25 and ASC 323-10-35, Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee, using a fair value approach. The fair value of these options is subject to re-measurement over the vesting period at each reporting date based upon the valuation of our common stock at that time.

Exercise price and fair value of common stock

All options have been granted at exercise prices determined by our board of directors to be not less than the fair value of the underlying common shares on the date of grant. The fair value of the shares of common stock that underlie the stock options we have granted has historically been estimated by our board of directors based upon information available to it at the time of grant, as further discussed below.

We recorded total non-cash stock-based compensation expense of approximately $65,000 and $63,000 for the years ended December 31, 2013 and 2012, respectively. We recorded total non-cash stock-based compensation expense of approximately $51,000 and $7,000 for the three-month periods ended March 31, 2014 and 2013, respectively. As of March 31, 2014, we had approximately $267,000 of total unrecognized employee stock-based compensation expense, net of estimated forfeitures, related to stock option grants. We expect the amount of our share-based compensation expense for stock options granted to employees and non-employees to increase in future periods due to increases in headcount and, potentially, to increases in the value of our common stock.

Significant factors used in determining the fair value of our common stock

The fair value of the shares of common stock that underlie the stock options we have granted has historically been determined by our board of directors based upon information available to it at the time of grant. Our board of directors, with the assistance of management, developed these valuations using significant judgment and taking into account numerous factors, including progress in our research and development programs, status of clinical trials and preclinical studies relating to our product candidates, operation and financial performance, the lack of liquidity of our capital stock, the likelihood of achieving a liquidity event for the shares of common stock underlying these stock options, general and industry specific economic outlook, and independent third-party valuations of our common stock performed in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . As we have been a private enterprise, a discount for lack of

 

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marketability has been applied to derive the final fair value of our common stock for use in stock option grants. The board has generally considered the most persuasive evidence of fair value to be the prices at which our securities were exchanged in actual arms’ length transactions.

In determining a fair value for our common stock after the April 2012 reorganization, on two separate occasions we engaged an independent third party valuation firm to assess our enterprise value. In each report prepared by the valuation firm, two valuation approaches were considered to determine the enterprise value of our business: the income approach and the market approach.

The income approach estimates the fair enterprise value of a company based on the present value of the company’s future estimated cash flows and the residual value of the company beyond the forecast period. These future cash flows, including the cash flows beyond the forecast period for the residual value, are discounted to their present values using an appropriate discount rate, to reflect the risks inherent in the company achieving these estimated cash flows and taking into account the risk-free rate for the use of funds and the expected rate of inflation over the applicable period. The discount rate used in our third-party valuations was based on rates of return available for alternative investments of similar type and quality.

There are different acceptable methods of applying the market approach. The valuations considered by our board of directors all employ the “guideline public company analysis,” whereby estimates for the fair enterprise value of a company are calculated by applying market multiples of comparable publicly traded companies, in our case in the biotechnology and pharmaceutical industries. The market multiples are based on key metrics implied by the enterprise values of our comparable publicly-traded peers.

The equity values determined by these valuation approaches were then weighted to determine the aggregate equity value of our business. The resulting equity values were then allocated to the common stock using the option pricing method, or OPM. The OPM treats common stock and convertible preferred stock as call options on a business, with exercise prices based on the liquidation preference. The common stock is modeled to be a call option with a claim on the business at an exercise price equal to the remaining value immediately after any senior security is liquidated. The OPM uses the Black-Scholes option-pricing model to value the call option. The OPM is appropriate to use when, as in our case, the range of possible future outcomes is so difficult to predict that lattice or scenario modeling would be highly speculative.

Valuation performed as of May 31, 2012

In conducting our valuation as of May 31, 2012, the board took into consideration the following company-specific events:

 

    The board believed the April 2012 reorganization, in which all of our previously authorized Series A, B, and C preferred stock were converted into common stock at a price that was acceptable to each series of preferred stockholders, would constitute an exchange at arms’ length.

 

    Also in connection with the April 2012 reorganization, all convertible unsecured promissory notes originally issued prior to the reorganization were converted into common and all outstanding warrants were terminated. These facts further led the board to believe that the fair value determined in connection with the organization represented a fair value exchange in an arms’ length transaction.

 

    There had been no significant clinical, manufacturing and regulatory milestones during 2012 and 2013 until December 2013 when our joint venture with Asahi was terminated.

Further, management engaged a third-party valuation firm to perform a valuation of our common stock. The valuation firm applied both the market approach and the income approach to arrive at an estimated enterprise valuation of our equity. The guideline public company analysis performed for the market approach resulted in a fair value indication for our company of $10 million on a minority, marketable basis. The discounted cash flow analysis performed for the income approach resulted in a fair value indication for our company of $10.4 million

 

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on a minority, marketable basis. The market approach and income approach were then equally weighted at 50% to arrive at an estimate enterprise value of our equity. The final step employed by the valuation firm involved allocating our estimated enterprise equity to the common stock using the OPM, to arrive at the estimate of fair value per share of common stock of our company. The OPM assumptions were as follows: a time to liquidity event of 3 years, a risk-free rate of 0.35%, dividend yield of 0%, and volatility of 85% over the time to a liquidity event, which was calculated based on the volatility of the common stock of our comparable publicly-traded peers. The valuation firm then applied a marketability discount of approximately 28%, based on the Finnerty Model, which assumes that the marketability discount on a privately-held security could be approximated by the value of an “average-strike” put option. Based on this analysis, the valuation firm determined the fair value of our common stock to be $0.35 per share as of May 31, 2012.

Based on the company-specific factors discussed above, as supported by the third-party valuation specialists’ report, the board determined that $0.35 per share was not less than the fair value per share of our common stock as of May 31, 2012. At the time of each of the stock awards granted on each date subsequent to May 31, 2012 and through July 12, 2013, the board of directors determined that there had been no significant clinical, manufacturing or regulatory milestones attained that would warrant and increase in the estimate of fair value.

Valuation performed as of December 31, 2013

The Board considered the following factors in estimating the fair value of our common stock as of December 31, 2013:

 

    The collaboration with Asahi is no longer a source of revenue for us.

 

    In the fourth quarter of 2013, encouraged by our findings that higher dosage of PTH can be delivered by our microneedle patch system, we commenced a Phase 1 clinical study to evaluate the pharmacokinetics, safety and tolerability in healthy post-menopausal women of a single application of one or two Weekly ZP-PTH transdermal patches.

 

    Also in the fourth quarter of 2013, we initiated a Phase 1 clinical study to evaluate the pharmacokinetics and safety in healthy individual for the application of ZP-Glucagon transdermal patches.

 

    Further, beginning in the second quarter of 2013 and particularly in the third and fourth quarters of 2013, the volume of initial public offerings by biotechnology companies accelerated significantly. More importantly, for the first time, these included offerings by companies in the early stages of development. As a result of these developments, we believed that investors would have interest in our clinical stage, transdermal drug delivery technology.

We also engaged a third-party valuation firm to evaluate the fair value of our common stock as of December 31, 2013, prepared on a minority, non-marketable interest basis. In conducting its valuation, the valuation firm applied both the market approach and the income approach to arrive at an estimated enterprise valuation of our equity. The guideline public company analysis performed for the market approach resulted in a fair value indication for our company of $16.4 million on a minority, marketable basis. The discounted cash flow analysis performed for the income approach resulted in a fair value indication for our company of $9.3 million on a minority, marketable basis. The valuation firm did not give any weight to the market approach and instead used the more conservative value produced by the income approach to estimate enterprise value of our equity. The final step employed by the valuation firm involved allocating our estimated enterprise equity to the common stock using the OPM, to arrive at the estimate of fair value per share of common stock of our company. The OPM assumptions were as follows: a time to liquidity event of 1.8 years, a risk-free rate of 0.31%, dividend yield of 0%, and volatility of 90% over the time to a liquidity event, which was calculated based on the volatility of the common stock of our comparable publicly-traded peers. The valuation firm then applied a marketability discount of approximately 25%, based on the Finnerty Model. Based on this analysis, the valuation firm determined the fair value of our common stock to be $0.32 per share as of December 31, 2013.

 

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Based on the above factors as supported by the third-party valuation specialists’ report, the board determined that the fair value of our common stock was not greater than $0.32 per share as of December 31, 2013. The board also considered that this valuation provided further support for its prior determination that the fair value of our common stock at the time of grant of all previous awards during 2012 and 2013 was not greater than $0.35 per share.

The valuation described above were made solely for the purposes of valuing the common stock underlying our stock option grants for financial reporting purposes and involved significant judgments and estimates, including assumptions regarding our future performance and the success of our pre-clinical studies and planned clinical trials. If we had made different assumptions, our stock-based compensation expense could have been different. The valuation methodologies we have historically used in estimating the fair value of our common stock are not the only methodologies available and they will not be used to value our common stock once this offering is complete. We cannot predict or offer any assurance with regard to the future value of our common stock. Accordingly, investors are cautioned not to place undue reliance on the valuation methodologies we describe above as an indicator of our future stock prices. Before investing in our common stock, you should carefully read this entire prospectus and consider, among other things, the matters described under “Risk Factors.”

Income taxes

We are subject to income tax under the U.S. federal jurisdiction and the State of California. We file U.S. federal income tax returns and California state income tax returns. To date, we have not been audited by the Internal Revenue Service or any state income tax authority.

We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

We assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

As of December 31, 2013, we had net deferred tax assets of $56.5 million. The deferred tax assets primarily consisted of federal and state tax net operating losses and research and development tax credit carryforwards. Due to uncertainties surrounding our ability to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset our deferred tax assets. As of December 31, 2013, we had federal net operating loss carryforwards of approximately $133.1 million and state net operating loss carryforwards of approximately $129.6 million. If not utilized, the federal net operating loss carryforwards will begin to expire in 2026 and state net operating loss carryforwards will begin to expire in 2016. Utilization of net operating loss carryforward may also be subject to an annual limitation due to the ownership change limitations. These annual limitations may result in the expiration of the net operating loss carryforwards before utilization. We have not performed an analysis under Internal Revenue Code Section 382 to determine whether our net operating loss carryforwards will be subject to annual limitation.

As of December 31, 2013, we had federal and state research and development credit carryforwards of approximately $3.4 million and $3.4 million, respectively. If not utilized, the federal tax credits will begin to expire in 2026 and state tax credits currently do not expire.

JOBS Act

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised

 

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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 exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an emerging growth company, we intend to rely on certain of these exemptions, including those that will relieve us of responsibility for (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Results of Operations

Comparison of the three months ended March 31, 2014 and 2013

Revenue

 

     Three Months Ended
March 31,
     Change  
         2014              2013          Amount     %  
     (in thousands)        

Revenue:

          

License fees revenue

   $ 1,375       $ 2,563       $ (1,188     -46

Collaborative development support services

     226         —           226        N/A   
  

 

 

    

 

 

    

 

 

   

Total revenue

   $ 1,601       $ 2,563       $ (962     -38
  

 

 

    

 

 

    

 

 

   

We have not made any commercial product sales. We have generated revenue from collaboration and license agreements for the development and commercialization of our transdermal microneedle patch technology. Total revenue decreased $1.0 million, or 38%, for the three months ended March 31, 2014 as compared to the same period in 2013. The decrease in revenue was primarily due to an approximately $1.4 million of contract revenue we earned from our license and collaboration with Asahi in 2013 that was not earned in 2014 as a result of the termination of our joint venture with Asahi in December 2013, partially offset by an approximately $250,000 of license fee revenue recognized from our collaboration with Novo Nordisk during the three-months ended March 31, 2014, and approximately $226,000 related development support service revenue from Novo Nordisk during the same period.

Cost of license fees revenue

 

     Three Months Ended
March 31,
     Change  
         2014              2013          Amount      %  
     (in thousands)         

Cost of license fees revenue

   $ 100       $ —         $ 100         N/A   

Cost of license fees revenue represents our payment obligations under our intellectual property license agreement with ALZA. Cost of license fees revenue increased $100,000 for the three months ended March 31,

 

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2014 as compared to the same period in 2013 due to the receipt a $1.0 million upfront license fee from Novo Nordisk upon execution of the license agreement.

Research and development expenses

 

     Three Months Ended
March 31,
     Change  
         2014              2013          Amount      %  
     (in thousands)         

Research and development

   $ 1,507       $ 1,098       $ 409         37

Research and development expenses increased $409,000, or 37%, for the three months ended March 31, 2014 as compared to the same period in 2013. Of this increase, approximately $279,000 was due to the final data analysis cost on our Phase 1 clinical study involving Weekly ZP-PTH and approximately $200,000 related to the non-clinical study in preparation for our ZP-Triptan Phase 1 clinical trial to be commenced in the second half of 2014, partially offset by an approximately $70,000 reduction in other research and development projects spending.

Manufacturing services expenses

 

     Three Months Ended
March 31,
     Change  
         2014              2013          Amount      %  
     (in thousands)         

Manufacturing services

   $ 1,378       $ 114       $ 1,264         1,109

Manufacturing services expenses increased by $1.3 million, or 1,109%, for the three months ended March 31, 2014 as compared to the same period in 2013. The increase was primarily due to a $673,000 increase in equipment depreciation expense on the return of equipment to us upon the termination of our joint venture with Asahi in ZP Group LLC. An additional $407,000 of this change related to an increase in manufacturing personnel expense as a result of rehiring key personnel with critical manufacturing know-how upon the termination of our joint venture with Asahi, and an additional $180,000 increase related to the conclusion of ZP Group LLC’s sublease arrangement with us.

General and administrative expenses

 

     Three Months Ended
March 31,
     Change  
         2014              2013          Amount      %  
     (in thousands)         

General and administrative

   $ 1,184       $ 809       $ 375         46

General and administrative expenses increased $375,000, or 46%, for the three months ended March 31, 2014 as compared to the same period in 2013. The increase in general and administrative expenses was primarily due to $235,000 increase in legal fees in connection with our collaboration with Novo Nordisk and bridge financing transactions and $148,000 increase in personnel costs and facility related expenses.

Interest expense, net

 

     Three Months Ended
March 31,
     Change  
         2014              2013          Amount      %  
     (in thousands)         

Interest expense, net

   $ 301       $ 168       $ 133         79

 

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Interest expense, net, increased $133,000, or 79%, for the three months ended March 31, 2014 as compared to the same period in 2013. The increase was primarily due to the incremental interest expense incurred in connection with our bridge financing in September 2013 and February 2014.

Equity in gain of joint venture

 

     Three Months Ended
March 31,
     Change  
         2014              2013          Amount     %  
     (in thousands)        

Equity in gain of joint venture

   $ —         $ 89       $ (89     -100

Equity in gain of joint venture reflects our share of ZP Group LLC’s net gain for the applicable reporting period. Equity in gain of joint venture decreased $89,000, or 100%, for the three months ended March 31, 2014 as compared to the same period in 2013. This decrease was due to the termination of our joint venture investment in ZP Group LLC in December 2013.

Gain on debt forgiveness

 

     Three Months Ended
March 31,
     Change  
         2014              2013          Amount      %  
     (in thousands)         

Gain on debt forgiveness

   $ 497       $ —         $ 497         N/A   

Pursuant to provisions of our joint venture termination agreement with Asahi, we recorded a $497,000 one-time gain on debt forgiveness during the three months ended March 31, 2014, resulting from the cancellation of ZP Group LLC’s revolving line of credit with Asahi.

Comparison of the years ended December 31, 2012 and 2013

Revenue

 

     Year Ended December 31,      Change  
         2013              2012          Amount     %  
     (in thousands)        

Revenue:

          

License fees revenue

   $ 4,250       $ 9,250      $ (5,000     -54

Collaborative development support services

     —           2,374        (2,374     -100
  

 

 

    

 

 

    

 

 

   

Total revenue

   $ 4,250       $ 11,624      $ (7,374     -63
  

 

 

    

 

 

    

 

 

   

We have not made any commercial product sales. We have generated revenue from collaboration and license agreements for the development and commercialization of our technology. Total revenue decreased $7.4 million, or 63%, for the year ended December 31, 2013 as compared to the same period in 2012. The decrease in revenue was primarily due to an approximately $7.2 million of payments we received from our license and collaboration with Asahi in 2012 that was not received in 2013. Specifically, we received $5.0 million in license fees from Asahi in 2012 and approximately $2.2 million of collaborative development support services revenue in 2012, which were not received in 2013, in part as a result of the transfer of our manufacturing obligations under our license agreement with Asahi to ZP Group LLC upon forming our joint venture in April 2012.

 

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Research and development expenses

 

     Year Ended December 31,      Change  
         2013              2012          Amount      %  
     (in thousands)         

Research and development expenses

   $ 6,502       $ 3,050       $ 3,452        113

Research and development expenses increased $3.5 million, or 113%, for the year ended December 31, 2013 as compared to the same period in 2012. Of this increase, approximately $1.7 million was due to the initiation of a Phase 1 clinical study involving Weekly ZP-PTH during the second half of 2013 and approximately $2.4 million was attributable to research and development expenses related to the completion of our final formulation and the initiation of a Phase 1 clinical study on ZP-Glucagon. These increases were partially offset by an approximately $0.9 million reduction in other research and development projects.

Manufacturing services expenses

 

     Year Ended December 31,      Change  
         2013              2012          Amount     %  
     (in thousands)        

Manufacturing services expenses

   $ 1,135       $ 2,349       $ (1,214     -52

Manufacturing services expenses decreased by $1.2 million, or 52%, for the year ended December 31, 2013 as compared to the same period in 2012. The decrease was primarily due to a $1.0 million reduction in facility-related cost and equipment depreciation expense as a result of ZP Group LLC’s reimbursement to us for these expenses in accordance with the terms of our strategic partnership with Asahi and to Asahi’s purchase of certain active pharmaceutical ingredients from us for approximately $537,000. These decreases were partially offset by an increase of approximately $457,000 in contract manufacturing expense as a result of the production of our Phase 1 clinical trial materials.

General and administrative expenses

 

     Year Ended December 31,      Change  
         2013              2012          Amount      %  
     (in thousands)         

General and administrative expenses

   $ 4,582       $ 3,077       $ 1,505         49

General and administrative expenses increased $1.5 million, or 49%, for the year ended 2013 as compared to the same period in 2012. The increase in general and administrative expenses was primarily due to $520,000 increase in personnel cost related to the addition of key executive management personnel, a $758,000 increase in legal fees in connection with our bridge financing and the acquisition of our short-term investment in Zosano, Inc. and related consulting and accounting fees.

Interest expense, net

 

     Year Ended December 31,      Change  
         2013              2012          Amount      %  
     (in thousands)         

Interest expense, net

   $ 760       $ 663       $ 97        15

Interest expense, net, increased $97,000, or 15%, for the year ended December 31, 2013 as compared to the same period in 2012. The increase was primarily due to the full-year effect of accrued interest on our BMR secured promissory note and the interest expense incurred in connection with our bridge notes issued in September 2013.

 

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Warrant revaluation income

 

     Year Ended December 31,      Change  
         2013              2012          Amount     %  
     (in thousands)        

Warrant revaluation income

   $ —         $ 71       $ (71     -100

Warrant revaluation income resulted from the re-measurement of our preferred stock warrant liability associated with the warrants to purchase preferred stock issued to lenders under our debt facilities and certain of our former preferred stockholders prior to our 2012 recapitalization. In 2012, we recorded income of $71,000 reflecting a decrease in fair value of the underlying security based upon the fair value re-measured on the date of the warrant retirement. After our recapitalization in 2012, these warrants are no longer outstanding.

Equity in loss of joint venture and gain on termination of joint venture

 

     Year Ended December 31,     Change  
         2013             2012         Amount     %  
     (in thousands)        

Equity in loss of joint venture

   $ (366   $ (738   $ (372     -50

Gain on termination of joint venture

     3,487        —          3,487        N/A   

Equity in loss of joint venture reflects our share of ZP Group LLC’s net loss for the applicable reporting period. Equity in loss of joint venture decreased $372,000, or 50%, for the year ended December 31, 2013 as compared to the same period in 2012, primarily due to the manufacturing services revenue generated by the joint venture through ZP Group LLC’s contract manufacturing arrangement with us.

Our strategic partnership with Asahi through the joint venture investment in ZP Group LLC was terminated in December 2013. As a result, we recorded a one-time gain on termination of the joint venture of $3.5 million, which represents payments from Asahi for a notice period termination fee of $2.4 million and a non-refundable excess of approximately $1.0 million in reimbursement for the cost of terminating personnel in connection with the wind down of ZP Group LLC.

Liquidity and Capital Resources

Since our inception in October 2006, we have funded our operations primarily through private placements of our preferred stock, secured and unsecured borrowings from private investors, bank credit facilities, and licensing and service revenue from our license and collaboration agreements. We have incurred recurring operating losses and negative cash flows from operating activities since inception, and as of March 31, 2014, had an accumulated deficit of $126.6 million. We expect to incur additional losses in the future to conduct research and development on our product candidates and to conduct pre-commercialization manufacturing activities.

Our primary uses of cash are to fund operating expenses, which have historically been primarily related to research and development and manufacturing activities. From inception through March 31, 2014, we have raised an aggregate of approximately $120 million to finance our business through the sale of preferred stock and $26.3 million from the issuance of debt to private investors. As of March 31, 2014 and December 31, 2013 and 2012, our principal sources of liquidity were our cash and cash equivalents, which totaled $5.6 million, $5.9 million and $5.0 million, respectively.

Our recurring operating losses from operations and our need for additional sources of capital to fund our ongoing operations raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2013 with respect to this uncertainty. We have no current

 

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source of revenue to sustain our present activities other than our license and collaborative agreement with Novo Nordisk, and we do not expect to generate substantial revenue for the foreseeable future. Accordingly, our ability to continue as a going concern will require us to obtain additional financing to fund our operations and there can be no assurance that additional financing will be available to us or that such financing will be available on terms favorable to us, if at all. We intend to raise additional capital through public or private offerings of our equity securities, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements, or a combination of such.

There can be no assurance that we will be able to raise sufficient financing to fund our operations. To the extent that we raise additional capital through the sale of our equity or equity-linked securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. If we raise additional funds through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. Debt financing may not be available to us, and, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Certain of our existing investors have provided us with unsecured bridge financing through the issuance of our convertible bridge notes. The notes are convertible into common stock upon completion of a qualified financing, defined as a financing over $25 million that is consummated on or prior to September 9, 2014. We sold these notes in two tranches, in September 2013 and February 2014, and raised an aggregate of $5.5 million to sustain our operations. In June 2014, we entered into a $4 million secured term loan facility with Hercules Technology Growth Capital to sustain our operations. The Hercules loan is secured by a senior security interest in substantially all of our assets. The convertible bridge notes are subordinated in right of payment to the Hercules loan.

We estimate that the net proceeds from our issuance and sale of shares of our common stock in this offering will be approximately $     million, assuming an initial public offering price of $     per share, which is the midpoint of the price range 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 offering is successful, we anticipate that these estimated net proceeds, along with our existing cash and cash equivalents of $5.9 million as of December 31, 2013, should be sufficient to meet our anticipated cash requirements for at least the next twelve months. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially as a result of a number of factors, including the factors discussed in “Risk Factors.” See “Cautionary Note regarding Forward-Looking Statements.”

 

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Summary of cash flows

The following table shows a summary of our cash flows for each of the years ended December 31, 2013 and 2012:

 

     Three Months Ended March 31,      Year Ended December 31,  
         2014             2013              2013             2012      
     (unaudited)               
    

(in thousands)

 

Cash generated from (used in):

         

Operating activities

   $ (2,374   $ 48       $ (3,724   $ 501   

Investing activities

     (431     648         1,139        1,984   

Financing activities

     2,500        —           3,525        (1,112
  

 

 

   

 

 

    

 

 

   

 

 

 

Total cash (used) generated

   $ (305   $ 696       $ 940      $ 1,373   
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating Cash Flow: Net cash used in operating activities was $2.4 million during the three months ended March 31, 2014, as compared to net cash generated from operating activities of $48,000 for the same period in 2013. Net cash used during the first quarter of 2014 was primarily the result of personnel-related costs, clinical trial costs, professional fees and administrative expenses incurred in the course of our continuing operations. Net cash generated during the three months ended March 31, 2013 was primarily due to a $2.0 million license fee payment from Asahi in connection with our collaboration and license agreement, mostly offset by our operating expenses.

Net cash used in operating activities was $3.7 million in 2013, as compared to net cash generated from operating activities of $501,000 for the same period in 2012. Net cash used in 2013 was primarily the result of personnel-related costs, clinical trial costs, professional fees and administrative expenses, partially offset by the receipt of the $2.4 million termination notice payment and excess termination expense reimbursement from Asahi in connection with the termination of our joint venture. Net cash generated in 2012 was primarily the result of the receipt of $5.0 million license fees and in collaboration funding from Asahi, partially offset by net cash used in normal operating activities such as personnel cost, outside services, professional and administrative fees. We expect that our net cash used in operating activities will increase significantly in each of the next several years in order to support our operations and complete the development and commercialization of our product candidates.

Investing Cash Flow: Net cash used in investing activities was $431,000 during the three months ended March 31, 2014, as compared to net cash generated from investing activities of $648,000 for the same period in 2013. Net cash used in investing activities during the first quarter of 2014 included the purchase of manufacturing equipment to support the clinical trial material production of our transdermal microneedle patch for our Weekly ZP-PTH, ZP-Glucagon and ZP-Triptan clinical programs. During the three months ended March 31, 2013, cash generated from investing activities was primarily due to the cash reimbursement received from Asahi for the depreciation of our contributed equipment capital to ZP Group LLC, our joint venture with Asahi.

Net cash generated from investing activities was $1.1 million and $2.0 million in 2013 and 2012, respectively. Net cash generated from investing activities included a cash distribution of $2.4 million and $1.5 million for 2013 and 2012, respectively, from ZP Group LLC for the reimbursement of depreciation charges associated with the equipment we contributed to ZP Group LLC during the formation of our joint venture with Asahi. In 2013, cash generated from investing activities was partially offset by the purchase of property and equipment for $897,000 and cost of acquiring equity invested in Zosano, Inc., for $365,000. We expect that we will continue to make investments in property, equipment and leasehold improvements as we expand our operations in the future.

Financing Cash Flow : Net cash generated from financing activities during the three months ended March 31, 2014 was primarily a result of $2.5 million received from the sale and issuance of bridge notes to certain of our existing investors. No financing cash flow was generated during the three months ended March 31, 2013.

 

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Net cash generated from financing activities in 2013 was provided through $3.0 million from the issuance of our bridge notes and $491,000 from reimbursements received from ZP Group LLC, funded through the revolving line of credit facility provided by AKPUS to ZP Group LLC. Net cash used in financing activities in 2012 was related to the payment of certain prior equipment financing in connection with the recapitalization.

Contractual Obligations

The following table summarizes our contractual obligations as of March 31, 2014:

 

     Payments Due by Period  
     Total      Less than
One Year
     1-3 Years      3-5 Years      More than
5 Years
 
     (in thousands)  

Contractual Obligations

              

Short and long-term debt obligations (including interest)  (1)

   $ 17,526       $ 5,883       $ 11,643      $ —         $ —     

Operating lease obligations (2)

     3,458         920         1,242         1,296         —     

Purchase commitments (3)

     191         191         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 21,175       $ 6,994       $ 12,885       $ 1,296      $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Short and long-term debt obligations

Bridge financing—related parties convertible promissory notes

In September 2013, we entered into a note purchase agreement with certain of our stockholders pursuant to which we issued convertible bridge notes, raising an aggregate amount of approximately $3.0 million in debt financing. These convertible bridge notes bear simple interest of 8% per annum, with all unpaid principal and accrued interest due and payable on the earlier of: (i) September 9, 2014; (ii) an event of default, as defined in the notes; or (iii) the date that is 30 days following the closing of a first firm commitment underwritten initial public offering pursuant to a registration statement filed under the 1933 Securities Act. We may accelerate and prepay any portion of the outstanding principal and/or interest at any time upon written consent of the noteholders representing not less than 60% of the principal amount then outstanding.

Upon the closing of a qualified financing, which is defined under the terms of the notes as an equity financing on or before September 9, 2014 where we raise at least $25.0 million, the principal and all unpaid and accrued interest on each note shall automatically convert into shares of our common stock at a price equal to 85% of our initial public offering price.

In February 2014, we sold $2.5 million of additional notes of the same series to certain of the purchasers of the 2013 convertible bridge notes. In June 2014, we amended the 2013 and the 2014 convertible bridge notes to provide that any failure by us to pay any amount under the convertible bridge notes during the period from maturity of the convertible bridge notes through the date that the Hercules loan is repaid in full will not constitute a default under the convertible bridge notes.

Secured financing with BMR

In connection with our recapitalization in April 2012, we renegotiated a new lease agreement with BMR to include reduced rent obligations for our facility in Fremont, California. In connection with the rent reduction, we issued a new secured promissory note to an affiliate of BMR and all previously accrued interest, unpaid rent, future rent obligations and other fees due to BMR were either rolled into the note or eliminated. The note payable to BMR is a 4-year non-callable promissory note, bearing interest at the rate of 8% per annum, compound annually, and has an original principal amount of approximately $8.6 million as of April 2012. This note is secured by a security interest and lien in and to all of our tangible and intangible properties and assets, including intellectual properties. All principal and interest are due and payable to BMR on the earliest of (i) April 26, 2016, (ii) the closing of a sale of our company or business, as defined in

 

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the note, or (iii) the date that any distribution is made to our stockholders, as defined in the note. We may prepay the note, in whole or in part, at any time without prepayment penalty or premium. Further, we are required to prepay the note immediately prior to, or in connection with, a sale or partial sale of our company, defined as a transaction in which we are acquired or in which we exclusively license or sell all or substantially all of our assets. In any similar transaction that does not qualify as a sale but results in our cash balance being at least $5.0 million in excess of our cash requirements for the 12 months following the closing of such transaction, we are required to prepay an amount equal to half of the excess cash balance over $5.0 million. In June 2014, we amended the BMR note to increase the interest rate during the period that the Hercules loan remains outstanding to match the interest rate of the Hercules loan, and to provide that any failure by us to pay any amount under the BMR note during the period from the maturity date of the BMR note through the date that the Hercules loan is repaid in full will not constitute a default under the BMR note. In exchange for BMR’s agreement to subordinate the BMR secured promissory note to the Hercules loan, we issued 125,000 shares of our common stock to the BMR affiliate that is the holder of the BMR secured promissory note. We intend to use a portion of the proceeds from this offering to make required payments of interest and principal as they become due under the BMR note, as further explained in the section titled “Use of Proceeds.”

The BMR secured promissory note and the related security agreement contain customary conditions related to borrowing, events of default, and covenants, including covenants limiting our ability to dispose of collateralized assets, undergo a change of jurisdiction or relocation of our business, incur debt or incur liens, subject to certain exceptions. The agreements also require us to comply with certain basic affirmative covenants, such as maintenance of financial records, insurance and prompt payment of taxes.

Line of credit with AKP USA, Inc.

In April 2013, ZP Group LLC obtained a $25 million credit facility under a revolving line of credit arrangement with AKP USA, Inc., or AKPUS, an affiliate of Asahi. The facility bore an interest rate of 1.15% per year, and ZP Group LLC was obligated to pay interest on the principal outstanding on the last day of each month until any outstanding principal was paid in full.

Our joint venture with Asahi was terminated in December 2013. Pursuant to the termination agreement, the entire outstanding principal and unpaid and accrued interest shall was discharged, released and forgiven by AKPUS on March 14, 2014.

Secured financing with Hercules

In June 2014, we entered into a loan and security agreement with Hercules Technology Growth Capital for a $4 million term loan facility. The $4 million loan is a senior secured loan that bears interest at a per annum rate equal to the greater of (i) 12.05% and (ii) 12.05% plus the “prime rate” as reported in The Wall Street Journal minus 5.25%. The interest rate floats, and will be determined in accordance with the preceding sentence based on changes to the prime rate as reported in The Wall Street Journal. We are required to pay interest on the outstanding principal balance of the Hercules loan on a monthly basis, beginning July 1, 2014. Repayment of the $4 million principal amount of the Hercules loan is amortized over a 30-month period in equal monthly installments of principal and interest, beginning on January 1, 2015, with all outstanding amounts (including a $100,000 end of term charge) due and payable on June 1, 2017. We are permitted to prepay the full outstanding principal balance of the Hercules loan and all unpaid accrued interest thereon, together with the $100,000 end of term charge plus a prepayment charge equal to 1% of the principal balance repaid, after June 3, 2015. The Hercules loan is secured by a senior security interest in substantially all of our assets. Under the terms of the loan facility, we agreed not to incur, be liable for or prepay any other indebtedness, with limited exceptions.

The BMR secured promissory note and the convertible bridge notes are subordinated in right of payment to the Hercules loan, and BMR’s security interest in substantially all of our assets under the BMR secured promissory note is subordinate to Hercules’ security interest under the Hercules loan. Under the terms of the loan facility, we agreed to give Hercules prior written notice of any amount we propose to pay in respect of

 

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the BMR secured promissory note, even if the subordination with Hercules and BMR allows for the payment. Any such payment will give Hercules the right to accelerate any or all of the Hercules loan. In exchange for BMR’s agreement to subordinate the BMR secured promissory note to the Hercules loan, we issued 125,000 shares of our common stock to the BMR affiliate that is the holder of the BMR secured promissory note. We intend to use a portion of the proceeds from this offering to make required payments of interest and principal as they become due under the Hercules loan, as further explained in the section entitled “Use of Proceeds.”

The loan and security agreement with Hercules contains customary conditions related to borrowing, events of default, and covenants, including covenants limiting our ability to dispose of collateralized assets, undergo a change of control, incur debt or incur liens, subject to certain exceptions. The loan and security agreement also requires us to comply with certain basic affirmative covenants, such as maintenance of financial records, insurance and prompt payment of taxes.

 

(2) Operating leases

We have an operating lease with an affiliate of BMR, which through its affiliates is our largest stockholder, for a 55,000 square foot facility in Fremont, California where we operate our manufacturing operations and house our engineering, research and development and administrative employees. In April 2012, we amended the lease agreement to reduce future rent obligations with a new lease term of seven years. As a result of the lease renegotiation, we issued a secured promissory note in consideration for previously accrued interest, unpaid rent, future rent obligations and other fees due to the landlord resulting in prepaid rent which is being expensed on a straight-line basis over the term of the lease. As of March 31, 2014, the prepaid rent of approximately $5.6 million is offset against the deferred rent liability of approximately $5.9 million resulting in a net deferred rent liability of approximately $301,000.

In addition to the operating lease for our facility, we have other non-cancelable operating leases with various vendors for our copiers and water system.

 

(3) Purchase commitments

Our material non-cancelable purchase commitment with an equipment manufacturer is related to the custom manufacturing of certain coating machinery for the production of our transdermal microneedle patches.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business. These risks principally relate to interest rates. We had cash and cash equivalents of $5.6 million as of March 31, 2014, and $5.9 million and $5.0 million as of December 31, 2013 and 2012, respectively, which consist of bank deposits and money market funds. Any interest-bearing instruments carry a degree of risk; however, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements.

Off-balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.

Recently Issued Pronouncements

In July 2013, Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2013-11, Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force). The amendments in this ASU provide guidance on the financial statements presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. We are currently assessing the impact of this ASU on our financial statements.

 

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In February 2013, the FASB issued guidance which addresses the presentation of amounts reclassified from accumulated other comprehensive income. This guidance does not change current financial reporting requirements, instead an entity is required to cross-reference to other required disclosures that provide additional detail about amounts reclassified out of accumulated other comprehensive income. The adoption of this guidance did not have a material impact on our consolidated financial statements.

 

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BUSINESS

Overview

We are a clinical stage specialty pharmaceutical company that has developed a proprietary transdermal microneedle patch system to deliver our proprietary formulations of existing drugs through the skin for the treatment of a variety of indications. Our microneedle patch system offers rapid onset, consistent drug delivery, improved ease of use and room-temperature stability, which we believe often are unavailable using oral formulations or injections. Our microneedle patch system has the potential to deliver numerous medications for a wide variety of indications in commercially attractive markets. By focusing our development efforts on the delivery of established molecules with known safety and efficacy and premium pricing, we plan to reduce our clinical and regulatory risk and development costs and accelerate our time to commercialization.

Our short-wear-time transdermal patch consists of an array of titanium microneedles that is coated with our proprietary formulation of an existing drug and attached to an adhesive patch. When the patch is applied with our hand-held applicator, the microneedles painlessly penetrate the skin to a depth of 200 microns or less, resulting in rapid dissolution and absorption of the drug coating through the capillary bed. We believe our system enables rapid and consistent delivery of the drug, with therapeutic effect typically occurring within 30 minutes or less, and easy, pain-free administration. We focus on developing specific formulations of approved drugs to be administered by our microneedle patch system, for indications in which rapid onset, ease of use and stability offer significant therapeutic and practical advantages. We target indications with patient populations that we believe will provide us with an attractive commercial opportunity. Our lead product candidates, and the indications they are expected to treat, are as follows:

 

    Weekly ZP-PTH , for severe osteoporosis;

 

    ZP-Glucagon, for severe hypoglycemia; and

 

    ZP-Triptan, for migraine.

Weekly ZP-PTH is our proprietary formulation of teriparatide, a synthetic form of parathyroid hormone, PTH 1-34 or, PTH, which regulates serum calcium, to be administered weekly for the treatment of severe osteoporosis in women.

Osteoporosis is a disease primarily affecting post-menopausal women that is characterized by low bone mineral and structural deterioration of bone tissue, which can lead to an increase in bone fractures. According to the World Health Organization, or WHO, and the International Osteoporosis Foundation, or IOF, a patient has severe osteoporosis when he or she has a T-score £ -2.5 (meaning that the patient has a bone mineral density, or BMD, that is two and a one-half standard deviations below the mean BMD of an ethnically matched thirty-year old man or woman, as applicable), plus one or more fragility fractures. According to the National Osteoporosis Foundation, or NOF, approximately 700,000 adults in the United States suffer from severe osteoporosis.

We believe that the main types of osteoporosis drugs currently available in the United States, anti-resorptive agents typically administered orally and an anabolic agent administered by daily injection, each have significant disadvantages. Bisphosphonates, the current standard of care and a type of anti-resorptive agent, have been associated with infrequent but serious adverse events. The only anabolic agent approved in the United States for the treatment of severe osteoporosis, Eli Lilly & Company’s Forteo ® , carries a black-box warning (which is a warning required by the United States Food and Drug Administration, or FDA, that appears on the package insert for or in literature describing certain prescription drugs, signifying that medical studies indicate that the drug carries a significant risk of serious adverse effects) regarding the possibility that humans treated with Forteo ® may face an increased risk of developing a certain form of bone cancer, and a two-year lifetime limitation on use, at the end of which the patient may revert to the use of an anti-resorptive agent. Based on a market survey of the osteoporosis market commissioned by us in 2010, which we refer to as our 2010 osteoporosis market survey, we estimate that in 2010 only 6% of the treated patients with severe osteoporosis in the United States received prescriptions for Forteo ® . Nevertheless, worldwide sales of Forteo ® in 2013 exceeded $1.2 billion.

 

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We believe there is a significant opportunity for a new anabolic agent, such as Weekly ZP-PTH, to offer equal or more effective bone fracture reduction with added advantages in safety, the convenience of a weekly administration and room temperature stability. Additionally, we intend to seek FDA approval of our Weekly ZP-PTH product candidate with a treatment window that is longer than Forteo ® or unlimited and potentially without a black-box warning, currently required for Forteo ® . These attributes could significantly expand the size of its addressable market compared with that of Forteo ® .

In January 2014, we completed a Phase 1 clinical study in Australia to evaluate the pharmacokinetics, safety and tolerability of Weekly ZP-PTH patches in a range of doses. The study results demonstrated a rapid increase in serum concentration of PTH, quickly followed by a rapid decrease. This pulsatile pattern, which occurred with all patch doses, is important for efficacy of an anabolic agent. The study results also demonstrated dose proportionality and high bioavailability (which is the degree and rate at which an administered dose of unchanged drug is absorbed into the body and reaches the blood), with no serious adverse events. We expect to have a pre-IND meeting with the FDA, a meeting required for the filing of an investigational new drug application, or IND, in July 2014 to discuss the clinical study design for our planned Phase 2 and Phase 3 studies of Weekly ZP-PTH. Subject to the outcome of our discussions with the FDA, we expect to commence, or treat the first patient in, our Phase 2 Weekly ZP-PTH clinical study in the first half of 2015, and complete the study by the end of 2015. As our Phase 1 clinical study was conducted in Australia, the study was conducted in compliance with applicable Australian regulations, and we were not required to file any IND application in connection with the Phase 1 study.

ZP-Glucagon is our proprietary formulation of glucagon, a hormone that raises blood glucose levels, intended for the emergency treatment of life-threatening severe hypoglycemia.

Severe hypoglycemia is a complication of diabetes treatment, often caused by insulin overdose, characterized by a very low level of blood glucose that can lead to loss of consciousness, seizure, coma and death. Timely treatment is critical, and may need to be administered to an incapacitated patient in a life-threatening situation by a third party who lacks medical training. Based on a market survey of the hypoglycemia market commissioned by us in 2013, which we refer to as our 2013 hypoglycemia market survey, there are 21 million diagnosed diabetes patients in the United States, of whom 26% are insulin-dependent. Insulin-dependent patients have on average 1.2 severe hypoglycemic events per year.

The current standard of care in a severe hypoglycemic event is administration of glucagon by injection or infusion. The two glucagon products currently marketed in the United States are Eli Lilly’s Glucagon Emergency Kit and Novo Nordisk’s GlucaGen ® , which together accounted for $120 million in sales in United States in 2012. These products, which are both injectables, have unstable formulations and require a time-consuming, multi-step reconstitution process prior to injection.

 

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Our ZP-Glucagon solution is intuitive and ready-to-use

We believe that ZP-Glucagon delivered using our microneedle patch system will offer patients and caregivers the benefit of a simple, easy-to-use device with rapid onset, room temperature stability and enhanced portability, which we believe will encourage patients to carry our product as a glucagon rescue kit.

 

LOGO    LOGO

We expect our finished product to be a single-use, disposable, pre-loaded microneedle patch system. We have designed our product to be intuitive and to be administered with a simple “press-and-apply” action without requiring any cumbersome reconstitution. We intend to introduce a Generation 1 product based on our existing 3 cm 2 patch and the reusable applicator (although this applicator is expected to only be used one time). We expect our Generation 2 product to be an integrated patch and applicator system on a 6 cm 2 patch with a single-use applicator. While we have developed prototypes for both the 6 cm 2 patch and the single-use applicator, we have yet to conduct clinical studies using these versions of our products.

We believe that our stable formulation of ZP-Glucagon, which is stable at room temperature for an extended period of time, will enable us to market ZP-Glucagon as a ready-to-use product. Additionally, in our clinical studies, ZP-Glucagon has shown faster onset of action as compared to intramuscular injection. We believe that rapid injection, fast onset and high bioavailability will make ZP-Glucagon well suited for use in an emergency rescue situation to bring a patient out of severe hypoglycemia.

Demonstrated high stability of our ZP-Glucagon formulation enables the ready-to-use feature of our product and is a significant source of differentiation compared to current marketed products

In the treatment of severe hypoglycemia, we believe that the practical advantages afforded by the room-temperature stability of our microneedle patch system may be as important as the therapeutic benefits of rapid onset. We have therefore undertaken and completed multiple preclinical, clinical and stability studies designed to select the appropriate formulation to take into further human clinical development.

 

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We have performed stability studies on four formulations of Glucagon. Because the purity of an unstable compound typically deteriorates over time, our goal in these studies was to maintain a high purity level. In our most recent stability studies with those formulations that we plan to use in our future clinical studies (Formulation C and Formulation D), the formulations demonstrated purity levels in excess of 99% after six months at 40°C, or in excess of 100°F, a temperature significantly higher than room temperature, and consistent with the ambient temperatures that might be encountered in a warm climate by a patient carrying the product in a pocket or purse.

 

LOGO

In January 2014, we completed a Phase 1 study of ZP-Glucagon designed to assess relative bioavailability with our microneedle patch system at various application sites compared to a currently available form of glucagon administered by intramuscular injection. As our Phase 1 clinical study was conducted in Australia, the study was conducted in compliance with applicable Australian regulations, and we were not required to file any IND application in connection with the Phase 1 study. With each of the ZP-Glucagon treatments, we achieved a faster onset and a higher bioavailability during the first thirty minutes following application compared to the glucagon injection. Additionally, application of our microneedle patch with our easy-to-use applicator avoids the delay in treatment associated with reconstitution of the currently available injectable products. We believe these attributes will provide significant advantages in the emergency rescue of a potentially comatose patient.

We intend to conduct a second Phase 1 study in Australia to evaluate the performance of our ZP-Glucagon product in healthy volunteers at various doses, with and without induction of hypoglycemia, in comparison to comparable doses of glucagon administered by intramuscular injection. We expect to commence this Phase 1 study in the third quarter of 2014 and complete it by December 2014. We also expect to conduct a Phase 2 study to investigate the safety and efficacy of ZP-Glucagon in the treatment of insulin-induced hypoglycemia in diabetic patients (as opposed to the healthy volunteers used in our Phase 1 studies) after discussions with the FDA subsequent to completion of this second Phase 1 study.

ZP-Triptan is our proprietary formulation of zolmitriptan, one of a class of serotonin receptor agonists known as triptans, used for the treatment of migraine.

Migraine is a debilitating neurological disease that affects approximately 29 million adults in the United States according to a 2014 study by Global Data Pharma Point, or GlobalData. Symptoms of migraine include moderate to severe headache pain, nausea and vomiting, and abnormal sensitivity to light and sound. According

 

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to the Migraine Research Foundation, most patients who suffer from migraine experience attacks once or twice per month, and 14 million people, or about 4% of the U.S. population, experience chronic daily headache in which attacks occur at least 15 days per month.

According to GlobalData, sales of prescriptions for medications indicated for migraine in the United States were approximately $1.9 billion in 2012. Of this amount, $1.1 billion was for triptans, administered orally or by several alternative delivery systems, including nasal sprays, iontophoresis-based transdermal devices (which are devices that deliver medicine through the skin by a low electrical current) and subcutaneous injection. We believe that each of the currently available methods of administering triptans has significant disadvantages. Some migraine patients fail to respond consistently to oral triptans, and oral treatments may be ineffectual for patients who are suffering from the nausea or gastric stasis that can be associated with migraine. Oral, nasal and iontophoretic triptan products are also characterized by relatively slow onset of action. Nasal sprays may be unpleasant in taste, and use of injectables can cause discomfort. Because ZP-Triptan has demonstrated a T MAX of nine minutes in preclinical studies, does not depend on gastrointestinal absorption, and provides easy, painless administration, we believe it could provide an attractive alternative to currently marketed triptan products for the treatment of migraine.

In the fourth quarter of 2013, we completed preclinical animal studies that compared the pharmacokinetic profile of ZP-Triptan to that of zolmitriptan administered intravenously. In these preclinical studies, ZP-Triptan achieved rapid onset and bioavailability comparable to intravenous delivery. We intend to commence Phase 1 and Phase 2 clinical studies in the second half of 2014 and the first half of 2015, respectively, using an active injectable comparator to assess the relative speed of onset of ZP-Triptan compared to an injectable. The Phase 1 study will be designed to compare the pharmacokinetic and safety/tolerability profiles of ascending patch doses of zolmitriptan, one high dose patch of sumatriptan and one subcutaneous injection of sumatriptan in healthy volunteers. Our Phase 2 study will be designed to assess the safety and efficacy of ZP-Triptan patches in the acute treatment of migraine in adults.

Our collaboration with Novo Nordisk. In January 2014, we entered into a strategic partnership and license agreement with Novo Nordisk A/S, or Novo Nordisk, to develop a microneedle patch product to administer semaglutide, Novo Nordisk’s investigational proprietary human glucagon-like peptide-1 analogue, or GLP-1, to be applied once weekly using our system for the treatment of type 2 diabetes. Under the terms of the agreement, we have granted Novo Nordisk a worldwide, exclusive license to develop and commercialize GLP-1 products, with the initial product candidate being Novo Nordisk’s semaglutide using our microneedle patch system. We received an upfront payment of $1 million upon entering into the agreement. We are eligible to receive payments upon achieving certain preclinical, clinical, regulatory and sales milestones which could total $60 million for the first product and $55 million for each additional product. We are also eligible to receive royalties on sales of products in the low to mid single digits and will receive development support, as well as reimbursement of all development and manufacturing costs relating to the Novo Nordisk program. Novo Nordisk will, pending successful outcomes of nonclinical and clinical testing, be responsible for commercialization of all products under the agreement. The term of the strategic partnership and license agreement will expire upon the expiration of all of Novo Nordisk’s milestone and royalty payment obligations under the agreement with respect to licensed products. Additionally, Novo Nordisk may terminate the agreement at any time for convenience upon prior written notice to us or within a certain time period following completion of a feasibility study currently being conducted by the parties, and either party may terminate the agreement upon failure of the other party to cure a material breach of the agreement.

Transdermal drug delivery

According to Research and Markets, the global value of the market for systemic transdermal drug delivery products in which we expect to participate was approximately $25 billion in 2013 and is expected to grow to approximately $40 billion by 2018. We believe this growth is driven by the increasing availability of transdermal systems for important therapeutic applications and changing disease demographics. We believe that our microneedle patch system has the potential to offer significant practical and therapeutic advantages, compared not only to conventional drug delivery methods such as oral formulations and injections but also to currently available transdermal delivery systems, that will enable us to compete effectively in this market.

 

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Benefits of our microneedle patch drug delivery platform

Our microneedle patch painlessly delivers therapeutic compounds into the skin and provides rapid systemic drug delivery in a convenient, easy-to-use system that offers the following therapeutic and practical benefits, among others:

 

    rapid onset and high bioavailability;

 

    room-temperature stability;

 

    consistent delivery independent of the gastrointestinal tract;

 

    convenience and ease of use;

 

    short wear-time, typically thirty minutes or less, with near complete drug delivery (resulting in no drug overdose if the patient forgets to remove the patch); and

 

    avoidance of the biohazard disposal and safety risks associated with needle injections.

Our microneedle patch system consists of a 3 to 6 cm 2 array of titanium microneedles approximately 200-350 microns long, coated with a hydrophilic formulation of the relevant drug, and attached to an adhesive patch. The patch is applied with a hand-held applicator that painlessly presses the microneedles into the skin to a uniform depth in each application, close to the capillary bed, allowing for rapid and consistent dissolution and absorption of the drug coating, yet short of the nerve endings in the skin. The typical patch wear time is thirty minutes or less, avoiding skin irritation. We believe our applicator has an intuitive, simple and patient-friendly design and is available in reusable form for chronic indications or in a disposable, single-use form for acute indications.

 

LOGO    LOGO

We believe our microneedle patch system has the potential to deliver a wide range of therapeutic compounds, including biologics and other large, complex molecules that have historically been difficult to deliver transdermally. Our microneedle technology and short-wear patch avoid the skin irritation and sensitization caused by skin-permeating ingredients that are necessary in some existing patch technologies, as well as the adhesion failures experienced when patches requiring extended wear times are worn by the patient, for example when swimming, bathing or during other normal daily activities. Our patch is small and unobtrusive compared to existing transdermal products, and our mechanical applicator is simple and easy to use, unlike some transdermal systems that involve cumbersome, complex and costly devices with external power sources.

Our drug formulations are dry, hydrophilic formulations and the final packaging contains a desiccant and is purged with nitrogen to remove any traces of moisture and oxygen. These features help provide extended product stability and longer shelf life at room temperature than conventional liquid formulations. We have demonstrated a 36-month shelf life at room temperature for our Daily ZP-PTH product candidate and an initial six-month shelf life at up to 40 degrees Celsius for our ZP-Glucagon product candidate. Our dry formulations and room temperature stability obviate the need for refrigeration, eliminate the need for time-consuming reconstitution prior to use, and provide enhanced convenience, portability and ease of use, potentially facilitating more effective treatment and patient compliance.

 

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Our internal development programs involve generic molecules with demonstrated safety and efficacy and a low clinical and regulatory risk relative to new chemical entities, or NCEs. We believe that these programs will have a shorter development time and lower cost to commercialization than typical NCEs. In selecting our development candidates we consider the therapeutic advantage of rapid onset, the size of the market, the level of competition and the potential selling price.

Our research and development group has expertise in two areas critical to our success: developing drug formulations that can be delivered using our microneedle patch system and optimizing the system to deliver those drugs.

We operate a current good manufacturing practices, or cGMP, manufacturing facility in Fremont, California, and we believe we have sufficient manufacturing and test capabilities to produce the microneedle patch system for our contemplated preclinical and Phase 1, Phase 2 and pivotal trials for our products.

Our development pipeline

We have tested our microneedle patch system in preclinical and clinical proof of concept studies that demonstrated its technical feasibility with approximately thirty compounds, ranging from small molecules to proteins, including the following:

 

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Over 30,000 of our patches have been applied to over 400 patients in seven Phase 1 clinical studies and one Phase 2 study. Based on this research, we believe that our microneedle patch system can be used to deliver treatments for a number of other indications beyond those on which we are currently focused, where fast onset, room-temperature stability, and ease of use will fill a significant unmet need.

After our lead product candidates, the compounds that we have assigned the highest priority for further investigation for use with our microneedle patch system include:

 

    epinephrine, for treatment of anaphylactic shock; and

 

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    granisetron, for the treatment of chemo-induced nausea and vomiting.

We intend, independently or through strategic collaborations with others, to explore these and other potential applications of our microneedle patch system. We anticipate that our internal development programs will focus on delivery of generic drugs, and that we will collaborate with third parties with respect to delivery of their proprietary drugs.

Our strategy

Our goal is to make transdermal drug delivery a standard of care for delivering drugs requiring fast onset. The key elements of our strategy are to:

 

    Pursue indications with high unmet medical need and greater probability of clinical, regulatory and commercial success. We focus on indications in which rapid onset, ease of use and stability offer particularly important therapeutic and practical advantages that address unmet needs, that have patient populations large enough to provide us with an attractive commercial opportunity, and where there is currently limited competition and premium pricing. We believe we will be able to compete effectively and profitably in these markets by offering an efficacious and lower cost alternative to existing treatments. We also believe that by continuing to focus on indications that can be treated with generic molecules with known safety and efficacy, for which we can develop our own proprietary formulations, we will be able to reduce our clinical and regulatory risk and development costs and accelerate our time to commercialization.

 

    Maintain our focus on effective execution of our clinical trials. We believe that timely and efficient execution of our clinical development plans has been critical to our success to date. We have developed significant experience in the design and conduct of clinical trials and have established strong relationships with clinical teams, contract research organizations, or CROs, and key specialists and opinion leaders in our field that we believe have enabled us to rapidly and cost effectively advance our product candidates and reduce our regulatory risk early in the development process. We intend to continue to maintain, as a primary focus of our efforts, excellence in execution of our clinical development plan.

 

    Expand our manufacturing capabilities and reduce cost of goods . We intend to devote significant resources to expand the capacity and throughput of our manufacturing operations, and to reduce our manufacturing costs. We believe this will be important to support the late-stage development, launch and commercial production of our product candidates, to establish and maintain high gross margins and to make other indications more economically viable.

 

    Develop a targeted commercial infrastructure. We believe that the markets on which we have initially focused, and intend to focus in the future, are ones in which there are relatively concentrated prescriber bases that can be served by a small, targeted sales force dedicated to each product. Our goal is to develop a cost-effective commercial infrastructure that will enable us to retain and maximize the commercial opportunity presented by our proprietary products.

 

    Partner selectively to expand the utilization of our microneedle patch drug delivery platform. We have retained all commercial rights to our own lead product candidates. However, we believe that our microneedle patch system can be used to deliver treatments for a wide variety of indications in addition to those on which we have initially focused. We believe that the potential for third parties to offer their own proprietary drugs in a more effective or easier to use form, as well as to significantly extend the product life cycle of a profitable drug with limited remaining patent protection, will be attractive to potential collaborators. We intend to continue to selectively collaborate with third parties with respect to delivery of their proprietary drugs, as we have done in our collaboration with Novo Nordisk. We may also collaborate with third parties to pursue clinical and commercial development of our own products in geographies outside the United States where it may be more cost effective to do so.

 

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Our product candidates

The expected development timeline for our product candidates is summarized below:

 

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The information provided in the table above is a forward-looking statement and is only intended to describe our expectations for the development time frame of our product candidates as of the date of this prospectus, assuming consummation of this offering and based on our expected use of the net proceeds of this offering, as described in “Use of Proceeds” on page 46. It is possible that we will not achieve the progress that we expect with respect to the clinical trials of our product candidates because the actual costs and timing of conducting clinical trials are difficult to predict and are subject to substantial risks and delays. In addition, the expected net proceeds of this offering will not be sufficient for us to complete the development of all of the product candidates described above and we will need to raise substantial additional capital to complete the development of any product candidate, other than ZP-Glucagon. See “Risk Factors” and “Cautionary Note regarding Forward-Looking Statements.”

Our osteoporosis opportunity—Weekly ZP-PTH

Our product candidate Weekly ZP-PTH is our proprietary formulation of PTH, to be administered weekly for the treatment of severe osteoporosis. We believe that the main types of osteoporosis drugs currently available in the United States have significant disadvantages. We believe there is a significant opportunity for a new anabolic agent, such as Weekly ZP-PTH, to offer bone fracture reduction with added advantages in safety, convenience and room temperature stability.

In January 2014, we completed a Phase 1 clinical study that demonstrated pulsatile performance, dose proportionality and high bioavailability, with no safety concerns. We intend to have a pre-IND meeting with the FDA in July 2014 to discuss the clinical study design for our planned Phase 2 and Phase 3 studies of Weekly ZP-PTH and to commence our Phase 2 Weekly PTH clinical study in the first half of 2015.

Osteoporosis market is large and attractive

Osteoporosis is a disease characterized by low bone mass and structural deterioration of bone tissue, which can lead to an increase in bone fractures. It mainly affects adults age 50 and older. The NOF estimates that approximately nine million adults in the United States have osteoporosis and more than 43 million have low bone mass, placing them at increased risk for osteoporosis and broken bones. Assuming osteoporosis and low bone mass prevalence remain unchanged, the NOF projects that by 2020, 10.7 million adults will have osteoporosis and 58.2 million will have low bone mass. In addition, the NOF has estimated that osteoporosis is responsible for more than two million bone fractures in the United States per year resulting in an estimated $19 billion in costs. As the United States population age 50 and older increases, the NOF projects that the incidence of osteoporosis will also increase. The NOF expects that the number of bone fractures due to osteoporosis will rise to three million by 2025 resulting in an estimated

 

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$25.3 billion in costs. A patient has severe osteoporosis when he or she has a T-score £ -2.5 plus one or more fragility fractures. Approximately 700,000 adults in the United States suffer from severe osteoporosis.

Significant unmet needs with existing treatments

There are two main types of osteoporosis drugs currently available in the United States, anti-resorptive agents and anabolic agents. Anti-resorptive agents act to prevent bone loss by inhibiting the breakdown of bone, whereas anabolic agents stimulate bone formation to build new, high-quality bone. Both types of drug are typically prescribed by specialists, including gynecologists, endocrinologists, rheumatologists, orthopedists and geriatricians.

We believe both existing anti-resorptive and anabolic therapies have shortcomings in efficacy, tolerability and convenience. In part due to these limitations, they are generally used as alternatives to one another. For example, bisphosphonates, the current standard of care and a type of anti-resorptive agent, do not stimulate new bone growth, and have been associated with infrequent but serious adverse events, such as osteonecrosis of the jaw (which is a bone disease where the jaw bone begins to weaken and die), atrial fibrillation and anomalous bone fractures, especially of long bones, resulting from “frozen bone” (which is a condition that shuts down the body’s natural process of bone breakdown and regeneration). We believe that this limitation on their efficacy and safety concerns related to these serious adverse events which may limit their duration of use, has created demand for bone anabolic agents as an alternative to anti-resorptive agents.

Despite its drawbacks, Forteo ® achieves $1.2 billion revenue with ~6% patient penetration in the United States

The only anabolic agent approved in the United States for the treatment of severe osteoporosis is teriparatide, which is marketed by Eli Lilly & Company as Forteo ® . Because it stimulates new bone growth, Forteo may be more effective in maintaining bone health than bisphosphonates. The drawbacks of Forteo include that it must be administered by injection daily, and is unstable at room temperature and must be refrigerated, making it potentially less attractive to patients than orally administered anti-resorptives. More importantly, Forteo ® carries a black-box warning and a two-year lifetime limitation on use related to observation of osteosarcoma in a preclinical study prior to the approval. At the end of the two-year period, the patient, who typically still requires treatment, must revert to the use of an anti-resorptive agent. Based on our 2010 osteoporosis market survey, we estimate that in 2010 only 6% of the treated population of severe osteoporosis patients in the United States received prescriptions for Forteo ® . Nevertheless, worldwide sales of Forteo ® in 2013 exceeded $1.2 billion.

Our Weekly ZP-PTH offers the potential for an effective and differentiated solution with a lower weekly dose exposure and ease-of-use in a market served by Forteo ® , a daily injectable

We believe that our Weekly ZP-PTH patch offers an attractive alternative to a daily injection, based on improved efficacy and potentially lower carcinogenicity due to lower overall weekly dose exposure and less frequent dosing. We plan to conduct further clinical studies and carcinogenicity studies for our Weekly ZP-PTH patch, with the intent to obtain approval from the FDA and other regulatory authorities outside the United States with either a longer treatment duration or without a black-box restriction on use.

Clinical rationale for Weekly ZP-PTH development

Forteo ® is administered as a daily subcutaneous injection with a dose of 20 µg per day (140 µg per week). In the pivotal clinical studies for Forteo ® , Forteo ® achieved a fracture efficacy of 65% versus placebo. We believe that equal or better bone fracture efficacy can be achieved with a lower weekly exposure and less frequent administration of PTH, as compared to Forteo ® . Forteo ® , given its black-box warning, addresses only a small percentage of the severe osteoporosis market. A low weekly exposure dose also has potential for avoidance of a black-box warning, which we believe can significantly increase the total addressable market.

 

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Our Weekly ZP-PTH clinical development strategy is predicated on demonstrating that our microneedle patch system can be used to deliver an optimal dose with the desired pulsatile pharmacokinetic profile, and that such delivery can achieve: (1) significant fracture efficacy; (2) an acceptable adverse event profile; and (3) low carcinogenicity to support avoidance of a black-box warning or limitation on treatment duration.

We therefore set out to establish that:

 

  a. a weekly dose regimen of PTH is effective in reducing fractures;

 

  b. a range of doses of PTH can be safely and effectively delivered using our microneedle patch system; and finally

 

  c. PTH, delivered weekly by our microneedle patch system, can provide pharmacokinetics, safety and tolerability comparable to subcutaneous injections of approved doses of teriparatide in US and abroad

 

  a . Published data shows that a weekly dose regimen of PTH is effective in reducing fractures

Preclinical and clinical studies by our former collaborator Asahi Kasei Corporation, or Asahi, of weekly subcutaneous delivery of Teribone™, Asahi’s formulation of PTH for the treatment of severe osteoporosis, lead us to believe that requisite fracture efficacy can be achieved safely, with a lower weekly exposure dose and less frequent administration as compared to Forteo ® . Asahi launched Teribone™ in 2011 and achieved first calendar year sales of approximately $200 million.

Asahi studies of weekly PTH injection. Preclinical and clinical studies by Asahi of weekly subcutaneous delivery of PTH have demonstrated:

 

    79% vertebral fracture reduction in Asahi’s pivotal clinical study using a 56.5 µg subcutaneous weekly PTH injection;

 

    66% vertebral fracture reduction in Asahi’s clinical study using a lower dose of 28.2 µg subcutaneous weekly PTH injection based on a post-hoc analysis of the study data; and

 

    no carcinogenicity observed in a two-year rat study with an administration of 40.7 µg per kilogram per week.

These studies are described more fully below.

Asahi pivotal clinical study using a 56.5 µg subcutaneous weekly PTH injection

As published in a September 2012 article of the Journal of Clinical Endocrinology’s Metabolism, Asahi completed a Phase 3 trial in Japan with a weekly 56.5 µg injection that was the basis for approval and launch of Teribone™, Asahi’s formulation of PTH. The Phase 3 study was conducted to determine the efficacy of a once-weekly Teribone™ injection for reducing the incidence of vertebral fractures in patients with severe osteoporosis.

After 72 weeks of treatment, the cumulative incidence of new morphometric vertebral fractures was 3.1% in the Teribone™ group and 14.5% in the placebo group, thereby reducing the risk of new vertebral fractures by 79%. The Teribone™ injection also illustrated improvement versus placebo over time. Among the patients taking a Teribone™ injection who were enrolled in the study in treatment weeks 49-72, no patient experienced a vertebral fracture (0%), whereas 13 patients in the placebo group experienced a vertebral fracture (5%).

Asahi clinical study using a 28.2 µg subcutaneous weekly PTH injection

In 1999, Asahi started a once weekly teriparatide (28 µg) randomized, double-blind trial versus placebo (1.4 µg teriparatide) to test reduction of the incidence of vertebral fractures as published in a 2013 article of Calcified Tissue International. The study was conducted in Japanese subjects. A total of 316 subjects participated in the study, which lasted up to 131 weeks. Incident vertebral fractures occurred in 3.3% of subjects in the

 

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28.2 µg teriparatide treated group and 12.6% of subjects in the placebo group during the 78-weeks, indicating a relative risk reduction of 66%.

Asahi two-year rat carcinogenicity study with various dose levels including an administration of 40.7 µg per kilogram per week

As published in a 2012 article of the Journal of Toxicological Sciences, Asahi conducted a five-arm, two-year rat carcinogenicity study with 55 rats per arm. The five arms included one on a daily administration of placebo, three on daily administration of 1.5 µg/kg, 4.5 µg/kg, and 13.6 µg/kg, and one on a weekly administration of 40.7 µg/kg. No carcinogenicity was observed in the animals administered the weekly dose.

 

  b. Our own clinical studies show that a range of doses of PTH can be delivered using our microneedle patch system

We have demonstrated with multiple studies that a range of doses of PTH can be delivered by daily administration using our microneedle patch system.

2008 Phase 2 study with Daily ZP-PTH treatment showed a pulsatile delivery leading to a high BMD gain versus Forteo ®

In 2008, we completed a Phase 2 study of ZP-PTH delivered daily by our microneedle patch system, or Daily ZP-PTH. The objective of the study was to determine the safety and efficacy of our microneedle patch system compared to a placebo patch and a subcutaneous teriparatide 20 µg injection in post-menopausal women with osteoporosis. The design consisted of a six-month, randomized, placebo-controlled, positive control, multi-dose daily administration study with 165 patients enrolled. The study contained five arms: three arms of Daily ZP-PTH (20 µg, 30 µg, 40 µg) and a placebo patch, all self-administered daily with a 30-minute wear time, and teriparatide 20 µg injection administered daily. Our Phase 2 study demonstrated that at six months, the Daily ZP-PTH patch at 40 µg increased lumbar spine bone mineral density by a mean of 4.97%, compared to a loss of bone mineral density of a mean of 0.33% with a placebo, and increased hip bone mineral density by a mean of 1.33%, compared to an increase of a mean of 0.09% with teriparatide 20 µg injection and a loss of a mean of 0.63% with placebo (see tables below). In the tables immediately below, the 95% confidence interval, or CI, means a range of values for a variable of the measure of treatment effect, constructed so that this range has a specified probability of including the true value of the variable. P-value, or p, means the level of marginal significance within a statistical hypothesis test, representing the probability of the occurrence of a given event.

 

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The Daily ZP-PTH Phase 2 study demonstrated the fast-on, fast-off pharmacokinetic profile we believe is critical for strong anabolic effect, which we believe contributed to the increases in lumbar spine and hip bone mass density illustrated above. The pharmacokinetic profile for all patch doses showed a faster time to peak concentration and a shorter apparent half-life than the subcutaneous teriparatide 20 µg injection.

 

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In terms of safety, the mean serum calcium for all Daily ZP-PTH doses increased moderately, but remained within the normal range. None of the patients discontinued the study due to hypercalcemia (which is an elevated level of calcium in the blood) or hypercalciuria (which is an elevated level of calcium in the urine), potentially dangerous conditions with cardiovascular risk. During the six months of therapy, there was no clinically significant, or outside the range of normal, hypercalcemia observed and there were no clinically significant changes in liver functions, renal functions, blood counts or electrocardiograms. Also, no antibodies against PTH were detected nor any skin infection observed in any of the Daily ZP-PTH treatment groups.

In summary, the Phase 2 Daily ZP-PTH demonstrated that transdermal delivery of PTH using our microneedle patch system increased bone density over six months, and demonstrated:

 

    more pulsatile pharmacokinetics profile, with a faster T MAX , a higher C MAX and a shorter half-life (critical to the efficacy of an anabolic) observed with the patch versus Forteo. ® T MAX is a measure of the time after administration of a drug when it reaches the highest serum concentration. C MAX is a measure of the peak serum concentration achieved after the drug has been administered; and

 

    comparable efficacy compared to Forteo ® as measured by six-month spine bone mineral density, (and superior efficacy compared to Forteo ® as measured by six-month hip BMD, even with lower bioavailability versus Forteo ® .

 

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005 Clinical Study showed dose proportionality and patient safety with PTH doses up to 240 µg

In 2008, we tested the ability of our microneedle patch system to administer higher doses than the daily dose of 20 µg teriparatide injection approved for Forteo ® . Our ZP-PTH 005 study tested delivery of the following doses of PTH: 30 µg, 40 µg, 120 µg, 180 µg, and 240 µg. The 30 µg and 40 µg doses were applied with a single patch and the 120 µg, 180 µg, 240 µg doses were applied with multiple 60 µg patches. The design was a five-way crossover study with 18 healthy volunteers randomized into three groups with application times of 30 minutes, two hours, and eight hours, respectively. The results indicated dose proportionality in both C max and in the “area under the concentration curve” or AUC, a measure of dose exposure over time, indicating that higher doses are effectively delivered when multiple patches are used. In terms of safety measurements, we tested serum calcium levels for all doses over 24 hours and observed that, while serum calcium values increased transiently, all values were within the normal range. We believe these results provide support for our decision to develop ZP-PTH at higher doses with a less frequent dosing interval. The tables below show the mean AUC and C max at the tested doses.

 

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  c. Our recent Phase 1 clinical study shows that PTH, delivered weekly by our microneedle patch system, can provide pharmacokinetics, safety and tolerability comparable to weekly subcutaneous injections doses of teriparatide

Encouraged by our finding that higher doses of PTH can be delivered by our microneedle patch system, we undertook a Phase 1 study to evaluate the pharmacokinetics, safety and tolerability of Weekly ZP-PTH transdermal patches with doses ranging from 60 µg to 240 µg of teriparatide, with the goal of replicating the demonstrated efficacy of Forteo ® and the 28 µg and 57 µg subcutaneous injections used in Asahi’s studies, as detailed below.

2013 Phase 1 study with Weekly ZP-PTH treatment

During the fourth quarter of 2013, we commenced a Phase 1 study in healthy post-menopausal women of a single application of one or two Weekly ZP-PTH transdermal patches coated with doses ranging from 60 µg to 160 µg of teriparatide, compared to subcutaneous injections of teriparatide at doses of 20 µg or 57 µg. The design was a single-center, open-label, randomized eight-way crossover study in 32 subjects. Test treatments included single patches of 60 µg, 120 µg, 160 µg doses, two patches of 60 µg (120 µg total PTH), two patches of 90 µg (180 µg total PTH), two patches of 120 µg (240 µg total PTH), and doses of two active injectable comparators: teriparatide 20 µg (Forteo ® ) by subcutaneous injection, and teriparatide 57 µg (Teribone™) by subcutaneous injection. The rationale of the patch dose selection was driven by our desire to replicate the demonstrated efficacy of 28 µg and 57 µg subcutaneous injections in Asahi’s studies while adjusting for a higher bio mass index in a Caucasian population.

 

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As indicated by the chart below, showing mean results, the Phase 1 study demonstrated pulsatile performance with all patch doses, which is a significant factor for anabolic efficacy.

 

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The study results also demonstrated:

 

    The bioavailability of our selected patch doses bracketed the subcutaneous doses of 28 µg and 57 µg, which have proven to be efficacious in reducing fractures in Japanese patients. Our patches illustrated high bioavailability, dose proportionality in ascending doses in the single-patch systems, and dose proportionality in ascending doses in the two-patch systems, enabling us the flexibility of dose selection for future clinical studies; and

 

    With all weekly doses on one- or two-patch systems, we achieved the desired pulsatile pharmacokinetic profile which we believe is critical for anabolic efficacy. We observed pulsatile pharmacokinetic profile comparable to that in our Daily ZP-PTH Phase 2 study and in our 2008 005 ZP-PTH study.

Patch doses were similarly tolerated when compared to Forteo ® and Teribone™. The Phase 1 study was conducted in Australia and, as such, was not subject to an IND and was conducted in compliance with applicable Australian regulations.

Planned clinical development of Weekly ZP-PTH

We expect to have a pre-IND meeting with the FDA in July 2014 to discuss the clinical study design for our planned Phase 2 study described below.

We expect to have additional meetings with the FDA in during the fourth quarter of 2014 to discuss and seek approval for a special protocol assessment, or SPA, for our planned carcinogenicity study, which, if successful may help in extension of the treatment duration or avoidance of a black box warning.

 

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Planned Phase 2 study of Weekly ZP-PTH

We expect to commence our Phase 2 Weekly ZP-PTH clinical study in the first half of 2015. The clinical study will be a six-month, randomized, multidose weekly administration study with placebo and active controls. The study will have six arms, with approximately 40 patients per arm (three groups of active doses of Weekly ZP-PTH, a placebo group, and two active injectable comparators: Forteo ® , a daily injection, and Teribone™, a weekly injection).

Study objectives . The primary objective of this study is to determine the safety and efficacy of Weekly ZP-PTH when compared to a placebo and the two active injectable comparators. Patients, investigators and independent assessors will be blinded for all patch arms.

Study Population. The study will enroll approximately 240 post-menopausal women aged 50-81 whose last menstrual period was at least one year earlier and who had osteoporosis by the following criteria: a lumbar spine, or LS, bone mineral density, or BMD, T-score, or standard deviation in BMD compared with what would be expected in a healthy young woman, equal to -2.5 or below, or femoral neck or total hip BMD T-score of -5.0 or below, and LS T-score of -1.0 or below; or LS femoral neck or total hip T-score of -2.0 or below with a prevalent vertebral fracture documented by lateral spine radiographs. The study is expected to be conducted in multiple centers involving independent Institutional Review Boards and a clinical research organization.

Study Powering. The sample size for the study at 40 patients per group is adequately powered to assess the phase-appropriate safety and efficacy performance for Weekly ZP-PTH.

Study Design. The planned 240 eligible patients will be randomized equally to receive one of the following for six months:

 

    One patch of Weekly ZP-PTH 60 µg dose and one placebo patch;

 

    One patch of Weekly ZP-PTH 160 µg dose and one placebo patch;

 

    Two patches of Weekly ZP-PTH 60 µg dose;

 

    Two patches of placebo;

 

    Weekly administration of Teribone™ (56.5 µg) SC injection; and

 

    Daily administration of Forteo ® (20 µg) SC injection.

The treatment allocation amongst the patients receiving patch administration will remain blinded to all parties throughout the study. Study medication will be self-administered for the planned duration of six months.

Primary Efficacy Endpoints. The primary efficacy endpoint will be the increase in spine BMD from baseline compared to placebo, measured after six months of treatment.

Secondary Efficacy Endpoints. The efficacy endpoint will be the increase in hip BMD from baseline compared to placebo, measured after six months of treatment.

Safety outcomes. Safety evaluations to be performed will include physical examinations, vital signs, 12-lead electrocardiograms, or ECGs, clinical laboratory tests and monitoring and recording of adverse events. Specific safety assessments will include post-dose (four hours) determination of serum calcium, determination of creatinine clearance, post-dose ECG assessments at selected visits and assessments of postural hypotension (60 minutes post-dose) at selected clinic visits.

We expect the Phase 2 study to be complete by the end of 2015. We expect to conduct our planned carcinogenicity study and our Phase 3 Weekly ZP-PTH clinical study after completion of the Phase 2 Weekly ZP-PTH clinical study.

 

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Our hypoglycemia opportunity—ZP-Glucagon

Our product candidate ZP-Glucagon is our proprietary formulation of glucagon, for the emergency rescue of patients suffering from life-threatening, severe hypoglycemia. We believe that ZP-Glucagon delivered using our microneedle patch system will offer patients and caregivers a simple device providing rapid onset and enhanced ease of use, as well as extended room temperature stability, compared with the two glucagon products currently marketed in the United States

In January 2014 we completed a Phase 1 study that demonstrated faster onset and a higher bioavailability with ZP-Glucagon treatments compared to glucagon injection. The Phase 1 study was conducted in Australia and, as such, was not subject to an IND and was conducted in compliance with applicable Australian regulations. We intend to commence a second Phase 1 study in Australia to evaluate the performance of ZP-Glucagon in healthy volunteers in the third quarter of 2014. We expect to conduct a Phase 2 study to investigate the safety and efficacy of ZP-Glucagon in the treatment of insulin-induced hypoglycemia in diabetic patients (as opposed to the healthy volunteers used in our Phase 1 studies) after discussions with the FDA subsequent to completion of the planned second Phase 1 study.

Severe hypoglycemia market is attractive and underserved

Severe hypoglycemia is a life-threatening potential complication of diabetes treatment. It is characterized by very low level of blood sugar, often resulting from insulin overdose, which can cause loss of consciousness, seizure, coma and death. Timely treatment is critical. Severe hypoglycemia is treated by restoring blood glucose to normal levels by administering a glucagon injection or infusion. The treatment is typically provided by a third party, caregiver or a bystander, as the patient is unable to self-administer the injection. Despite the risks involved with hypoglycemia, many insulin-dependent patients do not carry glucagon rescue kits.

There are 21 million diagnosed diabetes patients in the United States, of whom 26% are insulin-dependent. Insulin-dependent patients have on average 1.2 severe hypoglycemic events per year. There are currently two glucagon products marketed in the United States, Glucagon Emergency Kit by Eli Lilly and GlucaGen ® by Novo Nordisk. Based on our 2013 hypoglycemia survey, we estimate that in 2012, sales of these products exceeded $120 million in the United States with units sold at an average wholesale price of $188 per unit, and that the injectable glucagon market is growing at approximately 15% year-over-year, largely driven by ongoing price increases.

Sales of glucagon are driven by a combination of new glucagon prescriptions and refills of expired prescriptions after the end of the shelf life. Prescriptions for glucagon are most commonly written by diabetes specialists, including adult and pediatric endocrinologists. Pediatric use and use by the elderly in long-term care facilities comprise approximately 45% of the total prescriptions sold. Both of these segments need an intuitive and easy-to-use system for administration of glucagon.

We believe that ZP-Glucagon also has the potential to address the needs of type 2 insulin-dependent diabetics. There are approximately 2.9 million patients in this segment who, because they become insulin- dependent later in their adult life, do not have the same level of training or education on insulin dosing as type 1 diabetics. We believe that a user-friendly device such as our microneedle patch system for administration of ZP-Glucagon will be an attractive offering for this market segment.

Existing treatments require reconstitution and injection, limiting their usefulness in an emergency rescue situation

There are currently two products marketed in the United States for severe hypoglycemia, Glucagon Emergency Kit by Eli Lilly and GlucaGen ® by Novo Nordisk. Due to its chemical constitution, the glucagon molecule is inherently unstable, and both commercially available products require a multi-step reconstitution process prior to use. Reconstitution and injection are typically administered by a third party who may lack medical training. To our knowledge, all competitors marketing or developing products for severe hypoglycemia offer injectable products.

 

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Clinical development of ZP-Glucagon

Glucagon is indicated for use in emergency rescue of severely hypoglycemic patients with a recommended dose of 1 milligram for adults and 0.5 milligram, or mg, for children under 44 pounds. We have conducted preclinical studies and clinical studies with a 0.5 mg dose using our existing 3 cm 2 patch and the reusable applicator.

Our ZP-Glucagon development program consists of two Phase 1 studies (of which one has already been completed), each designed to systematically reduce the development risk as studies are completed. The first Phase 1 study was conducted in Australia and, as such, was not subject to an IND and was conducted in compliance with applicable Australian regulations. The second Phase 1 study, also to be conducted in Australia, will be followed by a Phase 2 study and a Phase 3 study. The Phase 3 study will be designed as a non-inferiority study compared to GlucaGen ® with submission in accordance with the 505(b)2 regulatory guidelines. After approval of our Generation 1 product, we will subsequently conduct a bridging study (which is a supplemental clinical study designed to confirm that the pharmacokinetics of our Generation 2 product is not inferior to the pharmacokinetics of our Generation 1 product) for launch of our Generation 2 product with a 6cm 2 patch and a single-use applicator.

The endpoints in a glucagon trial are the responder rate and the time to normalization of glucose levels. Both endpoints are objective and measurable within a very short period of time after administration of glucagon.

Completed Phase 1 study of ZP-Glucagon illustrated fast onset and high bioavailabilty across multiple application sites

Our first Phase 1 study was completed in January 2014. It was designed to assess relative bioavailability with our microneedle patch system on a 3cm 2 patch compared to GlucaGen ® which is administered by intramuscular injection. We compared subjects across multiple application sites with two formulations (formulation C and formulation D) in a single-center, open-label, randomized five-way crossover study using 0.5 mg on both the ZP-Glucagon patch and GlucaGen ® . The study included 20 healthy volunteer subjects.

We achieved a faster onset and a higher bioavailability with each of the ZP-Glucagon treatments vs. the Glucagon IM injection. The pharmacokinetic and pharmacodynamic data is shown below.

 

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Planned clinical development of ZP-Glucagon

Planned second Phase 1 study

Since we achieved higher bioavailability using a 0.5 mg coated ZP-Glucagon dose in our first Phase 1 study compared to a 0.5 mg dose of GlucaGen ® intramuscular injection, we expect to observe a similar result when comparing a 1.0 mg coated ZP-Glucagon dose compared to a 1.0 mg dose of GlucaGen ® intramuscular injection. Our second Phase 1 study is designed to confirm our expectation. The study will be designed to evaluate the performance of our Generation 1 ZP-Glucagon product in healthy volunteers without induction of hypoglycemia

 

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using up to 1.0 mg coated dose compared to GlucaGen ® administered by intramuscular injection. Additionally, we expect to assess the performance of ZP-Glucagon treatments in healthy volunteers with induction of hypoglycemia. Therefore, the clinical design will be a single-center, open-label, randomized six-way crossover study, with planned doses of 0.5 mg and 1.0 mg of ZP-Glucagon and 1.0 mg GlucaGen ® administered by intramuscular injection, with the first three treatments given without induction of hypoglycemia and the next three treatments given with induction of hypoglycemia The study will include 10 healthy volunteer subjects of ages 18-60. We expect to commence this Phase 1 study in the third quarter of 2014.

Planned Phase 2 study

We expect to conduct our Phase 2 study after discussions with the FDA subsequent to completion of the second Phase 1 study. Based on the expected higher bioavailability results from our second Phase 1 study and our subsequent discussions with the FDA, it is possible that we could have a therapeutic patch dose with a coated amount less than 1 mg. In the event that our second Phase 1 study does not show higher bioavailability or if the FDA disagrees with our proposal for a coated dose less than 1 mg, we will plan our Phase 2 study with only a 1 mg dose.

This study is expected to investigate the safety and efficacy of ZP-Glucagon in the treatment of insulin-induced hypoglycemia in diabetic patients (as opposed to healthy volunteers used in our Phase 1 studies). We expect this study to (i) inform our target dose for the pivotal Phase 3 study and (ii) give us guidance to adequately power the pivotal study.

This study is expected to be a three-way crossover study with 12-18 diabetic patients each of whom would be administered the following three doses:

 

    One patch of ZP-Glucagon target dose applied on the upper arm;

 

    Two patches of ZP-Glucagon 0.5 mg applied on the upper arm; and

 

    Intramuscular injections of 1.0 mg GlucaGen ® .

The primary endpoints in this study are expected to be as follows:

 

    Time to increase in blood glucose concentration from base line by 50 mg/dl;

 

    Blood glucose concentration change from baseline 15 minutes after treatment administration;

 

    Maximal change from baseline in blood glucose concentration; and

 

    Incidence of adverse events.

Planned pivotal Phase 3 study

We plan on conducting a single, open-label, crossover non-inferiority pivotal study for our Generation 1 ZP-Glucagon product with GlucaGen ® as the active comparator, in approximately 100 diabetic patients in approximately 25 centers. This pivotal study will be a larger version of our Phase 2 study.

The objectives of the study will be:

 

    To demonstrate non-inferiority of ZP-Glucagon to normalize blood glucose in subjects with type-1 or type-2 diabetes mellitus after prior induction of hypoglycemia, compared to the intramuscular injection of glucagon at a dose of 1.0 mg; and

 

    To characterize the safety profile of ZP-Glucagon for the emergency treatment of severe hypoglycemia in subjects with diabetes.

 

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The endpoints in the pivotal study will be:

 

    Time to increase in blood glucose concentration from baseline by 50 mg/dl, measured from treatment administration;

 

    Blood glucose concentration change from baseline 15 minutes after treatment administration;

 

    Maximal change from baseline in blood glucose concentrations;

 

    Time to increase in blood glucose concentration from baseline by 50 mg/dl, as measured from begin of the treatment procedure; and

 

    Incidence of vomiting.

Based on smaller trial sizes, easy enrollment and short time to results, we expect to complete all human studies and develop the Generation 1 ZP-Glucagon within approximately two years from the start of the clinical program. We plan to commence Phase 2 clinical studies of ZP-Glucagon in the first half of 2015.

We intend to complete a bridging study in order to launch the Generation 2 ZP-Glucagon product with a 6 cm 2 patch and a single use applicator after approval of the Generation 1 product.

Our migraine opportunity—ZP-Triptan

Our product candidate ZP-Triptan is our proprietary formulation of zolmitriptan, used for the treatment of migraine. Because ZP-Triptan has demonstrated fast onset in preclinical studies, does not depend on gastrointestinal absorption, and provides easy, painless administration, we believe it could provide an attractive alternative to currently marketed triptan products for the treatment of migraine.

In the fourth quarter of 2013, we completed preclinical animal studies that compared the pharmacokinetic profile of ZP-Triptan to that of zolmitriptan administered intravenously. In these preclinical studies, ZP-Triptan achieved rapid onset and bioavailability that compared favorably with intravenous delivery. We intend to commence a Phase 1 study in the second half of 2014 to compare the pharmacokinetic and safety/tolerability profiles of escalated patch doses of zolmitriptan to those of one patch dose of sumatriptan and one subcutaneous injection of sumatriptan in healthy volunteers. Our Phase 2 study will be designed to assess the safety and efficacy of ZP-Triptan patches in the acute treatment of migraine in adults.

Migraine is a large and attractive market

According to the Migraine Research Foundation, migraine affects 36 million men, women and children in the United States. Symptoms of migraine include moderate to severe headache pain, nausea and vomiting, photophobia (abnormal sensitivity to light), and phonophobia (abnormal sensitivity to sound). Most migraines last between four and 24 hours, but some last as long as three days. According to published studies, 63% of migraine patients experience between one and four migraines per month.

Existing treatments—triptans, which comprise significant proportion of total migraine, have significant disadvantages

According to a 2014 study by GlobalData, sales of prescriptions for medications indicated for migraine in the United States were approximately $1.9 billion in 2012. Of this amount, $1.1 billion was for triptans.

We believe that each of the currently available methods of administering triptans, including oral, nasal spray, subcutaneous injection and iontophorectic transdermal patch, has significant disadvantages. Some migraine patients fail to respond consistently to oral triptans, and oral treatments may be ineffectual for patients who are suffering from the nausea or gastric stasis that can be associated with migraine. Oral, nasal and iontophoretic patch triptan products are also characterized by relatively slow onset of action. Nasal sprays may be unpleasant in taste, and use of injectables can cause discomfort. Because ZP-Triptan has demonstrated fast onset in preclinical studies, does not

 

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depend on gastrointestinal absorption, and provides easy, painless administration, we believe it could provide an attractive alternative to currently marketed triptan products for the treatment of migraine.

Our ZP-Triptan solution offers fast onset

According to a 2005 article by published in Headache, clinical trials have demonstrated that at least 30% of migraine patients fail to respond consistently to oral triptans. Based on data from multiple published third party clinical trials, including those described in a 2005 article by published in Headache, a peer-reviewed medical journal, we believe patients’ failure to respond consistently results from a variety of causes, including a slower onset of action (typically ranging between one and three hours) and low and inconsistent absorption of oral medication because of reduced gastric motility in migraine patients.

In published studies, migraine sufferers often cite faster onset of pain relief as a key therapeutic attribute they would like from their migraine medication.

The following table compares the time to maximum drug concentration in blood, or Tmax, and pain relief of oral forms, including melts and tablets, and nasal forms of marketed triptans to sumatriptan injection. The data are derived from Prescribing Information for the different formulations of these marketed triptans:

 

LOGO

Products Included:

(1) Nasal: Imitrex (sumatriptan), Zomig (zolmitriptan) Oral—Melt: Zomig-ZMT (zolmitriptan) Maxalt-MLT (rizatriptan)
(2) Oral—Tablets: Imitrex (sumatriptan), Treximet (sumatriptan/naproxen sodium), Zomig (zolmitriptan) Maxalt (rizatriptan), Amerge (naratriptan), Axert (almotriptan), Frova (frovatriptan), Relpax (eletriptan)
(3) Subcutaneous: Sumavel DosePro (sumatriptan injection), Imitrex (sumatriptan injection)
(4) T max achieved in preclinical testing
(5) Average T max represents overall average of the midpoint of the range for all products.
(6) Average relief at 2 hours represents overall average of the midpoint of the range for all products. Range reflects headache relief data obtained in placebo controlled clinical studies, which include different doses of the same triptan.

In migraine, T max closely correlates to speed of onset of pain relief, and has also been shown to be correlated with completeness of pain relief and pain freedom over time. Relief at two hours is the standard endpoint used in migraine studies and represents the percentage of patients reporting a reduction of migraine symptoms from a classification of severe or moderate to mild or none within two hours after taking the medication.

Sumatriptan injection forms have shown improved efficacy profiles over oral and nasal forms which may be attributable to a shorter T max . Nasal forms, while claimed by some to be fast-acting, have drug absorption profiles

 

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similar to oral forms because a large portion of the administered dose may be swallowed prior to absorption. Given that T max closely correlates to speed of onset of pain relief and pain freedom over time, and because of our preclinical results, we believe that ZP-Triptan may provide differentiated treatment from oral and nasal triptan products, which all have much slower onset of action.

Migraines may also be associated with nausea and/or vomiting. Twenty-nine percent of patients reported vomiting as a symptom of migraine attacks, according to the American Migraine Study II, and epidemiological studies in migraine reveal that the vast majority of patients (more than 90%) have experienced nausea during a migraine attack and more than 50% have nausea with the majority of attacks, according to an article published in Drugs in 2003 (Volume 63, Issue 21). Depending on the type of migraine episode, a treatment may be more or less effective. For example, oral treatments may be of little value in a patient who is vomiting or who is experiencing migraine-associated gastric stasis. There is also clinical evidence that oral agents may be less effective when taken at a later stage of a migraine attack, rather than at an earlier stage. Consequently, rapid onset migraine and waking with a migraine attack may reduce the benefits to patients of oral triptans, because both represent fully-developed attacks.

Our ZP-Triptan solution offers ease-of-use

Because ZP-Triptan has demonstrated a T max of nine minutes in preclinical studies, and does not depend on gastrointestinal absorption, we expect its efficacy to be superior to currently marketed oral triptans. Our single-use disposable device is ready to apply after opening the packaging, is intuitive, simple and painless to use, and poses no needle stick risk.

Other potential competitive products in the migraine space are sumatriptan products using alternative delivery systems, notably Zecuity™, marketed by Teva (which acquired Zecuity™’s developer, NuPathe), and Sumavel DosePro™, marketed by Endo International plc (which acquired Sumavel DosePro™ from Zogenix). We believe that our microneedle patch system offers significant advantages over these systems, including faster onset compared to Zecuity™ and ease of use compared to Sumavel DosePro™.

 

LOGO   LOGO   LOGO

Our ZP-Triptan solution offers high bioavailability

ZP-Triptan, being delivered through the bloodstream, does not depend for its effectiveness on absorption through the gastrointestinal tract, and we believe will possess significant advantages over oral delivery of triptans. Moreover, we believe ZP-Triptan will also possess advantages over nasal spray delivery, which can be unpleasant in taste.

Our preclinical studies demonstrated fast onset and high bioavailability

In the fourth quarter of 2013, we conducted preclinical studies with a hairless guinea pig animal model. The hairless guinea pig model is a standard animal model that we have used for various development products because the skin is very similar to human skin.

 

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The objective of the study was to compare the pharmacokinetic profile of our ZP-Triptan to the pharmacokinetic profile of intravenous injection of zolmitriptan. In a representative study we utilized 3 cm 2 patches and 800 µg per patch. As represented in the graph below, ZP-Triptan achieved a time to maximum serum concentration of nine minutes and 100% bioavailability compared to intravenous injection of zolmitriptan, on a dose-normalized basis.

 

LOGO

Based on these preclinical results, we have determined to commence a Phase 1 clinical study of ZP-Triptan.

Planned clinical development of ZP-Triptan

Clinical development strategy for ZP-Triptan

Our ZP-Triptan clinical development strategy is predicated on leveraging our easy-to-use, integrated, single-use disposable system and the fast onset of action demonstrated in our preclinical studies. We intend to conduct our Phase 1 and Phase 2 studies using an active injectable comparator to assess the relative speed of onset compared to an injectable. The margin of superiority, if significant, will determine whether our Phase 3 study involves an active comparator or placebo.

Planned Phase 1 study of ZP-Triptan

Our planned Phase 1 study will be conducted in Australia and designed to compare the pharmacokinetic and safety / tolerability profiles of multiple patches of zolmitriptan, one patch of sumatriptan and one subcutaneous injection of sumatriptan in healthy volunteers. Each subject will receive the sumatriptan treatments in a

 

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randomized sequence, followed by the zolmitriptan patch treatments in ascending order, if tolerated. The results of the ZP-Triptan Phase 1 study will guide the dose selection for the ZP Triptan Phase 2 study.

Planned Phase 2 study of ZP-Triptan

Our Phase 2 study will be designed to assess the safety and efficacy of ZP-Triptan patches in the acute treatment of migraine in adults. This study is expected to be a randomized, controlled double-blind, parallel-group study with 200 migraine patients each of whom would be administered a ZP-Triptan patch coated with zolmitriptan, placebo patch and a subcutaneous injection of sumatriptan. We expect to conduct our planned Phase 2 study of ZP-Triptan after completion of our planned Phase 1 study of ZP-Triptan, and we expect to conduct our planned Phase 3 study of ZP-Triptan after completion of the Phase 2 study.

Type 2 diabetes; our collaboration with Novo Nordisk

In January 2014, we entered into a strategic partnership and license agreement with Novo Nordisk A/S, or Novo Nordisk, to develop a microneedle patch product to administer semaglutide, Novo Nordisk’s investigational proprietary human glucagon-like peptide-1 analogue, or GLP-1, for the treatment of type 2 diabetes. Under the terms of the agreement, we have granted Novo Nordisk a worldwide, exclusive license to develop and commercialize GLP-1 products with the initial product candidate being Novo Nordisk’s semaglutide administered weekly using our microneedle patch system. We received an upfront payment of $1 million upon entering into the agreement. We are eligible to receive payments upon achieving certain preclinical, clinical, regulatory and sales milestones which could total $60 million for the first product, and $55 million for each additional product. We are also eligible to receive royalties on sales of products in the low to mid single digits and will receive development support, as well as reimbursement of all development and manufacturing costs relating to the Novo Nordisk program. Novo Nordisk will, pending successful outcomes of nonclinical and clinical testing, be responsible for commercialization of all products under the agreement.

Further pipeline opportunities

We have tested our microneedle patch system in preclinical and clinical proof of concept studies that demonstrated its technical feasibility with approximately thirty compounds, ranging from small molecules to proteins. Over 30,000 of our patches have been applied to over 400 patients in seven Phase 1 clinical studies and one Phase 2 study. Based on this research, we believe that our microneedle patch system can be used to deliver treatments for a wide variety of indications beyond those on which are currently focused, in which our fast onset, room-temperature stability, and ease of use will fill a significant unmet need.

The other compounds that we have assigned the highest priority for further investigation for use with our microneedle patch system include:

 

    epinephrine, for treatment of anaphylactic shock; and

 

    granisetron, for the treatment of chemo-induced nausea and vomiting.

We intend, independently or through strategic collaborations with others, to explore these and other potential applications of our microneedle patch system. We anticipate that our internal development programs will focus on delivery of generic drugs, and that we will collaborate with third parties with respect to delivery of their proprietary drugs.

Competition

Competition for our lead product candidates

The development and commercialization of new products to treat severe osteoporosis, severe hypoglycemia and migraine is highly competitive, and there will be considerable competition from major pharmaceutical, biotechnology and specialty pharmaceutical companies. Many of our competitors have substantially greater financial, technical and other resources than we do. In addition, many of these companies have longer operating

 

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histories and more experience than us in preclinical and clinical development, manufacturing, regulatory and global commercialization.

Companies marketing or developing products that treat severe osteoporosis that may compete with our Weekly ZP-PTH product candidate include Amgen, Inc., Eli Lilly and Company and Radius Health, Inc. The following table lists products that we believe may or will compete in the United States against Weekly ZP-PTH, should Weekly ZP-PTH receive approval for sale:

 

Manufacturer

   Product   

Method of Treatment

Amgen

   Romosozumab  (1)    Injection (monthly)

Eli Lilly

   Forteo ®    Injection in thigh or abdomen (daily)

Eli Lilly

   Blosozumab    Injection (twice monthly)

Radius

   BA058 (1)    Transdermal patch or injection (daily)

 

(1) Currently undergoing clinical testing.

Companies marketing products that treat severe hypoglycemia that may compete with our ZP-Glucagon product candidate include Novo Nordisk and Eli Lilly. The following table sets forth selected products that we believe would potentially compete against ZP-Glucagon, should this product receive approval for sale:

 

Manufacturer

   Product   

Method of Treatment

Novo Nordisk

   GlucaGen ®    Injection

Eli Lilly

   Glucagon Emergency Kit    Injection

Biodel

      Stable liquid formulation delivered via pen injector (1)

Xeris

   G-Pen and G-Pen Mini  (1)    Stable liquid formulation delivered via pen injector

AMG Medical

      Glucagon powder delivered intranasally

 

(1) Currently undergoing clinical testing.

Companies marketing products that treat migraine that may compete with our ZP-Triptan product candidate include Teva, Zogenix, GlaxoSmithKline, AstraZeneca and Allergan. The following table sets forth selected products that we believe would potentially compete against ZP-Triptan, should this product receive approval for sale:

 

Manufacturer

   Product   

Method of Treatment

Teva

   Zecuity    sumatriptan patch

Zogenix

   Sumavel DosePro    sumatriptan injection

GlaxoSmithKline

   Imitrex Nasal Spray    sumatriptan nasal spray

AstraZeneca

   Zomig Nasal Spray    zolmitriptan nasal spray

Allergan

   Levadex    dihydroergotamine inhaler

Competition in drug delivery platforms

In addition to competition from major pharmaceutical, biotechnology and specialty pharmaceutical companies that develop and market products that compete against those that we develop, we face additional competition from companies that may develop and license drug delivery platforms similar to ours (including transdermal microneedle patches), and from alternative formulations and methods of delivery of the drugs on which we have focused, including oral formulations, nasal sprays, transdermal patches, intramuscular and subcutaneous injection and infusion. Such companies include, but are not limited to, 3M Company, Corium International, Inc. and Pantec Biosolutions AG.

 

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Research and Development

As of March 31, 2014 , our research and development organization consisted of nine people, located in our headquarters in Fremont, California. Our research and development staff is supervised by our founder and Chief Scientific Officer and has broad knowledge and skills in a range of disciplines applicable to formulation of drugs and the design and manufacture of our microneedle patch system.

The goals of our research and development efforts are to identify and develop drugs that can be delivered using our microneedle patch system and optimize the system to deliver those drugs.

Manufacturing

We have adequate manufacturing capabilities and capacity to produce our microneedle patch system for preclinical and Phase 1, Phase 2 and pivotal trials of our products. We follow current good manufacturing practices, or cGMP, in our Fremont, California manufacturing facility. We purchase various components or intermediates of our microneedle patch system from third-party vendors, including the metal foil and formed micro-arrays, active pharmaceutical ingredients and formulation, inner ring, adhesive backing, ring and backing assembly, outer ring and primary and secondary packing components. All of these components and intermediaries are available from multiple sources. We also outsource the manufacture of our applicators.

Manufacturing Process

The manufacturing process for our microneedle patch system consists of two primary operations: (1) the formation of the microneedle array, involving etching of titanium foil and subsequent hydro-forming; and (2) application of the drug formulation to the microneedle array.

Once a microneedle array is completed, we attach it to an inner ring housing the adhesive backing layer, which we purchase from a third party manufacturer. This is performed at our facility using a semi-automatic assembly process.

We apply the drug formulation to the microneedle array by a contact process whereby the titanium needles are dipped in a liquid drug formulation until the specified amount of drug is applied to the microneedle array. We then attach an outer ring to the assembly using a mechanical press fit on the same equipment used for coating the microneedle array. The outer ring is made from a polymer material, which is readily available from multiple suppliers. We then insert the patch assembly into the primary packaging, which is purged with nitrogen for longer shelf life.

We perform substantially all product testing in-house.

We intend to devote significant resources to expanding the capacity and throughput of our manufacturing operations, and to reducing our manufacturing costs. We believe this will be critical to support the late-stage development, launch and commercial production of our product candidates.

Commercialization

We do not have a sales, marketing or drug distribution infrastructure. We generally expect to retain commercial rights in the United States for our current drug candidates, all of which are still in preclinical or clinical development. Outside the United States, we expect to enter into distribution and other marketing arrangements with third parties for any of our drug candidates that obtain marketing approval.

We focus on indications that have patient populations large enough to provide us with an attractive commercial opportunity, and where there is currently limited competition and premium pricing. We believe we will be able to compete effectively and profitably in these markets by offering a more effective and lower cost

 

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alternative. We also believe that the markets on which we have initially focused, and intend to focus in the future, are ones in which there are relatively concentrated prescriber bases that can be served by a small, targeted sales force dedicated to each product. We intend to develop a small, cost-effective commercial infrastructure that will enable us to retain and maximize the commercial opportunity.

Subject to receiving marketing approvals, we expect to commence commercialization activities by building a focused sales and marketing organization in the United States to sell our drugs. We believe that such an organization will be able to target the community of physicians who are the key specialists in treating the patient populations for which our drug candidates are being developed. Outside the United States, we expect to enter into distribution and other marketing arrangements with third parties for any of our drug candidates that obtain marketing approval.

We also plan to build a marketing and sales management organization to create and implement marketing strategies for any drugs that we market through our own sales organization and to oversee and support our sales force. The responsibilities of the marketing organization would include developing educational initiatives with respect to approved drugs and establishing relationships with thought leaders in relevant fields of medicine.

Intellectual Property

We regard our technology as proprietary. Our strategy is to rely on a combination of patent, trade secret and trademark laws in the United States and other jurisdictions, and to rely on license and confidentiality agreements to further protect our proprietary technology and brand. The laws of some countries in which our products are licensed may not protect our intellectual property rights to the same extent as the laws of the United States.

As of April 30, 2014, we held licenses to 22 United States patents and eight United States patent applications, as well as numerous foreign counterparts to many of these patents and patent applications, covering key features of our microneedle patch system, such as formulation, coating, array design, patch anchoring, patch application, delivery, manufacturing and packaging. These patents are foundational and apply generally to each of our lead product candidates and their related applicators.

We licensed these patents and patent applications from ALZA Corporation, or ALZA, on an exclusive basis for all countries. Under the terms of the license agreement with ALZA, we are responsible for all development and development costs related to our transdermal microneedle patch system. We are also responsible for commercializing our transdermal microneedle patch system, including preparing and paying for all related regulatory filings. We are obligated to pay ALZA royalties in the low to mid single digits on sales by us of products that would otherwise infringe one of the licensed patents or that is developed by us based on certain ALZA know-how or inventions, and to pay ALZA amounts equal to the greater of royalties in the low to mid single digits on sales by our sublicensees of such products or a percentage in the mid-teens to low twenties of royalties received by us on sales by our sublicensees of such products. We are also obligated to pay ALZA a percentage of non-royalty revenue that we receive from our sublicensees based on sales of such products. The license agreement will terminate upon the expiration of our obligations to make the royalty and other payments described above to ALZA. Additionally, we may terminate the agreement at any time for convenience upon prior written notice to ALZA, and either party may terminate the agreement upon a material breach of the agreement by the other party.

In addition, we have filed two provisional patent applications covering our single-use applicator and formulation of ZP-Glucagon. A provisional patent application contains a disclosure of the invention, but not necessarily formal patent claims, and establishes an early filing date provided that a comparable and complete, non-provisional patent application is filed within one year after the provisional application.

 

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The patents we currently own or hold under licenses are as follows:

 

Patent*

 

United States

Patent Number

(Expiration Date)

 

Europe

Patent Number

(Expiration Date)

 

Japan

Patent Number

(Expiration Date)

 

China

Patent Number

(Expiration Date)

 

Korea

Patent Number

(Expiration Date)

Glucagon Formulation   US App 61/868,969 (pending)        
PTH Formulation  

7,556,821 (18-Mar-2025);

8,361,022 (18-Mar-2025);

8,633,159 (15-Feb-2027);

US App 11/686,909 (pending)

 

EP 5,727,716.2 (pending);

EP 7,753,418.8 (pending)

 

5,007,427 (18-Mar-2025);

5,309,203 (18-Mar-2025)

   
Transdermal Formulation/ Coating/PK/PD  

7,537,795 (31-May-2023);

7,579,013 (29-Jun-2024);

7,963,935 (23-May-2027); 8,663,155 (24-Jun-2023)

 

1,333,880 (26-Oct-2021);

1,392,389 (20-Apr-2022);

1,638,523 (29-Jun-2024)

 

4,659,336 (26-Oct-2021);

5,388,415 (21-Oct-2024);

5,456,234 (29-Jun-2024)

 

ZL200480040402.9 (21-Oct-2024);

ZL200480024334.7 (29-Jun-2024);

ZL200580023222.4 (18-Mar-2025);

1821359.6 (26-Oct-2021);

ZL02812251.8 (20-Apr-2022);

ZL01818583.5 (6-Sep-2021)

  812097 (26-Oct-2021)

Micro Projection

Design and

Anchoring to

Skin

 

6,050,988 (9-Dec-2018);

6,083,196 (9-Dec-2018);

6,322,808 (9-Dec-2018);

7,184,826 (17-Jun-2017)

 

1,037,686 (9-Dec-2018);

1,037,687 (9-Dec-2018)

 

4,012,252 (17-Jun-2017);

4,061,022 (9-Dec-2018)

 

ZL98811989.7 (9-Dec-2018);

ZL98812096.8 (9-Dec-2018)

 

Patch Retainer

Ring and

Delivery Control

 

6,855,131 (26-Oct-2021);

8,753,318 (10-Apr-2026);

6,953,589 (9-Dec-2018)

 

1,239,917 (7-Dec-2020);

1,341,452 (12-Oct-2021);

1,035,889 (9-Dec-2018)

 

4,104,975 (12-Oct-2021);

4,312,407 (7-Dec-2020)

  ZL00818309.0 (7-Dec-2020)  
Patch Applicator  

7,087,035 (12-Mar-2022);

7,097,631 (27-Jan-2025);

7,131,960 (13-Apr-2022); 7,419,481 (13-Mar-2022);

7,798,987 (13-Sep-2025);

US 61/860,001 (Pending)

 

1,239,916 (7-Dec-2020);

1,341,442 (12-Oct-2021);

1,341,453 (12-Oct-2021);

1,680,154 (21-Oct-2024)

 

4,198,985 (12-Oct-2021);

4,659,332 (12-Oct-2021);

4,682,144 (21-Oct-2024);

JP 2008-504343 (pending)

 

1820464.3 (12-Oct-2021);

ZL200480039547.7 (21-Oct-2024);

1820462.7 (12-Oct-2021)

  818545 (12-Oct-2021)

Manufacturing

and Packaging Methods

 

6,855,372 (10-Nov-2022);

7,435,299 (18-Jan-2025);

8,632,801 (31-May-2023)

 

EP 6772047.4 (pending);

EP 6849294.1 (pending)

 

5,438,872 (1-Jun-2026);

JP 2008-548743 (pending)

  CN200680019269.8  

 

* Patents are for the benefit of all formulations

 

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The last of our issued patents will expire in 2027. We believe that the long life of our patent portfolio may make collaborating with us particularly attractive for third parties seeking to extend the lifecycle of profitable drugs nearing the expiration of their patent protection.

We rely on trade secrets to protect substantial portions of our technology. We generally seek to protect these trade secrets by entering into non-disclosure agreements and other contractual provisions with our employees and customers, and have restricted access to our manufacturing facilities and other technology.

Government regulation and product approval

United States—FDA Process

The research, development, testing, manufacture, labeling, promotion, advertising, distribution and marketing, among other things, of our products are subject to extensive regulation by governmental authorities in the United States and other countries. In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations. Failure to comply with the applicable United States requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications, or NDAs, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions and/or criminal prosecution. We expect Weekly ZP-PTH and ZP-Glucagon will each be subject to review by the FDA as a drug/device combination product under NDA standards. Medical products containing a combination of new drugs, biological products or medical devices are regulated as “combination products” in the United States. A combination product generally is defined as a product comprised of components from two or more regulatory categories (e.g., drug/device, device/biologic, drug/biologic). Each component of a combination product is subject to the requirements established by the FDA for that type of component, whether a new drug, biologic or device. In order to facilitate pre-market review of combination products, the FDA designates one of its centers to have primary jurisdiction for the pre-market review and regulation of the overall product based upon a determination by the FDA of the primary mode of action of the combination product. The determination whether a product is a combination product or two separate products is made by the FDA on a case-by-case basis. We have not initiated any discussions with the FDA with respect to seeking regulatory approval of Weekly ZP-PTH, ZP-Glucagon or ZP-Triptan.

Drug Approval Process

None of our product candidates may be marketed in the United States until the product has received FDA approval. The steps to be completed before a drug may be marketed in the United States include:

 

    preclinical laboratory tests, animal studies, and formulation studies, all performed in accordance with the FDA’s Good Laboratory Practice, or GLP, regulations;

 

    submission to the FDA of an investigational new drug, or IND, application for human clinical testing, which must become effective before human clinical trials may begin and must be updated annually;

 

    adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each indication to the FDA’s satisfaction;

 

    submission to the FDA of an NDA;

 

    satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMP regulations; and

 

    FDA review and approval of the NDA.

Preclinical tests include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies. The conduct of the preclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND application, which must become

 

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effective before human clinical trials may begin. An IND application will automatically become effective thirty days after receipt by the FDA, unless before that time the FDA raises concerns or questions about issues such as the conduct of the trials as outlined in the IND application. In such a case, the IND application sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. We have not submitted an IND application to the FDA for Weekly ZP-PTH, ZP-Glucagon or ZP-Triptan and we cannot be sure that submission of an IND application will result in the FDA allowing clinical trials to begin.

Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND application.

Clinical trials necessary for product approval are typically conducted in three sequential Phases, but the Phases may overlap. The study protocol and informed consent information for study subjects in clinical trials must also be approved by an Institutional Review Board, or IRB, for each institution where the trials will be conducted, and each IRB must monitor the study until completion. Study subjects must sign an informed consent form before participating in a clinical trial. Clinical testing also must satisfy extensive good clinical practice, or GCP, regulations and regulations for informed consent and privacy of individually identifiable information. Phase 1 usually involves the initial introduction of the investigational drug into people to evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics and pharmacologic actions, and, if possible, to gain an early indication of its effectiveness. Phase 1 studies are usually conducted in healthy individuals and are not intended to treat disease or illness. However, Phase 1b studies are conducted in healthy volunteers or in patients diagnosed with the disease or condition for which the study drug is intended, who demonstrate some biomarker, surrogate, or possibly clinical outcome that could be considered for “proof of concept.” Proof of concept in a Phase 1b study typically confirms the hypothesis that the current prediction of biomarker, or outcome benefit is compatible with the mechanism of action. Phase 2 usually involves trials in a limited patient population to (i) evaluate dosage tolerance and appropriate dosage, (ii) identify possible adverse effects and safety risks, and (iii) evaluate preliminarily the efficacy of the drug for specific indications. Several different doses of the drug may be looked at in Phase 2 to see which dose has the desired effects. Patients are monitored for side effects and for any improvement in their illness, symptoms, or both. Phase 3 trials usually further evaluate clinical efficacy and test further for safety by using the drug in its final form in an expanded patient population. A Phase 3 trial usually compares how well the study drug works compared with an inactive placebo and/or another approved medication. One group of patients may receive the new drug being tested, while another group of patients may receive the comparator drug (already-approved drug for the disease being studied), or placebo. There can be no assurance that Phase 1, Phase 2 or Phase 3 testing will be completed successfully within any specified period of time, if at all. Furthermore, we or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

The FDCA permits the FDA and the IND application sponsor to agree in writing on the design and size of clinical studies intended to form the primary basis of an effectiveness claim in an NDA. This process is known as a Special Protocol Assessment, or SPA. Under an SPA, the FDA agrees to not later alter its position with respect to adequacy of the design, execution or analyses of the clinical trial intended to form the primary basis of an effectiveness claim in an NDA without the sponsor’s agreement, unless the FDA identifies a substantial scientific issue essential to determining the safety or efficacy of the drug after testing begins.

Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical studies, together with other detailed information, including information on the manufacture and composition of the drug, are submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. Section 505(b)(1) and Section 505(b)(2) of the FDCA are the provisions governing the type of NDAs that may be submitted under the FDCA. Section 505(b)(1) is the traditional pathway for new chemical entities when no other new drug containing the same active pharmaceutical ingredient or active moiety, which is the molecule or ion responsible for the action of the drug substance, has been approved by the

 

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FDA. As an alternate pathway to FDA approval for new or improved formulations of previously approved products, a company may file a Section 505(b)(2) NDA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The testing and approval process requires substantial time, effort and financial resources. The FDA reviews the application and may deem it to be inadequate, and companies cannot be sure that any approval will be granted on a timely basis, if at all. The FDA may also refer the application to an appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendations of the advisory committee, but it typically follows such recommendations.

The FDA may require that certain contraindications, warnings or precautions be included in the product labeling, or may condition the approval of an NDA on other changes to the proposed labeling, development of adequate controls and specifications, or a commitment to conduct post-marketing testing or clinical trials and surveillance programs to monitor the safety of approved products that have been commercialized. Further, the FDA may place conditions on approvals including the requirement for a REMS to assure the safe use of the drug. If the FDA requires a REMS, the sponsor of the NDA must submit a proposed REMS; the FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals maybe withdrawn for non-compliance with regulatory standards or if problems occur following the initial marketing of the product.

The FDA has various programs, including fast track, priority review and accelerated approval that are intended to expedite or simplify the process for reviewing drugs and/or provide for approval on the basis of surrogate endpoints. Generally, drugs that may be eligible for one or more of these programs are those intended to treat serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that provide meaningful benefit over existing treatments. A company cannot be sure that any of its drugs will qualify for any of these programs, or if a drug does qualify, that the review time will be reduced.

Before approving an NDA, the FDA usually will inspect the facility or the facilities at which the drug is manufactured and will not approve the product unless the manufacturing is in compliance with cGMP regulations. If the NDA and the manufacturing facilities are deemed acceptable by the FDA, it may issue an approval letter, or in some cases, an approvable letter followed by an approval letter. Both letters usually contain a number of conditions that must be met in order to secure final approval of the NDA. When and if those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter. The approval letter authorizes commercial marketing of the drug for specific indications. As a condition of NDA approval, the FDA may require post-marketing testing and surveillance to monitor the drug’s safety or efficacy, or impose other conditions. Approval may also be contingent on approved risk evaluation and mitigation strategies, or REMS, that limits the labeling, distribution or promotion of a drug product. Once issued, the FDA may withdraw product approval if ongoing regulatory requirements are not met or if safety problems occur after the product reaches the market.

After approval, certain changes to the approved product, such as adding new indications, making certain manufacturing changes or making certain additional labeling claims, are subject to further FDA review and approval. Before a company can market products for additional indications, it must obtain additional approvals from the FDA. Obtaining approval for a new indication generally requires that additional clinical studies be conducted. A company cannot be sure that any additional approval for new indications for any product candidate will be approved on a timely basis, or at all.

Post-Approval Requirements

Often times, even after a drug has been approved by the FDA for sale, the FDA may require that certain post-approval requirements be satisfied, including the conduct of additional clinical studies. If such post-approval

 

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conditions are not satisfied, the FDA may withdraw its approval of the drug. In addition, holders of an approved NDA are required to (i) report certain adverse reactions to the FDA, (ii) comply with certain requirements concerning advertising and promotional labeling for their products, and (iii) continue to have quality control and manufacturing procedures conform to cGMP regulations after approval. The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing facilities. This latter effort includes assessment of ongoing compliance with cGMP regulations. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. We have used and intend to continue to use third-party manufacturers to produce APIs for our products in clinical and commercial quantities, and future FDA inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a product after approval may result in restrictions on a product, including withdrawal of the product from the market.

Hatch-Waxman Act

As part of the Drug Price Competition and Patent Term Restoration Act of 1984, Section 505(b)(2) of the FDCA was enacted, otherwise known as the Hatch-Waxman Amendments. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The Hatch-Waxman Amendments permit the applicant to rely upon certain preclinical or clinical studies conducted for an approved product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, which is referred to as the Reference Listed Drug, the applicant is required to certify to the FDA concerning any listed patents in the FDA’s Orange Book publication that relate to the Reference Listed Drug. Specifically, the applicant must certify for all listed patents one of the following certifications: (i) the required patent information has not been filed by the original applicant; (ii) the listed patent already has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the manufacture, use or sale of the new product.

If a Paragraph I or II certification is filed, the FDA may make approval of the application effective immediately upon completion of its review. If a Paragraph III certification is filed, the approval may be made effective on the patent expiration date specified in the application, although a tentative approval may be issued before that time. If an application contains a Paragraph IV certification, a series of events will be triggered, the outcome of which will determine the effective date of approval of the 505(b)(2) application. The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the Referenced Listed Drug has expired.

A certification that the new product will not infringe the Reference Listed Drug’s listed patents or that such patents are invalid is called a Paragraph IV certification. If the 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 for the Reference Listed Drug once the applicant’s NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a legal challenge to the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of their receipt of a Paragraph IV certification automatically prevents the FDA from approving the Section 505(b)(2) NDA by imposing a 30 month automatic statutory injunction. The court may shorten or lengthen the 30 month stay period in a pending patent case if either party fails to reasonably cooperate in expediting the case. The 30 month stay terminates if a court issues a final order determining that the patent is invalid unenforceable or not infringed. Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its products only to be subject to significant delay and patent litigation before its

 

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products may be commercialized. Alternatively, if the listed patent holder does not file a patent infringement lawsuit within the required 45-day period, the applicant’s NDA will not be subject to the 30-month stay.

The Hatch-Waxman Act provides five years of data exclusivity for new chemical entities which prevents the FDA from accepting ANDAs and 505(b)(2) applications containing the protected active ingredient. The Hatch-Waxman Act also provides three years of exclusivity for applications containing the results of new clinical investigations (other than bioavailability studies) essential to the FDA’s approval of new uses of approved products such as new indications, delivery mechanisms, dosage forms, strengths, or conditions of use.

European Union—EMA Process

In the European Union, or the EU, medicinal products are authorized following a similar demanding process as that required in the United States. Applications are based on the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use, or ICH, Common Technical Document and must include a detailed plan for pediatric approval, if such approval is sought. Medicines can be authorized in the EU by using either the centralized authorization procedure or national authorization procedures.

Centralized Procedure

Under the centralized procedure, after the European Medicines Agency, or EMA, issues an opinion, the European Commission issues a single marketing authorization valid across the European Union, as well as Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for human medicines that are derived from biotechnology processes, such as genetic engineering, contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune dysfunctions, and officially designated orphan medicines. For medicines that do not fall within these categories, an applicant has the option of submitting an application for a centralized marketing authorization to the EMA, as long as the medicine concerned is a significant therapeutic, scientific or technical innovation, or if its authorization would be in the interest of public health.

National Authorization Procedures

There are also two other possible routes to authorize medicinal products in several countries, which are available for products that fall outside the scope of the centralized procedure:

Decentralized Procedure

Using the decentralized procedure, an applicant may apply for simultaneous authorization in more than one European Union country of a medicinal product that has not yet been authorized in any European Union country and that does not fall within the mandatory scope of the centralized procedure.

Mutual Recognition Procedure

In the mutual recognition procedure, a medicine is first authorized in one EU Member State, in accordance with the national procedures of that country. Thereafter, further marketing authorizations can be sought from other European Union countries in a procedure whereby the countries concerned agree to recognize the validity of the original, national marketing authorization.

In light of the fact that there is no policy at the EU level governing pricing and reimbursement, the EU Member States each have developed their own, often varying, approaches. In many EU Member States, pricing negotiations must take place between the holder of the marketing authorization and the competent national authorities before the product is sold in their market with the holder of the marketing authorization required to provide evidence demonstrating the pharmaco-economic superiority of its product in comparison with directly

 

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and indirectly competing products. We have not initiated any discussions with EMA with respect to seeking regulatory approval of either Weekly ZP-PTH or ZP-Glucagon.

Good Manufacturing Practices

Like the FDA, the EMA, the competent authorities of the EU Member States and other regulatory agencies regulate and inspect equipment, facilities and processes used in the manufacturing of pharmaceutical and biologic products prior to approving a product. If, after receiving clearance from regulatory agencies, a company makes a material change in manufacturing equipment, location, or process, additional regulatory review and approval may be required. Once we or our partners commercialize products, we will be required to comply with cGMP, and product-specific regulations enforced by, the European Commission, the EMA and the competent authorities of EU Member States following product approval. Also like the FDA, the EMA, the competent authorities of the EU Member States and other regulatory agencies also conduct regular, periodic visits to re-inspect equipment, facilities, and processes following the initial approval of a product. If, as a result of these inspections, it is determined that our or our partners’ equipment, facilities or processes do not comply with applicable regulations and conditions of product approval, regulatory agencies may seek civil, criminal or administrative sanctions and/or remedies against us, including the suspension of our manufacturing operations or the withdrawal of our product from the market.

Other International Markets—Drug Approval Process

In some international markets (e.g., China or Japan), although data generated in United States or EU trials may be submitted in support of a marketing authorization application, additional clinical trials conducted in the host territory, or studying people of the ethnicity of the host territory, may be required prior to the filing or approval of marketing applications within the country.

Pricing and Reimbursement

In the United States and internationally, sales of products that we market in the future, and our ability to generate revenues on such sales, are dependent, in significant part, on the availability and level of reimbursement from third-party payors such as state and federal governments, managed care providers and private insurance plans. Private insurers, such as health maintenance organizations and managed care providers, have implemented cost-cutting and reimbursement initiatives and likely will continue to do so in the future. These include establishing formularies that govern the drugs and biologics that will be offered and also the out-of-pocket obligations of member patients for such products. In addition, particularly in the United States and increasingly in other countries, we are required to provide discounts and pay rebates to state and federal governments and agencies in connection with purchases of our products that are reimbursed by such entities. We have consciously selected compounds for development that offer therapeutic benefit based on fast onset of action and receive a high reimbursement per unit for the currently marketed injectable form. We intend to commercialize our products at prices competitive to those of the currently marketed injectables, thereby securing support of the payors.

There is no legislation at the EU level governing the pricing and reimbursement of medicinal products in the EU. As a result, the competent authorities of each of the EU Member States have adopted individual strategies regulating the pricing and reimbursement of medicinal products in their territory. These strategies often vary widely in nature, scope and application. However, a major element that they have in common is an increased move towards reduction in the reimbursement price of medicinal products, a reduction in the number and type of products selected for reimbursement and an increased preference for generic products over innovative products. These efforts have mostly been executed through these countries’ existing price-control methodologies. The government of the United Kingdom, while continuing for now to utilize its established Pharmaceutical Pricing Reimbursement Scheme approach, has announced its intentions to phasing in, by 2014, a new value-based pricing approach, at least for new product introductions. Under this approach, in a complete departure from established methodologies, reimbursement levels of each drug will be explicitly based on an assessment of value, looking at the benefits for the patient, unmet need, therapeutic innovation, and benefit to society as a whole. It is

 

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increasingly common in many EU Member States for Marketing Authorization Holders to be required to demonstrate the pharmaco-economic superiority of their products as compared to products already subject to assessment and reimbursement in specific countries. In order for drugs to be evaluated positively under such criteria, pharmaceutical companies may need to re-examine, and consider altering, a number of traditional functions relating to the selection, study, and management of drugs, whether currently marketed, under development, or being evaluated as candidates for research and/or development. All such cost containment efforts by the payors in US and overseas are likely to support our competitive pricing model.

Sales and Marketing

The FDA regulates all advertising and promotion activities for products under its jurisdiction both prior to and after approval. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Physicians may prescribe legally available drugs for uses that are not described in the drug’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties, and often reflect a physician’s belief that the off-label use is the best treatment for the patients. The FDA does not regulate the behavior of physicians in their choice of treatments, but FDA regulations do impose stringent restrictions on manufacturers’ communications regarding off-label uses. Failure to comply with applicable FDA requirements may subject a company to adverse publicity, enforcement action by the FDA, corrective advertising, consent decrees and the full range of civil and criminal penalties available to the FDA.

We may also be subject to various federal and state laws pertaining to healthcare “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. Due to the breadth of the statutory provisions and the absence of guidance in the form of regulations and very few court decisions addressing industry practices, it is possible that our practices might be challenged under anti-kickback or similar laws. Moreover, recent healthcare reform legislation has strengthened these laws. For example, the recently enacted Patient Protection and Affordable Care Act, or the PPACA, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes, so that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the PPACA permits the government to assert that a claim that includes items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment, to third-party payors (including Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid) and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties also can be imposed upon executive officers and employees, including criminal sanctions against executive officers under the so-called “responsible corporate officer” doctrine, even in situations where the executive officer did not intend to violate the law and was unaware of any wrongdoing.

Given the significant penalties and fines that can be imposed on companies and individuals if convicted, allegations of such violations often result in settlements even if the company or individual being investigated admits no wrongdoing. Settlements often include significant civil sanctions, including fines and civil monetary penalties, and corporate integrity agreements. If the government were to allege or convict us or our executive officers of violating these laws, our business could be harmed. In addition, private individuals have the ability to bring similar actions. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given to them by law enforcement authorities. Further, there are an increasing number of state laws that require manufacturers to make reports to states on

 

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pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. Given the lack of clarity in laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state authorities.

Similar rigid restrictions are imposed on the promotion and marketing of medicinal products in the EU and other countries. Laws (including those governing promotion, marketing and anti-kickback provisions), industry regulations and professional codes of conduct often are strictly enforced. Even in those countries where we are not directly responsible for the promotion and marketing of our products, inappropriate activity by our international distribution partners can have implications for us.

Other Governmental Regulations and Environmental Matters

We will be subject to a variety of financial disclosure and securities trading regulations as a public company in the United States, including laws relating to the oversight activities of the SEC and, if any of our capital stock becomes listed on the NASDAQ Global Market or another exchange, we will be subject to the regulations of the NASDAQ Global Market or another exchange, respectively. In addition, the Financial Accounting Standards Board, or the FASB, the SEC and other bodies that will have jurisdiction over the form and content of our accounts, our financial statements and other public disclosure are constantly discussing and interpreting proposals and existing pronouncements designed to ensure that companies best display relevant and transparent information relating to their respective businesses.

If we establish international operations, we will be subject to compliance with the Foreign Corrupt Practices Act, or the FCPA, which prohibits corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. We also may be implicated under the FCPA for activities by our partners, collaborators, CROs, vendors or other agents.

Our present and future business has been and will continue to be subject to various other laws and regulations. Various laws, regulations and recommendations relating to safe working conditions, laboratory practices, the experimental use of animals, and the purchase, storage, movement, import and export and use and disposal of hazardous or potentially hazardous substances used in connection with our research work are or may be applicable to our activities. Certain agreements entered into by us involving exclusive license rights or acquisitions may be subject to national or supranational antitrust regulatory control, the effect of which cannot be predicted. The extent of government regulation, which might result from future legislation or administrative action, cannot accurately be predicted.

Employees

As of June 15, 2014, we had 32 full-time employees, and make extensive use of third party contractors, consultants, and advisors to perform many of our present activities. We expect to increase the number of our employees as we increase our operations.

Properties

Our principal executive offices are located at 34790 Ardentech Court, Fremont, California 94555, and are leased under a seven year property rental agreement that commenced in 2012. We do not own any real property. We believe our present facilities are sufficient for our current and planned near-term operations.

Legal Proceedings

We are not currently involved in any material legal proceedings.

 

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MANAGEMENT

Executive Officers, Directors and Key Employees

Our executive officers, directors and key employees, their current positions and their ages as of June 20, 2014 are set forth below:

 

Name    Age      Position(s)

Bruce D. Steel (1) (2) (3)

     47       Chairman of Board of Directors

M. James Barrett (1) (2) (3)

     71       Director

Troy Wilson (3)(4)(5)

     45       Director

Kleanthis G. Xanthopoulos (2) (3) (4)

     56       Director

Vikram Lamba

     48       President, Chief Executive Officer and Director

Peter E. Daddona

     69       Chief Scientific Officer, EVP R&D and Director

Nandan Oza

     52       Chief Operating Officer

Winnie W. Tso

     53       Chief Financial Officer

 

(1) Member of the audit committee.
(2) Member of the compensation committee.
(3) Member of the nominating and corporate governance committee, effective on the date of this prospectus.
(4) Member of the audit committee, effective on the date of this prospectus.
(5) Member of the compensation committee, effective on the date of this prospectus.

Business Experience

The following is a brief description of the education and business experience of our current directors and executive officers:

Bruce D. Steel has served as a member of our board of directors since April 2012. Mr. Steel is currently the Managing Director of BioMed Ventures, the strategic investment arm of BioMed Realty Trust. Previously, Mr. Steel served as the Chief Executive Officer of Rincon Pharmaceuticals, Inc. and, between 2008 and 2010, as the Chief Business Officer of Anaphore, Inc. Mr. Steel received his Bachelor of Arts from Dartmouth College and his M.B.A. from the Marshall School of Business at the University of Southern California. Mr. Steel also holds the designation of Chartered Financial Analyst. We believe that Mr. Steel’s deep knowledge of the life-sciences industry as well as his executive level experience at various companies qualify him to serve as a member of our board of directors.

M. James Barrett has served as a member of our board of directors since April 2012. Dr. Barrett served as a director of ZP Opco, Inc. (then named Zosano Pharma, Inc.) from October 2006 until April 2012, when ZP Opco was recapitalized and became a wholly owned subsidiary of Zosano Pharma Corporation. Dr. Barrett is a General Partner with New Enterprise Associates, or NEA, where he has served in that role since 2001. Dr. Barrett specializes in biotechnology and works with members of NEA’s healthcare investment group on medical devices, healthcare information systems and healthcare services companies. In addition to our board of directors, Dr. Barrett currently serves as a member of the board of directors of the following public companies: Amicus Therapeutics, Inc., Clovis Oncology, Inc., GlycoMimetics, Inc. and Supernus Pharmaceuticals, Inc. He also serves on the board of directors for Blend Biosciences, Inc., Cardioxyl Pharmaceuticals, Inc., Galera Therapeutics, Inc., Loxo Oncology, Inc., PhaseBio Pharmaceuticals, Inc., Psyadon Pharmaceuticals, Roka Bioscience, Inc. and Senseonics, Inc. Dr. Barrett formerly served on various other boards of directors, including at Targacept, Inc., CoGenesys, Inc. (acquired by Teva Pharmaceutical Industries, Inc.), Iomai Corporation (acquired by Intercell AG), MedImmune, LLC (acquired by AstraZeneca), Pharmion Corporation (acquired by Celgene Corporation), and Inhibitex, Inc. (acquired by Bristol-Myers Squibb). Prior to joining NEA, Dr. Barrett served as Founder, Chairman and Chief Executive Officer of Senseonics, Inc. from 1997 to 2001, where he remains Chairman. Before that, Dr. Barrett led three NEA-funded companies, serving as Chairman and Chief

 

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Executive Officer of Genetic Therapy, Inc., President and Chief Executive Officer of Life Technologies, and President and Chief Executive Officer of Bethesda Research Labs. Prior to that, Dr. Barrett worked in various divisions of SmithKline. Dr. Barrett received a Ph.D. in Biochemistry from the University of Tennessee, his M.B.A. from the University of Santa Clara, and a B.S. in Chemistry from Boston College. We believe that Dr. Barrett’s extensive experience serving on boards of directors of both public and private companies in the healthcare sector and his deep industry experience qualify him to serve as a member of our board of directors.

Troy Wilson has served as a member of our board of directors since June 2014. Dr. Wilson has been President and Chief Executive Officer and a member of the board of managers of Avidity NanoMedicines LLC, a private biopharmaceutical company, since November 2012 and the President and Chief Executive Officer and a member of the board of managers of Wellspring Biosciences LLC, a private biopharmaceutical company, since July 2012 and May 2012, respectively. He has been a Director of Puma Biotechnology, Inc., a public company, since October 2013. He has also been a member of the board of managers of Araxes Pharma LLC, a private biopharmaceutical company, since May 2012. Previously, Dr. Wilson served as President and Chief Executive Officer and a member of the board of directors of Intellikine, Inc., a private biopharmaceutical company, from April 2007 to January 2012 and from August 2007 to January 2012, respectively. He holds a J.D. from New York University and graduated with a Ph.D. in bioorganic chemistry and a B.A. in biophysics from the University of California, Berkeley. We believe that Dr. Wilson’s senior executive experience managing, leading and developing various biopharmaceutical companies and his extensive industry knowledge and board-level experience in the biopharmaceutical industry qualify him to serve as a member of our board of directors.

Kleanthis G. Xanthopoulos has served as a member of our board of directors since April 2013. Dr. Xanthopoulos is the President and Chief Executive Officer and a member of the board of directors of Regulus Therapeutics Inc., having joined Regulus in 2007. Dr. Xanthopoulos is also currently chairman of the board of directors of Apricus Biosciences, Inc., a public company, a member of the board of directors of Biotechnology Industry Organization (BIO) and Senté Inc., and is a member of the executive board of BIOCOM, Southern California’s life science industry association. Prior to joining Regulus, Dr. Xanthopoulos was a managing director of Enterprise Partners Venture Capital. Dr. Xanthopoulos co-founded and served as President and Chief Executive Officer of Anadys Pharmaceuticals from its inception in 2000 to 2006, and remained a Director until its acquisition by Roche in 2011. Dr. Xanthopoulos was Vice President at Aurora Biosciences, which was acquired by Vertex Pharmaceuticals, from 1997 to 2000. Dr. Xanthopoulos participated in The Human Genome Project as a Section Head of the National Human Genome Research Institute from 1995 to 1997. Previously, Dr. Xanthopoulos was an Associate Professor at the Karolinska Institute, in Stockholm, Sweden, after completing a Postdoctoral Research Fellowship at The Rockefeller University, New York. An Onassis Foundation scholar, Dr. Xanthopoulos received his B.Sc. in Biology with honors from Aristotle University of Thessaloniki, Greece, and received both his M.Sc. in Microbiology and Ph.D. in Molecular Biology from the University of Stockholm, Sweden. We believe that Dr. Xanthopoulous’s senior executive experience managing and developing a major biotechnology company and his extensive industry knowledge and leadership experience in the biotechnology industry qualify him to serve as a member of our board of directors.

Vikram Lamba has served as our President and Chief Executive Officer, and as a member of our board of directors, since the inception of Zosano Pharma Corporation (then named ZP Holdings, Inc.) in January 2012. Before that, Mr. Lamba served as Chief Financial Officer and Chief Business Officer of Predictive Biosciences, Inc. from July 2008 until he joined Zosano Pharma in 2011. Prior to that, Mr. Lamba served as Vice President of Corporate Development at Advanced Medical Optics, Inc., where he was responsible for many significant merger and acquisition transactions and strategic alliances. Mr. Lamba served as Vice President for Finance and Chief Financial Officer of GeneOhm Sciences, Inc. and has over 16 years of global experience in various positions with Burmah Castrol PLC and Bayer AG. During his eight years with Bayer in Canada, Germany and the U.S., Mr. Lamba held positions in areas of general management, mergers and acquisitions and finance. Mr. Lamba received an M.B.A. from the Asian Institute of Management and was an exchange student at The Wharton School of the University of Pennsylvania. We believe that Mr. Lamba’s extensive industry knowledge and his experience in corporate management qualify him to serve as a member of our board of directors.

 

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Peter E. Daddona has served as our Chief Scientific Officer, and as a member of our board of directors, since the inception of Zosano Pharma Corporation (then named ZP Holdings, Inc.) in January 2012. Dr. Daddona has also served as Chief Scientific Officer of Zosano Pharma since July 31, 2006. Dr. Daddona founded Zosano Pharma in 2006 as a spin-off of Johnson & Johnson, prior to which he served as Vice President, Scientific Leader and Board member of The Macroflux ® Internal Venture at Johnson & Johnson. Previously, Dr. Daddona was Vice President of Macroflux ® Technology Development and Biological Sciences and served on the Strategic Product Portfolio Review Committee at ALZA Corporation in Mountain View, California, and held an appointment as Consulting Associate Professor of Dermatology at Stanford University. Before joining ALZA, Dr. Daddona served as Vice President, Immunobiology Research at Centocor, where he focused on preclinical development of therapeutic monoclonal antibodies. Prior to joining Centocor, Dr. Daddona served as Associate Professor of Biological Chemistry and Internal Medicine at the University of Michigan. Dr. Daddona earned his Ph.D. from the University of Connecticut and completed post-doctoral training at Duke University. We believe that Dr. Daddona’s long history with our company and his extensive experience in pharmaceutical drug development qualify him to serve as a member of our board of directors.

Nandan Oza has served as our Chief Operations Officer since May 2013. Prior to joining us, Mr. Oza was the Vice President of Chemistry, Manufacturing and Controls of Talon Therapeutics from August 2010 to May 2013. From February 2009 to August 2010, Mr. Oza served as the Founder and Principal of Ally CMC Consulting and grew the firm to have over twenty clients, including start-ups and mid-sized companies. Between February 2007 and February 2009, he was the Vice President of Manufacturing and Supply Chain Operations at Jazz Pharmaceuticals in Palo Alto, California, where he had complete management responsibility for Jazz’s manufacturing operations.

Winnie W. Tso has served as our Chief Financial Officer since April 2014. From January 2014 to April 2014, Ms. Tso served as a consultant to us. Prior to joining us in January 2014, Ms. Tso served as Vice President, Finance and Corporate Controller of SciClone Pharmaceuticals, a publicly-traded specialty biopharmaceutical company, in 2013. Prior to that, Ms. Tso served in various Vice President and Principal Accounting Officer positions from 2009 to 2013, including at Velti plc where Ms. Tso helped lead Velti’s U.S. public offering raising in excess of $150 million in equity financing. Prior to Velti, Ms. Tso held senior finance positions at several publicly-traded biopharmaceutical companies, including ARYx Therapeutics, Titan Pharmaceuticals and Genelabs Technologies, where she was responsible for building the finance and accounting infrastructures and implementing systems of internal controls. Ms. Tso is a Certified Management Accountant, a Certified Financial Manager, a Certified Public Accountant licensed in the State of California and a member of the American Institute of Certified Public Accountants. Ms. Tso received her B.S. degree in Business Administration from the Haas School of Business at the University of California, Berkeley.

There are no family relationships among any of our directors or executive officers.

Board Composition

Our board of directors currently consists of five members, all of whom were elected as directors pursuant to a stockholders agreement that we have entered into with certain holders of our common stock. The stockholders agreement will terminate upon the closing of this offering and there will be no further contractual obligations regarding the election of our directors. Our directors and officers hold office until their successors have been elected and qualified, or until their earlier death, resignation or removal.

Our amended and restated certificate of incorporation and amended and restated bylaws that will become effective upon the closing of this offering provide that the authorized number of directors may be changed only by resolution of the board of directors. Our amended and restated certificate of incorporation and amended and restated bylaws that will become effective upon the closing of this offering also provide that our directors may be removed only for cause by the affirmative vote of the holders of at least 66  2 3 % 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

 

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directors, including a vacancy resulting from an enlargement of our board of directors, may be filled either by vote of a majority of our directors then in office even though less than a quorum or by a stockholder vote pursuant to a resolution approved by the board of directors.

Under our amended and restated certificate of incorporation and amended and restated 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:

 

    the class I directors will be Vikram Lamba and Peter E. Daddona, and their initial term will expire at the annual meeting of stockholders to be held in 2015;

 

    the class II directors will be M. James Barrett and Bruce D. Steel, and their initial term will expire at the annual meeting of stockholders to be held in 2016; and

 

    the class III directors will be Troy Wilson and Kleanthis G. Xanthopoulos, and their initial 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 nominated for re-election 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 an 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.

One of the key functions of our board of directors is informed oversight of our risk management process. The board of directors does not have a standing risk management committee, but rather administers this oversight function directly through the board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our audit committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The audit committee also monitors compliance with legal and regulatory requirements. Our nominating and corporate governance committee will monitor the effectiveness of our corporate governance practices, including whether they are successful in preventing illegal or improper liability-creating conduct. Our compensation committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.

Director Independence

We intend to apply to list our common stock on The NASDAQ Global Market. Under the rules of The NASDAQ Stock Market, independent directors must comprise a majority of a listed company’s board of directors within 12 months of the completion of an initial public offering. In addition, the rules of The NASDAQ Stock Market require that (i) on the date of the completion of the offering, at least one member of each of a listed company’s audit, compensation and nominating and corporate governance committees be independent, (ii) within 90 days of the date of the completion of the offering, a majority of the members of such committees be independent and (iii) within one year of the date of the completion of the offering, all the members of such committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Securities Exchange Act. Under the rules of The NASDAQ Stock Market, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

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In order to be considered to be independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries or (2) be an affiliated person of the listed company or any of its subsidiaries.

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 Troy Wilson and Kleanthis Xanthopoulos is an “independent director” as defined under Rule 5605(a)(2) of the NASDAQ Listing Rules. In making this determination, our board of directors considered the relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining the independence of such directors, including the beneficial ownership of our capital stock by each non-employee director. We are actively seeking to identify additional well-qualified individuals to serve as independent directors with the goal of adding one of such additional independent director within 90 days of the effective date of this prospectus, and a second within one year from such date. We intend to comply with the other independence requirements for committees within the time periods specified above.

Board Committees

Our board of directors has established an audit committee and a compensation committee. We have also established a nominating and corporate governance committee, effective as of the date of this prospectus. Each of these committees, which are the only standing committees of our board of directors, will operate under a charter that has been approved by our board of directors.

Audit Committee. The current members of our audit committee are Dr. Barrett and Mr. Steel. Effective as of the date of this prospectus, our audit committee will consist of Dr. Barrett, Mr. Steel, Dr. Wilson and Dr. Xanthopoulos. Our board of directors has determined that each of Dr. Wilson and Dr. Xanthopoulos satisfies The NASDAQ Stock Market independence standards and the independence standards of Rule 10A-3(b)(1) of the Securities Exchange Act. We intend to add at least one additional independent director to our audit committee. Each of the members of our audit committee meets the requirements for financial literacy under applicable rules and regulations of the SEC and The NASDAQ Stock Market. The board of directors has also determined that Mr. Steel qualifies as an “audit committee financial expert,” as defined by applicable rules of The NASDAQ Stock Market and the SEC. The audit committee assists our board of directors in its oversight of:

 

    the integrity of our financial statements;

 

    our compliance with legal and regulatory requirements;

 

    the qualifications and independence of our independent registered public accounting firm; and

 

    the performance of our independent registered public accounting firm.

The audit committee has direct responsibility for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm. The audit committee establishes and implements policies and procedures for the pre-approval of all audit services and all permissible non-audit services provided by our independent registered public accounting firm and reviews and approves any related party transactions entered into by us.

Compensation Committee . The current members of our compensation committee are Dr. Barrett, Mr. Steel and Dr. Xanthopoulos. Effective as of the date of this prospectus, our compensation committee will consist of Dr. Barrett, Mr. Steel, Dr. Wilson and Dr. Xanthopoulos, of whom each of Dr. Wilson and Dr. Xanthopoulos is an independent director. We intend to add at least one additional independent director to our compensation committee. The compensation committee:

 

    approves the compensation and benefits of our executive officers;

 

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    reviews and makes recommendations to the board of directors regarding benefit plans and programs for employee compensation; and

 

    administers our equity compensation plans.

Nominating and Corporate Governance Committee . Effective as of the date of this prospectus, the members of our nominating and corporate governance committee will be Dr. Barrett, Mr. Steel, Dr. Wilson and Dr. Xanthopoulos, of whom each of Dr. Wilson and Dr. Xanthopoulos is an independent director. We intend to add at least one additional independent director to our nominating and corporate governance committee. The nominating and corporate governance committee will:

 

    identify individuals qualified to become board members;

 

    recommend to the board of directors nominations of persons to be elected to the board; and

 

    advise the board regarding appropriate corporate governance policies and assists the board in achieving them.

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 has any of them 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, executive officers and employees, effective as of the date of this prospectus. Following this offering, a copy of the code will be posted on the Corporate Governance section of our website, which is located at www.zosanopharma.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.

Director Compensation

Prior to this offering, we did not have a formal policy regarding compensation of our non-employee directors, and none of our non-employee directors other than Dr. Xanthopoulos received any compensation for service on our board of directors in 2013. In March 2013, we agreed to pay Dr. Xanthopoulos an annual cash fee of $25,000, payable monthly in arrears. In April 2013, we granted Dr. Xanthopoulos an option to purchase 113,207 shares of our common stock at an exercise price of $0.35 per share. The option provides for vesting in equal monthly installments over a period of four years, and becomes fully vested upon a change of control. In July 2013, Dr. Xanthopoulos transferred this option to a family trust for no consideration. We did not grant stock options to any of our other non-employee directors during 2013. We do not pay any compensation to our President and Chief Executive Officer our Chief Scientific Officer in connection with their service on our board of directors.

Following the closing of this offering, our non-employee directors will receive compensation as follows:

 

    an annual cash fee of $25,000, and non-statutory stock options to purchase shares of our common stock (at a per share exercise price equal to fair market value on the date of grant) vesting in equal monthly installments over a period of four years, with full acceleration of vesting upon a change of control.

The cash fees described above will be paid in monthly installments, in arrears. Non-employee directors are also reimbursed upon request for travel and other out-of-pocket expenses incurred in connection with their attendance at meetings of the board and of committees on which they serve.

 

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The following table sets forth information regarding compensation awarded to, earned by or paid to each of our non-employee directors during 2013. See “Executive Compensation” for a discussion of the compensation of Mr. Lamba and Dr. Daddona.

 

     Fees Earned or
Paid in Cash
     Option Awards  (1) (2)      Total  

Bruce D. Steel

   $ —         $ —         $ —     

M. James Barrett

     —           —           —     

Kleanthis G. Xanthopoulos

     16,667         27,415         27,415   

 

(1) Represents the aggregate grant date fair value of option awards granted in fiscal year 2013 in accordance with ASC Topic 505-50. The assumptions we use in calculating these amounts are discussed in note 10 to notes to financial statements appearing elsewhere in this prospectus.
(2) Represents a non-statutory option to purchase 113,207 shares of common stock granted in April 2013, which was transferred by Dr. Xanthopoulos to a family trust in July 2013.

 

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth information regarding compensation earned by our President and Chief Executive Officer and our two most highly compensated executive officers other than our President and Chief Executive Officer who served as executive officers as of December 31, 2013. We refer to these individuals as our named executive officers.

 

     Year      Salary      Bonus (1)      Total  

Vikram Lamba

     2013       $ 412,000       $ 185,400       $ 597,400   

Chief Executive Officer

           

Peter Daddona

     2013         334,750         120,510         455,260   

Chief Scientific Officer

           

Thorsten von Stein

     2013         398,000         —           398,000   

Chief Medical Officer (2)

           

 

(1) Represents cash bonus amounts awarded in respect of 2013, payment of which is contingent upon the completion of this offering. Bonus amounts were determined pursuant to applicable employment agreements and based on achievement of individual and company performance goals and other factors deemed relevant by our compensation committee and board of directors.
(2) Pursuant to an amendment to our consulting agreement with Dr. von Stein, effective March 17, 2014, Dr. von Stein is engaged by us as Medical Consultant and no longer serves as our Chief Medical Officer.

Narrative Disclosure to Summary Compensation Table

We review compensation annually for all of our employees, including our executives. In setting executive base salaries and bonuses and granting equity incentive awards, we consider compensation for comparable positions in the market, the historical compensation levels of our executives, individual performance as compared to our expectations and objectives, our desire to motivate our employees to achieve short- and long-term results that are in the best interests of our stockholders, and a long-term commitment to our company. We do not target a specific competitive position or a specific mix of compensation among base salary, bonus or long-term incentives.

Our board of directors has historically determined our executives’ compensation. Our compensation committee typically has reviewed and discussed management’s proposed compensation with the President and Chief Executive Officer for all executives other than our President and Chief Executive Officer. Based on those discussions and its discretion, the compensation committee then has recommended the compensation for each executive officer. Our board of directors, without members of management present, has discussed the compensation committee’s recommendations and ultimately approved the compensation of our executive officers. Effective upon the closing of this offering, our compensation committee will approve the compensation and benefits of our executive officers.

We have formal employment agreements with Vikram Lamba, our President and Chief Executive Officer, and Peter Daddona, our Chief Scientific Officer, and we have a formal consulting agreement with Thorsten von Stein, who was our Chief Medical Officer until March 17, 2014. Mr. Lamba’s employment agreement provides for an initial annual base salary of $400,000, subject to increase from time to time, and we currently pay Mr. Lamba an annual base salary of $412,000. Mr. Lamba’s employment agreement provides for a target annual bonus of 40% of his annual base salary, with a bonus opportunity between 0% and 80% of annual base salary, to be determined by the board of directors in its discretion based on individual and company performance against goals established annually by the compensation committee, as well as the company’s then prevailing cash position. Dr. Daddona’s employment agreement provides for an initial annual base salary of $325,000, subject to increase from time to time, and we currently pay Dr. Daddona an annual base salary of $334,745. Dr. Daddona’s

 

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employment agreement provides for a target annual bonus of 30% of his annual base salary, with a bonus opportunity between 0% and 60% of annual base salary, to be determined by the board of directors in its discretion based on individual and company performance against goals established annually by the compensation committee, as well as the company’s then prevailing cash position. Each of Vikram Lamba and Dr. Daddona is an employee-at-will, and is entitled to certain severance benefits if he is terminated without cause or resigns for good reason, as defined in his agreement. Dr. von Stein’s consulting agreement provided for a consulting fee of $500 per hour, up to a maximum daily amount of $2,800, for fiscal year 2013, and we currently pay Dr. von Stein a consulting fee of $550 per hour, up to a maximum of $4,400 per day. Dr. von Stein’s consulting agreement can be terminated on 60 days’ prior written notice.

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
Expiration
Date
     Option Grant
Date
 

Vikram Lamba

     212,259 (1)       353,768       $ 0.385         7/1/2017         7/1/2012   

Peter Daddona

     106,130 (1)       176,884       $ 0.35         6/15/2022         6/15/2012   

Thorsten von Stein

     3,427 (2)       6,248       $ 0.35         7/25/2022         7/25/2012   
     2,419 (2)       7,255       $ 0.35         12/11/2022         12/11/2012   

 

(1) This option becomes exercisable for 25% of the underlying shares on the first anniversary of the grant date, and thereafter becomes exercisable for the remaining underlying shares in equal monthly installments over three years, resulting in the option being exercisable for 100% of the underlying shares on the fourth anniversary of the grant date; provided that if the holder is terminated without cause or resigns for good reason (as these terms are defined in the holder’s employment agreement), then the option will become exercisable for an additional 18.75% of the total underlying shares; provided further that if the option holder is terminated without cause or resigns for good reason within one year after a change in control (as defined in the holder’s employment agreement), then the option will become exercisable for 100% of the underlying shares.
(2) This option becomes exercisable for 25% of the underlying shares on the first anniversary of the grant date, and thereafter becomes exercisable for the remaining underlying shares in equal monthly installments over three years, resulting in the option being exercisable for 100% of the underlying shares on the fourth anniversary of the grant date; provided that if the holder is terminated without cause (as defined in our 2012 Stock Incentive Plan), then the option will become exercisable for 100% of the underlying shares.

Severance and Change in Control Arrangements

Pursuant to the terms of Mr. Lamba’s employment agreement, if we terminate Mr. Lamba’s employment without cause or Mr. Lamba resigns for good reason, as these terms are defined in the employment agreement, then Mr. Lamba is entitled to receive certain severance payments, including nine months’ salary, pro rata bonus payment in respect of those nine months, and acceleration of vesting of a portion of his outstanding stock option. Also, upon a change in control, as defined in the employment agreement, all shares of Mr. Lamba’s founder’s stock will be released from our repurchase option described below, and if within a year after a change of control Mr. Lamba’s employment is terminated without cause or Mr. Lamba resigns for good reason, then Mr. Lamba’s stock option will vest in full. In January 2012, in connection with the incorporation of Zosano Pharma Corporation (then named ZP Holdings, Inc.), we issued and sold to Mr. Lamba 2,500,000 shares of our common stock as founder’s stock pursuant to a Restricted Stock Purchase Agreement dated as of January 26, 2012

 

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between us and Mr. Lamba. Following the April 2012 reorganization, we entered into a Stock Repurchase Option Agreement dated as of May 15, 2012 with Mr. Lamba which provides us an option to repurchase certain shares of Mr. Lamba’s founder’s stock upon certain terminations of Mr. Lamba’s employment with us, and also provides for the release of the shares from this repurchase option upon a change of control as described above.

Pursuant to the terms of Dr. Daddona’s employment agreement, if we terminate Dr. Daddona’s employment without cause or Dr. Daddona resigns for good reason, as these terms are defined in the employment agreement, then Dr. Daddona is entitled to receive certain severance payments, including nine months’ salary, pro rata bonus payment in respect of those nine months, and acceleration of vesting of a portion of his outstanding stock option. Also, upon a change in control, as defined in the employment agreement, all unvested shares of Dr. Daddona’s founder’s stock will be released from our repurchase option described below, and if within a year after a change of control Dr. Daddona’s employment is terminated without cause or Dr. Daddona resigns for good reason, then Dr. Daddona’s stock option will vest in full. In January 2012, in connection with the incorporation of Zosano Pharma Corporation (then named ZP Holdings, Inc.), we issued and sold to Dr. Daddona 1,250,000 shares of our common stock as founder’s stock pursuant to a Restricted Stock Purchase Agreement dated as of January 26, 2012 between us and Dr. Daddona. Following the April 2012 reorganization, we entered into a Stock Repurchase Option Agreement dated as of May 15, 2012 with Dr. Daddona which provides us an option to repurchase certain shares of Dr. Daddona’s founder’s stock upon certain terminations of Dr. Daddona’s employment with us, and also provides for the release of the shares from this repurchase option upon a change of control as described above.

Pursuant to the terms of our non-statutory stock option agreements with Dr. von Stein, if Dr. von Stein’s services are terminated without cause, as defined in our 2012 Stock Incentive Plan, then Dr. von Stein’s outstanding stock options will vest in full.

Stock Incentive and Equity Compensation Plans

We believe that equity-based awards are important vehicles by which to align the interest of our employees with the financial interests of our stockholders, and we historically have awarded stock options broadly to our employees, including our named executive officers. The material terms and conditions of our stock incentive and equity compensation plans are described below.

We have the following equity incentive plans: (i) 2012 Stock Incentive Plan; and (ii) 2014 Equity and Incentive Plan. Following the closing of this offering, our 2014 Equity and Incentive Plan will be the only effective equity compensation plan pursuant to which we will make new awards.

2012 Stock Incentive Plan

Our 2012 Stock Incentive Plan provides for the grant of equity-based awards, denominated in shares of our common stock, including incentive stock options, non-statutory stock options and restricted stock awards. We will not make any new awards under the 2012 Stock Incentive Plan following the completion of this offering. The material features of our 2012 Stock Incentive Plan are summarized below. The complete text of our 2012 Stock Incentive Plan is filed as an exhibit to the registration statement of which this prospectus forms a part.

General . The maximum number of shares of common stock which may be issued under our 2012 Stock Incentive Plan is 2,264,108. Any shares subject to an award granted under our 2012 Stock Incentive Plan to any person are counted against this limit.

Purposes . The purpose of our 2012 Stock Incentive Plan is to encourage and enable our officers and employees and other persons providing services to us and our subsidiaries to acquire a proprietary interest in our business. We believe that by providing such persons with a direct stake in our welfare will assure a closer identification of their interests with our interests and the interests of our shareholders, thereby stimulating their efforts on our behalf and strengthening their desire to remain with us.

 

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Administration . Our 2012 Stock Incentive Plan has been administered by our board of directors, and, following the closing of this offering, will be administered by the compensation committee of our board of directors. Subject to the terms of our 2012 Stock Incentive Plan, the board of directors may determine the types of awards and the terms and conditions of such awards, interpret provisions of our 2012 Stock Incentive Plan and select participants to receive awards.

Source of shares . The shares of common stock issued or to be issued under our 2012 Stock Incentive Plan consist of authorized but unissued shares and shares that we have reacquired. Shares of common stock underlying any awards issued under the 2012 Stock Incentive Plan that are forfeited, cancelled, reacquired by us or otherwise terminated (other than by exercise) will be added back to the shares of common stock with respect to which awards may be granted under the 2012 Stock Incentive Plan.

Eligibility . Awards may be granted under the 2012 Stock Incentive Plan to our and our subsidiaries’ respective officers, directors, employees, and to consultants and advisors to and us and/or our subsidiaries.

Amendment or termination of our stock incentive plan . Our board of directors may terminate or amend the 2012 Stock Incentive Plan at any time. No amendment or termination may adversely impair the rights of grantees with respect to outstanding awards without the affected participant’s consent to such amendment. In addition, an amendment will be contingent on approval of our stockholders to the extent required by law. Unless terminated earlier, our 2012 Stock Incentive Plan will terminate in April 2022, but will continue to govern unexpired awards.

Options . Our 2012 Stock Incentive Plan permits the granting of options to purchase shares of common stock intended to qualify as “incentive stock options” under the Internal Revenue Code, and options that do not qualify as incentive stock options, which are referred to as non-statutory stock options. We may grant non-statutory stock options to our employees, directors, officers, consultants or advisors in the discretion of our board of directors. Incentive stock options will only be granted to our employees.

The exercise price of each incentive stock option and non-statutory stock option may not be less than 100% of the fair market value of shares of our common stock on the date of grant. If we grant incentive stock options to any 10% stockholder, the exercise price may not be less than 110% of the fair market value of shares of our common stock on the date of grant. The term of each option may not exceed 10 years from the date of grant, except that the term of any incentive stock option granted to any 10% stockholder may not exceed five years from the date of grant. At the time of grant of the award, our board of directors determines at what time or times each option may be exercised and the period of time, if any, after retirement, death, disability or termination of employment during which options may be exercised. Options may be made exercisable in installments. The vesting and exercisability of options may be accelerated by the board of directors.

In general, an optionee may pay the exercise price of an option by cash or check or, if so provided in the applicable option agreement and with the written consent of the board of directors, by tendering shares of our common stock having a fair market value equal to the aggregate exercise price of the options being exercised, by a personal recourse note issued by the optionee in a principal amount equal to the aggregate exercise price of the options being exercised, by a “cashless exercise” through a broker supported by irrevocable instructions to the broker to deliver sufficient funds to pay the applicable exercise price, by reducing the number of shares otherwise issuable to the optionee upon exercise of the option by a number of shares having a fair market value equal to the aggregate exercise price of the options being exercised, or by any combination of these methods of payment.

Incentive stock options granted under our 2012 Stock Incentive Plan may not be transferred or assigned other than by will or under applicable laws of descent and distribution. Our board of directors may determine the extent to which a non-statutory option shall be transferable.

 

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Restricted stock awards . Restricted stock awards entitle the recipient to acquire, for a purchase price determined by the board of directors, shares of common stock subject to such restrictions and conditions as the board of directors may determine at the time of grant, including continued employment and/or achievement of pre-established performance goals and objectives.

Adjustments upon changes in capitalization . We will make appropriate and proportionate adjustments in outstanding awards and the number of shares available for issuance under the 2012 Stock Incentive Plan to reflect recapitalizations, reclassifications, stock dividends, stock splits, reverse stock splits and other similar events.

Effect of a change in control . Upon the occurrence of a “change in control transaction” (as defined in the 2012 Stock Incentive Plan), unless otherwise provided in any stock option agreement or restricted stock agreement, our board of directors (or the board of directors of any corporation assuming the obligations of our company), may, in its discretion, take any one or more of the following actions as to some or all outstanding stock options or restricted stock awards:

 

    provide that such stock options will be assumed, or equivalent stock options substituted, by the acquiring or succeeding corporation (or an affiliate thereof);

 

    upon written notice to the optionees, provide that all unexercised stock options will terminate immediately prior to the consummation of the change in control transaction unless exercised by the optionee to the extent otherwise then exercisable within a specified period following the date of such notice;

 

    upon written notice to the grantees, provide that all unvested shares of restricted stock will be repurchased at cost;

 

    make or provide for a cash payment to the optionees equal to the difference between (x) the fair market value of the per share consideration (whether cash, securities or other property or any combination thereof) the holder of a share of our common stock will receive upon consummation of the change in control transaction times the number of shares of common stock subject to outstanding vested stock options (to the extent then exercisable at prices not equal to or in excess of such per share consideration) and (y) the aggregate exercise price of such outstanding vested stock options, in exchange for the termination of such stock options; or

 

    provide that all or any outstanding stock options will become exercisable and all or any outstanding restricted stock awards will vest in part or in full immediately prior to the change in control transaction.

To the extent that any stock options are exercisable at a price equal to or in excess of the per share consideration in the change in control transaction, our board of directors may provide that such stock options will terminate immediately upon the consummation of the change in control transaction without any payment being made to the holders of such stock options.

2014 Equity and Incentive Plan

Our board of directors has adopted, and our stockholders have approved, our 2014 Equity and Incentive Plan. A total of         shares of our common stock will initially be reserved for issuance under our 2014 Equity and Incentive Plan, subject to automatic annual increases as set forth in the plan. The 2014 Equity and Incentive Plan provides for the issuance of (i) cash awards and (ii) equity-based awards, denominated in shares of our common stock, including incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards, performance share awards and dividend equivalent rights.

Purpose . The purpose of our 2014 Equity and Incentive Plan is to (i) provide long-term incentives and rewards to those employees, officers, directors and other key persons (including consultants) of the company and

 

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its subsidiaries who are in a position to contribute to the long-term success and growth of the company and its subsidiaries, (ii) to assist the company and its subsidiaries in attracting and retaining persons with the requisite experience and ability, and (iii) to more closely align the interests of such employees, officers, directors and other key persons with the interests of the company’s stockholders.

Administration . Our 2014 Equity and Incentive Plan will be administered by the compensation committee of our board of directors. The compensation committee is generally granted broad authority to administer the plan, including the power to determine and modify the terms and conditions, not otherwise inconsistent with the terms of the plan, of any award. All decisions and interpretations of the compensation committee shall be binding on all persons subject to the plan including the company and plan grantees.

Sources of shares . The shares of common stock to be issued under the 2014 Equity and Incentive Plan consist of authorized but unissued shares and shares that we have reacquired. Shares of common stock underlying any award issued under the 2014 Equity and Incentive Plan that are forfeited, canceled, satisfied without issuance of stock, otherwise terminated or, for shares of stock issued pursuant to any unvested full value award, reacquired by the company shall be added back to the shares of common stock with respect to which awards may be granted under the plan.

Eligibility . Incentive stock options may only be granted to our employees. All other awards may be granted to our employees, officers, directors and key persons (including consultants and prospective employees).

Amendment or termination of our 2014 Equity and Incentive Plan . Subject to requirements of law or any stock exchange or similar rules which would require a vote of our stockholders, our board of directors may, at any time, amend or discontinue the plan and the compensation committee may, at any time, amend or cancel any outstanding award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding award without the holder’s consent.

Options . Our 2014 Equity and Incentive Plan permits the granting of options to purchase common stock that are intended to qualify as “incentive stock options” under the Code, and options that do not qualify as incentive stock options, which are referred to as non-statutory stock options. We may grant non-qualified stock options to our employees, directors, officers, consultants or advisors in the discretion of our board of directors. Incentive stock options will only be granted to our employees. The exercise price of each incentive stock option may not be less than 100% of the fair market value of shares of our common stock on the date of grant. If we grant incentive stock options to any person holding 10% or more of the outstanding voting stock of the company, the exercise price may not be less than 110% of the fair value of shares of our common stock on the date of grant. The exercise price of any non-qualified stock option will be determined by our board of directors and may not be less than the fair value of shares of our common stock.

The term of each option may not exceed 10 years from the date of grant, and no option shall be transferable by the optionee other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, the compensation committee, in its sole discretion, may provide in the award agreement regarding a given option, or may agree in writing with respect to an outstanding option, that the optionee may transfer their non-statutory stock options to members of their immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the company to be bound by all of the terms and conditions of this plan and the applicable option.

In general, an optionee may pay the exercise price of an option by cash or, if so provided in the applicable option agreement, by tendering shares of our common stock, by a “cashless exercise” through a broker supported by an irrevocable instruction to such broker to deliver sufficient funds to pay the applicable exercise price, by reducing the number of shares otherwise issuable to the optionee upon exercise of the option by a number of shares having a fair market value equal to the aggregate exercise price of the options being exercised or by any other method permitted by the compensation committee.

 

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Stock appreciation rights . Pursuant to the 2014 Equity and Incentive Plan, we may grant stock appreciation rights, or an award entitling the recipient to receive cash or shares of our common stock having a value on the date of exercise calculated as follows: (i) the exercise price of a share of common stock on the grant date is less the fair market value of the common stock on the date of exercise and (ii) multiplied by the number of shares of stock with respect to which the stock appreciation right shall have been exercised. The exercise price of a stock appreciation right shall not be less than 100% of the fair market value of our common stock on the date of grant, and the terms and conditions of the stock appreciation rights shall be determined from time to time by the compensation committee.

Restricted stock awards . Pursuant to the 2014 Equity and Incentive Plan, we may grant restricted stock awards entitling the recipient to acquire, at such a price as determined by the compensation committee, shares of common stock subject to such restrictions and conditions as the compensation committee may determine at the time of grant. Conditions may be based on continuing employment or achievement of pre-established performance goals and objectives. A holder of a restricted stock award may exercise voting rights upon (i) execution of a written instrument setting forth the award and (ii) payment of any applicable purchase.

Restricted stock units . Pursuant to the 2014 Equity and Incentive Plan, we may grant restricted stock units which entitle the holder, upon vesting of the right, to a number of shares of common stock as determined in the award agreement. The compensation committee shall determine the restrictions and conditions applicable to each restricted stock unit at the time of grant, and a holder of a restricted stock unit shall only have exercisable rights as a stockholder upon settlement of restricted stock units. Unless otherwise provided in the award agreement, a holder’s rights in all restricted stock units that have not vested shall automatically terminate immediately following the holder’s termination of employment with the company for any reason.

Unrestricted stock awards. Pursuant to the 2014 Equity and Incentive Plan, we may grant unrestricted awards of shares of common stock free of any restrictions under the plan. The right to receive shares of unrestricted stock awards on a deferred basis may not be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution.

Performance share awards . Pursuant to the 2014 Equity and Incentive Plan, we may grant performance share awards entitling the recipient to acquire shares of common stock upon the attainment of specified performance goals; provided, however, that the compensation committee, in its discretion, may provide either at the time of grant or at the time of settlement that a performance share award will be settled in cash. The period during which performance is to be measured for performance share awards shall not be less than one year, and such performance share awards, and all rights with respect to such awards, may not be sold, assigned, transferred, pledged or otherwise encumbered.

Dividend equivalent rights. Pursuant to the 2014 Equity and Incentive Plan, we may grant dividend equivalent rights entitling the recipient to receive credits based on cash dividends that would be paid on the shares of stock specified in the dividend equivalent right (or other award to which it relates). Dividend equivalent rights may be settled in cash or shares of stock or a combination thereof, in a single installment or installments. A dividend equivalent right granted as a component of another award may provide that such dividend equivalent right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other award, and that such dividend equivalent right shall expire or be forfeited or annulled under the same conditions as such other award.

Cash awards. The compensation committee, in its discretion, may provide for cash payments to be made under the 2014 Equity and Incentive Plan. Such cash awards may be made subject to such terms, conditions and restrictions as the compensation committee considers necessary or advisable.

Effect of a change in control . If we experience a “change in control,” as defined in the 2014 Equity and Incentive Plan, the compensation committee may in its discretion, at the time an award is made or at any time thereafter, take one or more of the following actions: (i) provide for the acceleration of any time period relating

 

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to the exercise or payment of the award; (ii) provide for termination of any awards not exercised prior to the occurrence of a change in control; provided that the holder of any such award is given written notice of such prospective action by the administrator at least ten calendar days prior to the effective date of the change in control; (iii) provide for payment to the holder of the award of cash or other property with a fair market value equal to the amount that would have been received upon the exercise or payment of the award had the award been exercised or paid upon the change in control in exchange for cancellation of the award; (iv) adjust the terms of the award in a manner determined by the compensation committee to reflect the change in control; (v) cause the award to be assumed, or new rights substituted therefor, by another entity; or (vi) make such other provision as the compensation committee may consider equitable to the holders of awards and in our best interests.

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 Code. In general, all of our employees, upon meeting certain requirements, are eligible to participate in the 401(k) plan. 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 and have the amount of the reduction contributed to the 401(k) plan. Employee contributions are held and invested by the plan’s trustee. The 401(k) plan also permits the Company to make discretionary matching contributions. The Company did not make any matching contribution for the years ended December 31, 2013 and 2012.

Limitation of Liability and Indemnification

Our amended and restated certificate of incorporation includes provisions that will limit or eliminate the personal liability of our 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:

 

    any breach of the director’s duty of loyalty to us or our stockholders;

 

    any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

    any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or

 

    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 and bylaws that will be effective as of the closing date of this offering will also provide that:

 

    we will indemnify our directors and officers to the fullest extent permitted by law;

 

    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

 

    we will advance expenses to our directors and officers in connection with legal proceedings in connection with a legal proceeding to the fullest extent permitted by law.

The indemnification provisions contained in our certificate of incorporation that will be effective as of the closing date of this offering are not exclusive.

 

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We believe that these provisions are necessary to attract and retain qualified persons as directors and officers. Insofar as indemnification for liabilities arising under 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 have entered into indemnification agreements with each of our directors and maintain standard policies of insurance under which coverage is provided to our directors and officers against losses arising from claims made by reason of breach of duty or other wrongful act, and to us with respect to payments which may be made by us to such directors and officers pursuant to the above indemnification provisions or otherwise as a matter of law.

 

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RELATED PERSON TRANSACTIONS

The following is a description of transactions since January 1, 2011 and any currently proposed transactions to which we have been or will be a party, and in which the amounts involved exceeded or will exceed $120,000 (except as otherwise indicated) and any of our directors, executive officers or beneficial owners of more than 5% of our voting securities, or any of their respective affiliates or immediate family members, had or will have a direct or indirect material interest, which have not already been described in the “ Executive Compensation ” section of this report. 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.

Issuance of Founder’s Shares

In January 2012, in connection with our incorporation, we issued and sold to Vikram Lamba, our President and Chief Executive Officer and a director, 2,500,000 shares of our common stock as founder’s stock for an aggregate purchase price of $250 pursuant to a restricted stock purchase agreement between us and Mr. Lamba, and we issued and sold to Peter Daddona, our Chief Scientific Officer and a director, 1,250,000 shares of our common stock as founder’s stock for an aggregate purchase price of $125 pursuant to a restricted stock purchase agreement between us and Dr. Daddona. Following the April 2012 recapitalization, we entered into a stock repurchase option agreement with Mr. Lamba pursuant to which we have an option to repurchase certain shares of Mr. Lamba’s founder’s stock in the event of Mr. Lamba’s termination without cause or resignation for good reason (as these terms are defined in Mr. Lamba’s employment agreement). Of the 2,500,000 shares, 1/3 of the shares were released from the repurchase option on May 15, 2012 and the remainder are released in equal monthly installments over three years beginning on January 26, 2012, provided that an additional 2/9 of the total shares are released from the repurchase option upon Mr. Lamba’s death or termination due to disability and all shares are released from the repurchase option upon a qualified sale (as defined in the stock repurchase option agreement). Following the April 2012 recapitalization, we also entered into a stock repurchase option agreement with Dr. Daddona pursuant to which we have an option to repurchase certain shares of Dr. Daddona’s founder’s stock in the event of Dr. Daddona’s termination without cause or resignation for good reason (as these terms are defined in Dr. Daddona’s employment agreement). Of the 1,250,000 shares, 1/3 of the shares were released from the repurchase option on May 15, 2012 and the remainder are released in equal annual installments over three years beginning on January 26, 2012, provided that all shares are released from the repurchase option upon a qualified sale (as defined in the stock repurchase option agreement).

Secured Loan and Real Property Lease with BMR

In April 2012, in connection with our April 2012 recapitalization, described in further detail in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Developments Important to Understanding Our Financial Statements—2012 recapitalization” section of this prospectus, we issued 4,947,076 shares of our common stock and a four year non-callable secured promissory note in the original principal amount of $8,556,533 to BioMed Realty Holdings, Inc., or BMR Holdings, and 430,180 shares of our common stock to BioMed Realty, L.P., each of which is an affiliate of our landlord, BMR-34790 Ardentech Court LP. As a result, BMR Holdings and BioMed Realty, L.P. together held approximately 23.8% of our voting securities following the recapitalization. We issued these securities to BMR Holdings and BioMed Realty, L.P. in exchange for reduction of future rent payments pursuant to an amendment to our lease agreement with BMR-34790 Ardentech Court LP, cancellation of an unsecured convertible promissory note issued to BMR in July 2011 and cancellation of a stock purchase warrant issued to BMR Holdings in July 2011.

The BMR secured promissory note bears interest at the annual rate of 8%, compounded annually, and all principal and interest are due and payable on the earliest of (i) April 26, 2016, (ii) the closing of a sale of our company or business, as defined in the BMR secured promissory note, and (iii) the date that any distribution is made to our stockholders, as defined in the BMR secured promissory note. We may prepay the BMR secured promissory note, in whole or in part, at any time without prepayment penalty or premium. Further, we are required

 

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to prepay the BMR secured promissory note immediately prior to, or in connection with, a sale or partial sale of our company or business, as defined as a transaction in which we are acquired or in which we exclusively license or sell all or substantially all of our assets. In any similar transaction that does not qualify as a sale but results in our cash balance being at least $5.0 million in excess of our cash requirements for the 12 months following the closing of such transaction, we are required to prepay an amount equal to half of the excess cash balance over $5.0 million. The BMR secured promissory note is secured by a first priority security interest and lien in and to all of our tangible and intangible properties and assets, including intellectual property. As of the date of this prospectus, the aggregate outstanding principal and accrued interest under the BMR secured promissory note is approximately $10.0 million. In June 2014, we amended the BMR secured promissory note to increase the interest rate during the period our $4 million term loan facility with Hercules Technology Growth Capital remains outstanding to match the interest rate of the Hercules loan and to provide that any failure by us to pay any amount under the BMR secured promissory note during the period from the maturity date of the BMR secured promissory note through the date that the Hercules loan is repaid in full will not constitute a default under the BMR secured promissory note. As a result of this amendment, during the period our $4 million term loan facility with Hercules Technology Growth Capital remains outstanding, the BMR secured promissory note bears interest at an annual rate equal to the greater of (i) 12.05% and (ii) 12.05% plus the “prime rate” as reported in The Wall Street Journal minus 5.25%. The interest rate floats, and will be determined in accordance with the preceding sentence based on changes to the prime rate as reported in The Wall Street Journal. In connection with the Hercules loan, the BMR affiliate that is the holder of the BMR secured promissory note agreed to subordinate the BMR secured promissory note to the Hercules loan, and we issued 125,000 shares of our common stock to this BMR affiliate.

In December 2012, BMR Holdings transferred the BMR secured promissory note and its 4,947,076 shares of our common stock to its affiliate, BMV Direct SOTRS LP. In December 2012, BioMed Realty, L.P. transferred its 430,180 shares of our common stock to its affiliate, BMV Direct SO LP. As a result of these transfers, each of BMV Direct SOTRS LP and BMV Direct SO LP owns more than 5% of our voting securities.

We also have an operating lease with BMR-34790 Ardentech Court LP, which is an affiliate of BMV Direct SOTRS LP and BMV Direct SO LP, for a 55,000 square foot facility in Fremont, California, where we operate our manufacturing operations and house our engineering, research and development and administrative employees. In 2011, 2012 and 2013, we recorded rent expense to BMR-34790 Ardentech Court LP in the amounts of approximately $1,636,000, $874,000 and $620,000, respectively. In April 2012, we amended the lease agreement to reduce future rent obligations to amounts ranging from approximately $600,000 to $891,000 per year over a new lease term of seven years.

2013 Bridge Loan

In September 2013, we issued and sold convertible promissory notes, which we refer to as the 2013 bridge notes, in the aggregate original principal amount of approximately $3.0 million to our stockholders BMV Direct SOTRS LP, BMV Direct SO LP, New Enterprise Associates 12, Limited Partnership, ProQuest Investments IV, L.P. and ProQuest Management LLC. Each of BMV Direct SOTRS LP, BMV Direct SO LP (together with its affiliate BMV Direct SOTRS LP), New Enterprise Associates 12, Limited Partnership, ProQuest Investments IV, L.P., and ProQuest Management LLC (together with its affiliate ProQuest Investments IV, L.P.) then owned more than 5% of our voting securities, and as of the date of this prospectus each of BMV Direct SOTRS LP, BMV Direct SO LP (together with its affiliate BMV Direct SOTRS LP) and New Enterprise Associates 12, Limited Partnership owns more than 5% of our voting securities. The following is the original principal amount of 2013 bridge notes that were issued to our directors, executive officers and holders of more than 5% of our voting securities, and their affiliates or immediate family members:

 

    BMV Direct SOTRS LP, in the original principal amount of approximately $1.0 million;

 

    BMV Direct SO LP, in the original principal amount of approximately $300,000;

 

    New Enterprise Associates 12, Limited Partnership, in the original principal amount of approximately $1.2 million; and

 

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    ProQuest Investments IV, L.P. and its affiliate ProQuest Management LLC, in the aggregate original principal amount of approximately $600,000.

As consideration for our issuance of the 2013 bridge notes, each investor paid us an amount equal to the original principal amount of the note issued to the investor. The 2013 bridge notes mature on September 9, 2014 and accrue simple interest at the annual rate of 8%. As of the date of this prospectus, the aggregate outstanding principal and accrued interest under the 2013 bridge notes is approximately $3.2 million. Pursuant to their terms, the 2013 bridge notes will automatically convert upon the closing of this offering into shares of our common stock if the closing occurs on or before September 9, 2014, at a conversion price equal to 85% of the price per share at which our common stock is sold in this offering. In June 2014, we amended the 2013 bridge notes to provide that any failure by us to pay any amount under the 2013 bridge notes during the period from maturity of the 2013 bridge notes through the date that the Hercules loan is repaid in full will not constitute a default under the 2013 bridge notes.

2014 Bridge Loan

In February 2014, we issued and sold convertible promissory notes, which we refer to as the 2014 bridge notes, in the aggregate original principal amount of $2.5 million to our stockholders BMV Direct SOTRS LP, BMV Direct SO LP and New Enterprise Associates 12, Limited Partnership. Each of BMV Direct SOTRS LP, BMV Direct SO LP and New Enterprise Associates 12, Limited Partnership then owned, and as of the date of this prospectus owns, more than 5% of our voting securities. The following is the original principal amount of 2014 bridge notes that were issued to our directors, executive officers and holders of more than 5% of our voting securities, and their affiliates or immediate family members:

 

    BMV Direct SOTRS LP, in the original principal amount of approximately $1.1 million;

 

    BMV Direct SO LP, in the original principal amount of approximately $250,000; and

 

    New Enterprise Associates 12, Limited Partnership, in the original principal amount of approximately $1.2 million.

As consideration for our issuance of the 2014 bridge notes, each investor paid us an amount equal to the original principal amount of the note issued to the investor. The 2014 bridge notes mature on September 9, 2014 and accrue simple interest at the annual rate of 8%. As of the date of this prospectus, the aggregate outstanding principal and accrued interest under the 2014 bridge notes is approximately $2.6 million. Pursuant to their terms, the 2014 bridge notes will automatically convert upon the closing of this offering into shares of our common stock if the closing occurs on or before September 9, 2014, at a conversion price equal to 85% of the price per share at which our common stock is sold in this offering. In June 2014, we amended the 2014 bridge notes to provide that any failure by us to pay any amount under the 2014 bridge notes during the period from maturity of the 2014 bridge notes through the date that the Hercules loan is repaid in full will not constitute a default under the 2014 bridge notes.

Agreement with Our Stockholders

In April 2012, in connection with our April 2012 recapitalization, we entered into a stockholder rights and voting agreement, which we refer to as the stockholders agreement, with certain holders of our common stock, including Vikram Lamba, our President and Chief Executive Officer and a holder of more than 5% of our voting securities, Peter Daddona, our Chief Scientific Officer and a holder of more than 5% of our voting securities, BMR, then a holder of more than 5% of our voting securities, BioMed Realty, L.P., then a holder of more than 5% of our voting securities (together with its affiliate BMR), New Enterprise Associates 12, Limited Partnership, a holder of more than 5% of our voting securities, NEA Ventures 2006, Limited Partnership, a holder of more than 5% of our voting securities (together with New Enterprise Associates 12, Limited Partnership), ProQuest Investments IV, L.P., then a holder of more than 5% of our voting securities, and Nomura Phase4 Ventures L.P., then a holder of more than 5% of our voting securities. In December 2012, BMR and BioMed Realty, L.P. assigned its rights under the stockholders agreement to BMV Direct SOTRS LP and BMV Direct SO LP, respectively. Each of BMV Direct SOTRS LP and BMV Direct SO LP owns more than 5% of our voting securities. The stockholders agreement

 

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provides each of the stockholders that is a party to the agreement with a secondary right of first refusal in respect of sales of securities by certain holders of our capital stock, and contains provisions with respect to the election of our board of directors and its composition. The stockholders agreement will terminate upon the closing of this offering.

Interests of Directors in our Financial Relationships

Two of our directors, Bruce Steel and M. James Barrett, may be deemed to have indirect material interests in our financial relationships with certain of our stockholders based on their association with such stockholders:

 

    Bruce Steel is a limited partner with a variable economic interest in each of BMV Direct SOTRS LP and BMV Direct SO LP, which entitles him to a percentage of certain distributions of these entities. Mr. Steel does not have voting or dispositive control of either of these entities. Mr. Steel disclaims beneficial ownership in our securities directly held by these entities except to the extent of his pecuniary interest therein.

 

    M. James Barrett is one of seven Managers of NEA 12 GP, LLC, or NEA 12 LLC, the sole general partner of NEA Partners 12, Limited Partnership, or NEA Partners 12, which is the sole general partner of our stockholder, New Enterprise Associates 12, Limited Partnership. NEA Partners 12, NEA 12 LLC and each of the Managers of NEA 12 LLC share voting and dispositive power with regard to our securities directly held by New Enterprise Associates 12, Limited Partnership. Dr. Barrett disclaims beneficial ownership in these shares except to the extent of his pecuniary interest therein, if any.

Participation in this Offering

Certain of our existing investors and              affiliated entities have indicated an interest in purchasing an aggregate amount of $         million worth of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these potential investors, or any of these potential investors may determine to purchase more, less or no shares in this offering. Any shares purchased by these potential investors will be subject to lock-up restrictions described in “Shares Eligible for Future Sale.”

Indemnification of Directors and Officers

Our amended and restated certificate of incorporation and amended and restated bylaws 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 that are broader in scope than the specific indemnification provisions contained in the Delaware General Corporation Law. See the “ Executive Compensation—Limitation of Liability and Indemnification ” section of this prospectus for a further discussion of these arrangements.

Policies and Procedures for Related Person Transactions

While we have not historically had a written policy with respect to the review and approval of transactions with our directors, officers and principal stockholders, it has been the practice of our board of directors to review all interested party transactions and not to authorize any such transaction unless the board of directors, excluding any interested directors, determines that the terms of the proposed transaction are as favorable or more favorable to our company than would be available from an unrelated party in an arms’ length negotiation. Pursuant to the charter of our audit committee that we expect to become effective upon the closing of this offering, our audit committee will be responsible for reviewing and approving in advance any related person transactions. For the purposes of this policy, a “related person transaction” is any transaction between us or any of our subsidiaries and any (a) of our directors or executive officers, (b) nominee for election as a director, (c) person known to us to own more than five percent of any class of our voting securities, or (d) member of the immediate family of any such person, if the nature of such transaction is such that it would be required to be disclosed under Item 404 of Regulation S-K (or any similar successor provision).

 

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In determining whether to approve a related person transaction, the audit committee will take into account, among other factors it deems appropriate, whether the related person transaction is on terms no less favorable than terms generally available to an unaffiliated third-person under the same or similar circumstances and the extent of the related person’s interest in the transaction.

 

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to beneficial ownership of our common stock, as of June 15, 2014, by:

 

    each person or entity, or group of affiliated persons or entities, known by us to beneficially own more than 5% of our common stock;

 

    each of our directors;

 

    each of our named executive officers; and

 

    all of our executive officers and directors as a group.

Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of June 15, 2014 are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name. Except as otherwise indicated, the address of each of the persons in this table is c/o Zosano Pharma Corporation, 34790 Ardentech Court, Fremont, California 94555.

Each stockholder’s percentage ownership before the offering is determined in accordance with Rule 13d-3 under the Exchange Act and is based on 20,552,251 shares of our common stock outstanding as of June 15, 2014. Each stockholder’s percentage ownership after the offering assumes the issuance of the shares of our common stock offered hereby and assumes no exercise of the underwriters’ over- allotment option. Shares beneficially owned after the offering also assumes             shares of common stock that will be issued immediately prior to the closing of this offering in connection with the automatic conversion of our outstanding convertible promissory notes outstanding at June 15, 2014, based on the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and giving effect to the terms of the notes which provide that the notes convert into our common stock at a conversion price equal to 85% of our initial public offering price if the closing of this offering occurs on or before September 9, 2014.

Certain of our existing investors and              affiliated entities have indicated an interest in purchasing an aggregate amount of $         million worth of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these potential investors, or any of these potential investors may determine to purchase more, less or no shares in this offering. The information set forth below does not reflect any potential purchases by these potential investors.

 

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Name of Beneficial Owner (1)  

Shares
Beneficially
Owned
Prior to the
Offering

    Percentage
Prior to the
Offering
   

Shares
Beneficially
Owned
After the
Offering

  Percentage
After the
Offering
 

5%+ Stockholders

       

BMV Direct SOTRS LP (2)

17190 Bernardo Center Drive

San Diego, CA 92128

    8,135,268        39.58           

New Enterprise Associates 12,

Limited Partnership (3)

Chevy Chase, MD 20815

5425 Wisconsin Avenue, Suite 800

    7,175,545        34.91           

Directors and Named Executive Officers:

       

Vikram Lamba (4)

    2,819,806        13.53           

Peter Daddona (5)

    1,422,554        6.87           

Thorsten von Stein (6)

    8,913        *              

M. James Barrett

    22        *              

Bruce Steel

    —          *              

Troy Wilson (7)

    —          *              

Kleanthis Xanthopoulos (8)

    37,736        *              

Current Directors and Executive Officers as a Group (8 persons) (9)

    4,333,184        20.55           

 

 * Less than 1%
(1) Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
(2) Includes 6,318,293 shares of common stock owned by BMV Direct SOTRS LP and 1,816,975 shares of common stock owned by BMV Direct SO LP. The sole general partner of BMV Direct SOTRS LP is BioMed Realty Holdings, Inc. The sole shareholder of BioMed Realty Holdings, Inc. and the sole general partner of BMV Direct SO LP is BioMed Realty, L.P. The sole general partner of BioMed Realty, L.P. is BioMed Realty Trust, Inc. BioMed Realty Trust, Inc. has sole voting and dispositive power with respect to the shares directly held by BMV Direct SOTRS LP and BMV Direct SO LP. Bruce Steel is a limited partner with a variable economic interest in each of BMV Direct SOTRS LP and BMV Direct SO LP. Mr. Steel disclaims beneficial ownership in the shares directly held by each of BMV Direct SOTRS LP and BMV Direct LP except to the extent of his pecuniary interest therein.
(3) Includes 7,175,524.904 shares of common stock owned by New Enterprise Associates 12, Limited Partnership, or NEA 12 and 19.836 shares of common stock owned by NEA Ventures 2006, Limited Partnership, or Ven 2006. The shares directly held by NEA 12 are indirectly held by NEA Partners 12, Limited Partnership (“NEA Partners 12”), the sole general partner of NEA 12, NEA 12 GP, LLC, or NEA 12 LLC, the sole general partner of NEA Partners 12, and each of the individual Managers of NEA 12 LLC. The individual Managers of NEA 12 LLC are M. James Barrett, Peter J. Barris, Forest Baskett, Ryan D. Drant, Patrick J. Kerins, Krishna “Kittu” Kolluri and Scott D. Sandell. The shares directly held by Ven 2006 are indirectly held by Karen P. Welsh, the general partner of Ven 2006. NEA Partners 12, NEA 12 LLC and the Managers share voting and dispositive power with regard to the shares of the securities directly held by NEA 12. M. James Barrett has neither voting nor dispositive power with respect to the shares held by Ven 2006. M. James Barrett and all other indirect holders of these shares have disclaimed his beneficial ownership in these shares except to the extent of their pecuniary interest therein, if any.
(4) Includes options to purchase 294,806 shares of our common stock anticipated to be exercisable within 60 days after June 15, 2014.
(5) Includes options to purchase 147,403 shares of our common stock anticipated to be exercisable within 60 days after June 15, 2014.
(6) Includes options to purchase 8,869 shares of our common stock anticipated to be exercisable within 60 days after June 15, 2014.
(7) Dr. Wilson was elected as a director on June 20, 2014. In connection with Dr. Wilson’s election to our board of directors, we intend to grant to Dr. Wilson an option to purchase 113,207 shares of our common stock at a per share exercise price equal to fair market value on the date of grant. The option will vest in equal monthly installments over a period of four years, with the first 2.0833% of the total number of option shares vesting on July 20, 2014 and an additional 2.0833% of the total number of option shares vesting on the 20th day of each month thereafter, so that the option is fully vested on June 20, 2018, provided that the option will become fully vested upon a change of control. We have not yet granted this stock option to Dr. Wilson.
(8) Consists of options to purchase of 37,736 shares of our common stock anticipated to be exercisable within 60 days after June 15, 2014.
(9) Includes options to purchase 533,011 shares of our common stock anticipated to be exercisable within 60 days after June 15, 2014.

 

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DESCRIPTION OF CAPITAL STOCK

The following is a summary of all material characteristics of our capital stock as set forth in our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective upon the consummation of this offering. The summary does not purport to be complete and is qualified in its entirety by reference to our amended and restated certificate of incorporation and amended and restated bylaws, all of which are incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and the applicable provisions of Delaware law.

General

Upon the completion of this offering, our authorized capital stock will consist of shares of common stock, par value $0.0001 per share, and                  shares of preferred stock, par value $0.0001 per share, all of which shares of preferred stock will be undesignated. As of June 15, we had 20,552,251 shares of common stock issued and outstanding, outstanding stock options to purchase 2,044,038 shares of common stock, and                  shares of common stock that will be issued upon the automatic conversion of our outstanding convertible promissory notes, assuming the closing of this offering on or before September 9, 2014 and an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated offering expenses payable by us. By their terms, our outstanding convertible promissory notes will convert into shares of our common stock upon the closing of this offering if the closing occurs on or prior to September 9, 2014, at a conversion price equal to 85% of our initial public offering price per share. As of June 15, 2014, there were 31 holders of record of our common stock.

Common Stock

Voting rights . Holders of our common stock are entitled to one vote per share held of record on all matters to be voted upon by our stockholders. The election of directors by our stockholders is determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Other matters subject to a vote by our stockholders are 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. Our common stock does not have cumulative voting rights.

Dividend rights . Subject to preferences that may be applicable to the holders of any outstanding shares of our preferred stock, the holders of our common stock are entitled to receive such lawful dividends as may be declared by our board of directors.

Liquidation and dissolution . In the event of our liquidation, dissolution or winding up, and subject to the rights of the holders of any outstanding shares of our preferred stock, the holders of shares of our common stock will be entitled to receive pro rata all of our remaining assets available for distribution to our stockholders.

Other rights and restrictions . Our certificate of incorporation does not permit us to redeem shares of our common stock at our election, provide for a sinking fund with respect to our common stock or provide for the granting of preemptive rights to any stockholder. All outstanding shares are fully paid and nonassessable.

Preferred Stock

Prior to this offering, our certificate of incorporation did not provide for any preferred stock. Upon the closing of this offering, pursuant to our amended and restated certificate of incorporation, our board of directors will be authorized, without stockholder approval, from time to time to issue up to                 shares of preferred stock in one or more series, each of the series to have such rights and preferences, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as the board of directors may determine. The rights of the holders of common stock will be subject to, and may be adversely affected by,

 

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the rights of holders of any preferred stock that we may issue in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for others to acquire, or of discouraging others from attempting to acquire, a majority of our outstanding voting stock. We have no current plans to issue any shares of preferred stock.

Options

As of June 15, 2014, options to purchase 2,044,038 shares of our common stock were outstanding under our 2012 Stock Incentive Plan, at a weighted average exercise price of $0.35 per share.

As of June 15, 2014, we had an outstanding warrant to purchase a number of shares, at the election of the warrant holder, of our common stock or the class and series of capital stock that we issue in any non-public equity financing prior to the closing of this offering resulting in gross proceeds of at least $3 million, equal to $280,000 divided by the lower of the lowest price per share paid in such non-public equity financing and $2.21 per share.

Anti-Takeover Effects of Provisions of Delaware Law and Our Charter and By-laws

Provisions of Delaware law and our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult to acquire us by means of a tender offer, a proxy contest, open market purchases, removal of incumbent directors and otherwise. These provisions, summarized below, are expected to discourage types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because negotiation of these proposals could result in an improvement of their terms.

We must comply with Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the date the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to an interested stockholder. An “interested stockholder” includes a person who, together with affiliates and associates, owns, or did own within three years before the determination of interested stockholder status, 15% or more of the corporation’s voting stock. The existence of this provision generally will have an anti-takeover effect for transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders.

Upon the closing of this offering, our amended and restated certificate of incorporation and our amended and restated bylaws will require that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of the stockholders and may not be effected by a consent in writing. In addition, upon the closing of this offering, special meetings of our stockholders may be called only by the board of directors and some of our officers. Our amended and restated bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders, including proposed nominations of candidates for election to our board of directors. Our amended and restated certificate of incorporation and amended and restated bylaws also provide that, effective upon the closing of this offering, our board of directors will be divided into three classes, with each class serving staggered three-year terms. These provisions may have the effect of deterring hostile takeovers or delaying changes in our control or management.

Listing on the NASDAQ Global Market

We intend to apply to have our common stock listed on the NASDAQ Global Market under the symbol “ZSAN.”

 

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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                     .

 

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock, and a liquid public trading market for our common stock may not develop or be sustained after this offering. Future sales of significant amounts of our common stock, including shares issued upon exercise of outstanding options or warrants or in the public market after this offering, or the anticipation of those sales, could adversely affect the public market prices prevailing from time to time and could impair our ability to raise capital through sales of our equity securities. We intend to apply to have our common stock listed on the NASDAQ Global Market under the symbol “ZSAN.”

Upon the closing of this offering, and after giving effect to the issuance of the             shares of our common stock offered in this offering and the conversion of our convertible promissory notes outstanding at June 15, 2014 into             shares of common stock upon the closing of this offering, assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated offering expenses payable by us, and giving effect to the terms of the notes which provide that the notes convert into our common stock at a conversion price equal to 85% of our initial public offering price if the closing occurs on or before September 9, 2014, we will have outstanding an aggregate of shares of common stock, assuming no exercise of outstanding options after                     . Of these shares, the             shares sold by us (assuming that the underwriters do not exercise their over-allotment option), in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act, whose sales would be subject to the Rule 144 resale restrictions described below, other than the holding period requirement.

The remaining             shares of common stock will be “restricted securities,” as that term is defined in Rule 144 under the Securities Act 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 2,044,038 shares of common stock that were issuable pursuant to stock options outstanding under our 2012 Stock Option Plan as of June 15, 2014, options to purchase 738,886 shares of common stock had vested and were exercisable as of June 15, 2014. Upon exercise, these shares will be eligible for sale, subject to the lock-up agreements and securities laws described below. As of June 15, 2014, an outstanding warrant was exercisable for 126,696 shares of common stock, and upon issuance these shares will be eligible for sale, subject to the 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 “broker’s 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:

 

    1% of the number of shares of our common stock then outstanding, which will equal approximately                  shares immediately after this offering; or

 

    the average weekly trading volume in our common stock on the NASDAQ Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Affiliate resales under Rule 144 are also subject to the availability of current public information about us. In addition, if the number of shares being sold under Rule 144 by an affiliate during any three-month period exceeds 5,000 shares or has an aggregate sale price in excess of $50,000, the seller must file a notice on Form 144 with

 

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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.

Rule 701

In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchased shares from us in connection with a compensatory stock or option plan or other written agreement entered into before the effective date of our initial public offering is entitled to sell such shares without further restriction under the Securities Act.

Lock-up Agreements

Our executive officers and directors and the holders of substantially all of our outstanding stock have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock for a period through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives of the underwriters.

The representatives of the underwriters currently do not anticipate shortening or waiving any of the lock-up agreements and do not have any pre-established conditions for such modifications or waivers. The representatives of the underwriters may, however, with the approval of our board of directors, release for sale in the public market all or any portion of the shares subject to the lock-up agreements.

Stock Options and Warrant

As of June 15, 2014, we had outstanding options to purchase 2,044,038 shares of common stock, of which options to purchase 738,886 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 our 2012 Stock Incentive Plan and 2014 Equity and Incentive Plan.

As of June 15, 2014, we also had an outstanding and exercisable warrant to purchase a number of shares, at the election of the warrant holder, of our common stock or the class and series of capital stock that we issue in any non-public equity financing prior to the closing of this offering resulting in gross proceeds of at least $3 million, equal to $280,000 divided by the lower of the lowest price per share paid in such non-public equity financing and $2.21 per share. Any shares purchased by the non-affiliate warrant holder pursuant to the cashless exercise feature of the warrant will be freely tradable under Rule 144(b)(1), and any shares purchased through the exercise of the warrant for cash will be eligible for sale subject to the securities laws described above.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

The following is a general discussion of the material U.S. federal income tax considerations applicable to non-U.S. holders (as defined below) with respect to their purchase, 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 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.

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, within the meaning of Section 1221 of the Code (generally, property held for investment).

This discussion does not address all aspects of U.S. federal income taxation that may be relevant to a particular non-U.S. holder in light of that non-U.S. holder’s individual circumstances nor does it address, except to the limited extent provided below with respect to estate tax, any aspects of U.S. federal estate or gift taxes, and 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:

 

    insurance companies;

 

    integral parts or controlled entities of a foreign sovereign;

 

    tax-exempt organizations;

 

    banks or other financial institutions;

 

    brokers or dealers in securities or currencies;

 

    traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

 

    regulated investment companies or real estate investment trusts;

 

    individual retirement accounts, tax-deferred accounts or pension plans;

 

    controlled foreign corporations or passive foreign investment companies;

 

    hybrid entities;

 

    corporations that accumulate earnings to avoid U.S. federal income tax;

 

    persons who own (or are deemed to own) more than 5% of our common stock (except to the extent specifically set forth below);

 

    persons subject to the alternative minimum tax or the 3.8% Medicare tax on net investment income;

 

    owners that hold our common stock as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment; and

 

    certain U.S. expatriates.

In addition, this discussion does not address the tax treatment of partnerships or other pass-through entities, or persons who hold our 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 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.

 

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We have not sought and will not seek any ruling from the Internal Revenue Service, which we refer to as the IRS, with respect to the statements made and the conclusions reached in the following discussion. There can be no assurance that the IRS will not challenge one or more of the tax consequences described herein, or that any such challenge would not be sustained by a court.

NON-U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL TAX LAWS TO THEIR PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK IN LIGHT OF THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

Non-U.S. Holder Defined

For purposes of this discussion, a non-U.S. holder means a beneficial owner of our common stock that, for U.S. federal income tax purposes, is an individual, corporation, estate or trust that is not a U.S. person. For purposes of this discussion, a U.S. person is:

 

    an individual who is a citizen or resident of the United States (as determined under U.S. federal income tax rules);

 

    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, any political subdivision thereof, any state thereof or the District of Columbia;

 

    an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

 

    a trust if (1) a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons have the authority to control all of the trust’s substantial decisions or (2) the trust has a valid election in effect to be treated as a U.S. person.

Distributions on Our Common Stock

As described in the section entitled “Dividend Policy,” we have not made distributions on our common stock and do not plan to make any distributions for the foreseeable future. However, if we do make distributions of cash or property on our common stock, those payments 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. holder’s investment, up to such holder’s 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.”

Subject to the discussion below on backup withholding and FATCA, 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. A non-U.S. holder of our common stock who claims the benefit of an applicable income tax treaty generally will be required to provide a properly executed IRS Form W-8BEN (or other appropriate version of IRS Form W-8 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 any applicable income tax treaty.

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 by providing a properly executed IRS Form W-8ECI (or successor form). However, such U.S. effectively

 

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connected income, net of specified deductions and credits, is taxed at the same graduated U.S. federal income tax rates applicable to U.S. persons. In addition, 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.

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

Subject to the discussion below on backup withholding and FATCA, a non-U.S. holder generally will not be subject to any U.S. federal income tax on any gain realized upon such holder’s sale, exchange or other disposition of shares of our common stock unless:

 

    the gain is effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business and, if an applicable income tax treaty so provides, is attributable to a permanent establishment or a fixed base maintained by such non-U.S. holder in the United States, in which case the non-U.S. holder generally will be taxed at the graduated U.S. federal income tax rates applicable to U.S. persons and, if the non- U.S. holder is a foreign corporation for U.S. federal income tax purposes, it also may be subject to a branch profits tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) on such effectively connected gain;

 

    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) 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

 

    we are, or have been, at any time during the five-year period preceding such disposition (or the non-U.S. holder’s holding period, if shorter) a “U.S. real property holding corporation.” 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. Even if we are or were to become a U.S. real property holding corporation, gains realized by a non-U.S. holder on a disposition of our common stock will not be subject to U.S. federal income tax if 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, actually or constructively, 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. No assurance can be provided that our common stock will continue to be regularly traded on an established securities market for purposes of the rules described above.

Federal Estate Tax

Common stock owned (or treated as owned) by an individual who is not a citizen or a resident of the United States (as defined for U.S. federal estate tax purposes) at the time of death will be included in the individual’s gross estate for U.S. federal estate tax purposes, and therefore may be subject to U.S. federal estate tax, unless an applicable estate or other tax treaty provides otherwise.

Backup Withholding and Information Reporting

We must report annually to the IRS and to each non-U.S. holder payments of dividends on our common stock to such holder and the tax withheld, if any, with respect to such dividends, along with certain other

 

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information. Non-U.S. holders may have to comply with specific certification procedures to establish that the holder is not a U.S. person in order to avoid backup withholding 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 generally will apply to the proceeds of a disposition of our common stock by a non-U.S. holder effected by or through the U.S. office of any broker, U.S. or foreign, unless the holder certifies its status as a non-U.S. holder and satisfies certain other requirements, or otherwise establishes an exemption. Generally, information reporting and backup withholding will not apply to a payment of disposition proceeds to a non-U.S. holder where the transaction is effected outside the United States through a non-U.S. office of a broker. However, for information reporting purposes, dispositions effected through a non- U.S. office of a broker with substantial U.S. ownership or operations generally will be treated in a manner similar to dispositions effected through a U.S. office of a broker. Non-U.S. holders should consult their 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 other 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. holder’s U.S. federal income tax liability, if any, provided that an appropriate claim is timely filed with the IRS.

FATCA Withholding and Information Reporting

The Foreign Account Tax Compliance Act of 2010, commonly referred to as FATCA, generally will impose a U.S. federal withholding tax at a rate of 30% on dividends on, or gross proceeds from the sale or other disposition of, our common stock paid to certain foreign entities (including foreign financial institutions and non-financial foreign entities, each as defined in the Code), unless (1) in the case of a foreign financial institution, such foreign entity undertakes certain information reporting and due diligence requirements (generally relating to ownership by U.S. persons of interests in or accounts with the entity), (2) in the case of a non-financial foreign entity, such entity either certifies that it does not have any substantial United States owners, as defined in the Code, or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules.

If a non-U.S. holder is a foreign financial institution and is subject to the information reporting and due diligence requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain specified United States persons or United States-owned foreign entities, each as defined in the Code, annually report certain information about such accounts, and withhold 30% on payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.

The FATCA withholding tax rules generally will be applicable to dividends on our common stock that are paid after June 30, 2014, and to gross proceeds from a sale or other disposition of our common stock that occurs after December 31, 2016.

Non-U.S. holders may be required to provide us with certifications of their respective classifications for FATCA purposes, and, in the case of non-U.S. holders that are not individuals, also may be required to provide us with information about their beneficial owners. Prospective investors should consult their tax advisors regarding the possible implications of FATCA on their investment in our common stock.

 

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UNDERWRITING

Wedbush Securities Inc. is acting as representative of each of the underwriters named below. Subject to the terms and conditions set forth in an underwriting agreement among us and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the number of shares of common stock set forth opposite its name below.

 

Underwriters

   Number of Shares

Wedbush Securities Inc.

  

Ladenburg Thalmann & Co. Inc.

  

Roth Capital Partners, LLC

  

Total

  

Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.

Certain of our existing investors and              affiliated entities have indicated an interest in purchasing an aggregate amount of $         million worth of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these potential investors, or any of these potential investors may determine to purchase more, less or no shares in this offering. Any shares purchased by these potential investors will be subject to lock-up restrictions described in “Shares Eligible for Future Sale.”

The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Commissions and Discounts

The following table shows the per share and total underwriting discount to be paid to the underwriters by us at the assumed initial public offering price set forth on the cover page of this prospectus. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.

 

     No Exercise of
Over-Allotment
Option
     Full Exercise of
Over-Allotment
Option
 

Per Share

   $                    $                

Total

   $         $     

The representative has advised us that the underwriters propose to offer directly to the public the shares purchased pursuant to the underwriting agreement at the initial public offering price set forth on the cover page of this prospectus and to certain securities dealers at the initial public offering price less a concession not in excess of $             per share. After the offering, the representative may change the offering price and other selling terms.

The expenses of the offering, not including the underwriting discount, are estimated at $             and are payable by us.

 

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Option to Purchase Additional Shares

We have granted an option to the underwriters, exercisable for 30 days after the date of this prospectus, to purchase up to                  additional shares at the public offering price, less the underwriting discount. If the underwriters exercise this option, each underwriter will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional shares proportionate to that underwriter’s initial amount reflected in the above table.

Lock-Up Agreements

We, all of our directors and executive officers, and holders of substantially all of our outstanding stock have agreed that, for a period of 180 days, or the lock-up period, after the date of this prospectus subject to certain limited exceptions described below, we and they will not directly or indirectly, without the prior written consent of Wedbush Securities Inc., (1) offer for sale, sell, pledge, or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any shares of common stock (including, without limitation, shares of common stock that may be deemed to be beneficially owned by us or them in accordance with the rules and regulations of the SEC and shares of common stock that may be issued upon exercise of any options or warrants) or securities convertible into or exercisable or exchangeable for common stock, (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or other securities, in cash or otherwise, (3) make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of common stock or securities convertible into or exercisable or exchangeable for common stock or any of our other securities, or (4) publicly disclose the intention to do any of the foregoing.

These lock-up restrictions will not apply to: (1) bona fide gifts, sales or other dispositions made exclusively by the holder to the holder’s family, partners, members, stockholders or affiliates (as applicable), and transfers or other dispositions by will, other testamentary documents or intestate succession, provided that such transferee agrees to be bound by the terms of the lock-up agreement, the parties agree to not make any filing or public announcement regarding such transfer or disposition prior to the expiration of the lock-up period and the holder notifies Wedbush Securities Inc. at least two business days prior to the proposed transfer or disposition; (2) the exercise of warrants or stock options granted pursuant to the Company’s stock option/incentive plans or otherwise, or the conversion of securities, in each case outstanding on the date of this prospectus, provided that the restrictions shall apply to the shares of common stock issued upon such exercise or conversion; (3) the establishment of any trading plan established pursuant to Rule 10b5-1 under the Exchange Act, provided that no sales or securities convertible into common stock shall be made pursuant to such plan prior to the expiration of the lock-up period, and the Company does not, and is not required to, report the establishment of such plan in any public report or filing with the SEC under the Exchange Act prior to the expiration of the lock-up period; (4) any forfeiture, sale or other transfer to the company in connection with the termination of the holder’s employment with or services to the company; and (5) the transfer of shares to the company to satisfy withholding taxes for any equity award granted prior to the date of this prospectus.

Wedbush Securities Inc. may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time. When determining whether or not to release common stock and other securities from lock-up agreements, Wedbush Securities Inc. will consider, among other factors, the holder’s reasons for requesting the release, the number of shares of common stock and other securities for which the release is being requested and market conditions at the time.

At least three business days before the effectiveness of any release or waiver of any of the restrictions described above with respect to an officer or director of the Company, Wedbush Securities, Inc. will notify us of the impending release or waiver and we have agreed to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver.

 

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Offering Price Determination

Prior to this offering, there has been no public market for our common stock. The initial public offering price was negotiated between the representative and us. In determining the initial public offering price of our common stock, the representative considered:

 

    the history and prospects for the industry in which we compete;

 

    our financial information;

 

    the ability of our management and our business potential and earning prospects;

 

    the prevailing securities markets at the time of this offering; and

 

    the recent market prices of, and the demand for, publicly traded shares of generally comparable companies.

An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.

The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.

Indemnification

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.

Stabilization, Short Positions and Penalty Bids

The representative may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Exchange Act:

 

    Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

 

    A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

 

    Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions.

 

    Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

 

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These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NASDAQ Global Market or otherwise and, if commenced, may be discontinued at any time.

Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representative will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Listing on The NASDAQ Global Market

We expect the shares to be approved for listing on The NASDAQ Global Market, subject to notice of issuance, under the symbol “ZSAN.”

Electronic Distribution

In connection with the offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail.

Other Relationships

Some of the underwriters and their affiliates have provided in the past to us and our affiliates, and may provide from time to time in the future, certain financial advisory, investment banking and other services in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, the underwriters and their affiliates may effect transactions for their own account or the accounts of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.

Conflicts of Interest

Theodore D. Roth, the President and an associated person of Roth Capital Partners, LLC, or Roth, one of the underwriters in this offering, is also a director of BMR. Under the rules of the Financial Regulatory Authority, Inc., a conflict of interest is deemed to exist with respect to Roth because Mr. Roth is deemed to “control” BMR (as a director of BMR) and BMR is deemed to “control” us (as an affiliate of a beneficial owner of in excess of 10% of our outstanding capital stock). A portion of the net proceeds of this offering will be used to make required payments of interest and principal as they become due under our note payable to our largest stockholder, which is an affiliate of BMR. See “Use of Proceeds.”

 

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NOTICE TO INVESTORS

Notice to Investors in the United Kingdom

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 securities which are the subject of the offering contemplated by this prospectus supplement and the related prospectus may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any such securities 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 legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

(c) by the underwriter to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive); or

(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of these securities shall result in a requirement for the publication by the issuer or the underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to the public” in relation to any of the securities 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 such securities to be offered so as to enable an investor to decide to purchase any such securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

Each underwriter has represented, warranted and agreed that:

(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the FSMA)) received by it in connection with the issue or sale of any of the securities in circumstances in which section 21(1) of the FSMA does not apply to the issuer; and

(b) it has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the securities in, from or otherwise involving the United Kingdom.

European Economic Area

In particular, this document does not constitute an approved prospectus in accordance with European Commission’s Regulation on Prospectuses no. 809/2004 and no such prospectus is to be prepared and approved in connection with this offering. Accordingly, in relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (being the Directive of the European Parliament and of the Council 2003/71/EC and including any relevant implementing measure in each Relevant Member State) (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) an offer of securities to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to such securities which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance

 

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with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of securities to the public in that Relevant Member State at any time:

 

    to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

    to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000; and (3) an annual net turnover of more than €50,000,000, as shown in the last annual or consolidated accounts; or

 

    in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of securities to the public” in relation to any of the securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State. For these purposes the shares offered hereby are “securities.”

 

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LEGAL MATTERS

The validity of the common stock being offered will be passed upon for us by Foley Hoag LLP, Boston, Massachusetts. Lowenstein Sandler LLP, New York, New York, has acted as counsel for the underwriters in connection with certain legal matters related to this offering.

EXPERTS

The balance sheets as of December 31, 2013 and 2012 and the related statements of operations, statements of stockholders’ (deficit) equity and statements of cash flows for the years then ended, appearing in this prospectus have been audited by Marcum LLP, an independent registered public accounting firm, as stated in their report appearing elsewhere herein, and are included in reliance upon such report and upon 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 of 1933 with respect to the shares of common stock to be sold in this offering. This prospectus, which constitutes part of the registration statement, does not include all of the information contained in the registration statement and the exhibits, schedules and amendments to the registration statement. Some items are omitted in accordance with the rules and regulations of the SEC. For further information with respect to us and our common stock, we refer you to the registration statement and to the exhibits and schedules to the registration statement filed as part of the registration statement. Statements contained in this prospectus about the contents of any contract or any other document filed as an exhibit are not necessarily complete, and, and in each instance, we refer you to the copy of the contract or other documents filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.

You may read and copy the registration statement of which this prospectus is a part at the SEC’s 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 SEC’s 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 SEC’s Internet website.

Upon the closing of this offering, we will become subject to the full informational and periodic reporting requirements of the Exchange Act. We will fulfill our obligations with respect to such requirements by filing periodic reports and other information with the SEC. We intend to furnish our stockholders with annual reports containing financial statements certified by an independent registered public accounting firm. We also maintain a website at www.zosanopharma.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Our website is not a part of this prospectus.

 

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Zosano Pharma Corporation and Subsidiaries

Financial Statements

December 31, 2013 and 2012

Contents

 

Report of Independent Registered Public Accounting Firm

     F-2   

Audited Consolidated Financial Statements:

  

Consolidated Balance Sheets

     F-3   

Consolidated Statements of Operations

     F-4   

Consolidated Statements of Stockholders’ Equity (Deficit)

     F-5   

Consolidated Statements of Cash Flows

     F-6   

Notes to Consolidated Financial Statements

     F-7   

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the

Board of Directors and Shareholders

of Zosano Pharma Corporation

We have audited the accompanying consolidated balance sheets of Zosano Pharma Corporation and Subsidiaries (formerly known as ZP Holdings, Inc. and Subsidiaries) (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Zosano Pharma Corporation and Subsidiaries, as of December 31, 2013 and 2012, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements—Going Concern and Management’s Plans, the Company’s recurring losses from operations and the need for additional capital raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2—Going Concern and Management’s Plans. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Marcum LLP

Marcum LLP

San Francisco, CA

May 13, 2014

 

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ZOSANO PHARMA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 

     December 31,  
     2013     2012  
ASSETS   

Current assets:

    

Cash and cash equivalents

   $ 5,913      $ 4,973   

Accounts receivable

     —          130   

Accounts receivable from joint venture partner

     3,426        730   

Short-term investment

     361        —     

Prepaid expenses and other current assets

     465        73   
  

 

 

   

 

 

 

Total current assets

     10,165        5,906   

Restricted cash

     65        35   

Property and equipment, net

     11,714        1,389   

Investment in joint venture

     —          12,298   

Other long-term assets

     140        —     
  

 

 

   

 

 

 

Total assets

   $ 22,084      $ 19,628   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY   

Current liabilities:

    

Accounts payable

   $ 3,412      $ 383   

Accrued compensation

     2,676        124   

Revolving line of credit

     496        —     

Deferred revenue

     1,125        3,375   

Related parties notes payable, current

     3,108        —     

Other accrued liabilities

     716        99   
  

 

 

   

 

 

 

Total current liabilities

     11,533        3,981   

Deferred rent

     363        601   

Related party secured promissory note

     9,711        9,026   

Commitments and contingencies

    

Stockholders’ equity:

    

Common stock, $0.0001 par value: 30,000 shares authorized; 20,427 shares issued and outstanding as of December 31, 2013 and 2012

     2        2   

Additional paid-in capital

     124,698        124,633   

Accumulated deficit

     (124,223     (118,615
  

 

 

   

 

 

 

Stockholders’ equity

     477        6,020   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 22,084      $ 19,628   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Index to Financial Statements

ZOSANO PHARMA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

     Year ended December 31,  
         2013             2012      

License fees revenue

   $ 4,250      $ 9,250   

Collaborative development support services

     —          2,374   
  

 

 

   

 

 

 

Total revenue

     4,250        11,624   
  

 

 

   

 

 

 

Operating expenses:

    

Research and development

     6,502        3,050   

Manufacturing services

     1,135        2,349   

General and administrative

     4,582        3,077   
  

 

 

   

 

 

 

Total operating expenses

     12,219        8,476   
  

 

 

   

 

 

 

(Loss) income from operations

     (7,969     3,148   

Other income (expense):

    

Interest expense, net

     (760     (663

Warrant revaluation income

     —          71   
  

 

 

   

 

 

 

(Loss) income before equity in loss of joint venture and gain on termination of joint venture

     (8,729     2,556   

Equity in loss of joint venture

     (366     (738

Gain on termination of joint venture

     3,487        —     
  

 

 

   

 

 

 

Net (loss) income

   $ (5,608   $ 1,818   
  

 

 

   

 

 

 

Net (loss) income per common share:

    

Basic

   $ (0.27   $ 0.12   
  

 

 

   

 

 

 

Diluted

   $ (0.27   $ 0.12   
  

 

 

   

 

 

 

Weighted-average shares used in computing net (loss) income per common share:

    

Basic

     20,427        15,630   
  

 

 

   

 

 

 

Diluted

     20,427        15,630   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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ZOSANO PHARMA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

 

   

 

Common Stock

    Additional
Paid-In Capital
    Accumulated
Deficit
    Total
Stockholders’ (Deficit)
Equity
 
    Shares     Amount        

Balance at January 1, 2012

    2,381        —          114,907        (120,433     (5,526

Issuance of common stock at date of merger in January 2012

    3,750        —          —          —          —     

Conversion of convertible promissory notes to common stock in April 2012

    8,868        1        7,089          7,090   

Exchange of ZP Opco, Inc. common stock options for Zosano Pharma Corporation common stock in April 2012

    1        —          —          —          —     

Conversion of BMR loans to common stock in April 2012

    5,377        1        2,574        —          2,575   

Stock-based compensation expense

    —          —          45        —          45   

Issuance of restricted stock awards in lieu of cash bonus in December 2012

    50        —          18        —          18   

Net income

    —          —          —          1,818        1,818   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2012

    20,427        2        124,633        (118,615     6,020   

Stock-based compensation expense

    —          —          65        —          65   

Net loss

    —          —          —          (5,608     (5,608
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

    20,427      $ 2      $ 124,698      $ (124,223   $ 477   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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ZOSANO PHARMA CORPORATION AND SUBSIDIARIES

CONSOLIDATED CASH FLOW STATEMENTS

(in thousands)

 

     Year Ended December 31,  
         2013             2012      

Cash flows from operating activities:

    

Net (loss) income

   $ (5,608   $ 1,818   

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

    

Depreciation

     428        1,069   

Stock-based compensation

     65        63   

Equity in loss of joint venture

     366        738   

Gain on termination of joint venture

     (3,487     —     

Accretion of interest payment

     765        830   

Revaluation of warrants to fair value

     —          (71

Deferred rent

     (239     (489

Change in operating assets and liabilities:

    

Accounts receivable

     130        1,082   

Accounts receivable from joint venture partner

     3,204        (730

Prepaid expenses and other assets

     (532     116   

Accounts payable

     265        (100

Accrued compensation and other liabilities

     3,169        (985

Deferred revenue

     (2,250     (2,840
  

 

 

   

 

 

 

Net cash flow (used in) provided by operating activities

     (3,724     501   
  

 

 

   

 

 

 

Cash flow from investing activities:

    

Distribution from joint venture

     2,431        1,539   

Purchase of property and equipment

     (897     (21

Proceeds from sale of property and equipment

     —          16   

(Increase) decrease in restricted cash

     (30     35   

Sales of short-term investments

     —          415   

Purchase of short-term investment

     (365     —     
  

 

 

   

 

 

 

Net cash flow provided by investing activities

     1,139        1,984   
  

 

 

   

 

 

 

Cash flow from financing activities:

    

Proceeds from borrowings under bridge financing and line of credit

     3,525        —     

Repayment of equipment loan

     —          (1,112
  

 

 

   

 

 

 

Net cash flow provided by (used in) financing activities

     3,525        (1,112
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     940        1,373   

Cash and cash equivalents at beginning of year

     4,973        3,600   
  

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 5,913      $ 4,973   
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Income taxes paid

   $ 20      $ —     

Transfer of receivables as a result of termination of joint venture

   $ 5,900      $ —     

Assumption of accounts payable and accrued liabilities as a result of termination of joint venture

   $ 2,764      $ —     

Non-cash investing and financing activities:

    

Conversion of debt to common stock

   $ —        $ 9,665   

Transfer of property and equipment upon termination of joint venture

   $ 9,856      $ —     

The accompanying notes are an integral part of these consolidated financial statements.

 

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Zosano Pharma Corporation and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013 and 2012

 

1. Organization

The Company

Zosano Pharma Corporation and subsidiaries (the Company) is a clinical stage specialty pharmaceutical company that has developed a drug delivery platform, based on its proprietary transdermal microneedle patch system, which is used to deliver the Company’s proprietary formulations of established drugs through the skin to treat a variety of indications. The Company’s microneedle patch system offers rapid onset, consistent drug delivery, improved ease of use and room-temperature stability, which often are unavailable using oral formulations or injections. The Company believes its microneedle patch system can be used to deliver numerous medications for a wide variety of indications, in commercially attractive markets. The Company also believes that by focusing its internal development efforts on proprietary formulations of generic molecules with known safety and efficacy, it can reduce its clinical and regulatory risk and development costs and accelerate its time to commercialization.

The Company’s wholly owned subsidiary, ZP Opco, Inc. (formerly named Zosano Pharma, Inc.), was incorporated in the State of Delaware on February 6, 2006. The Company’s headquarters and operations are located in Fremont, California. The Company has two wholly owned subsidiaries as of December 31, 2013: ZP Opco, Inc. (Opco), through which the Company conducts its primary research and development activities, and ZP Group LLC, originally a joint venture with Asahi Kasei Pharmaceuticals USA. The joint venture ceased operations in December 2013.

In April 2012, the Company commenced its planned principal operations, established its manufacturing facility and received revenues from its microneedle patch system technology including payment for its collaboration support services and therefore, exited the development stage.

Reverse Merger and Recapitalization

The Company was incorporated on January 26, 2012 under the laws of the State of Delaware. In April 2012, the Company entered into a reverse merger and recapitalization transaction with Opco. The reverse merger, which resulted in a recapitalization, was achieved through an agreement and plan of merger between the Company and Opco. The Company was the acquiring legal entity in the transaction while Opco was the surviving reporting entity for accounting purposes because its former stockholders emerged from the transaction with a controlling interest. The acquisition is treated as a recapitalization of Opco as, prior to the transaction, the Company had no significant assets, liabilities or operations. The recapitalization was achieved by converting common stock and Series A, B, and C Preferred Stock of Opco into 2,381,032 shares of the Company’s common stock as follows:

 

ZP Opco, Inc.      Conversion Rate      The Company’s
Common Stock (# of shares)
 

Type

   Number of shares        

Series A Preferred Stock

     4,140,000         0.001703397851193810         7,052   

Series B Preferred Stock

     14,000,000         0.004132587086262290         57,856   

Series C Preferred Stock

     4,666,667         0.495747988320586000         2,313,491   

Common Stock

     5,362,829         0.000490963849667203         2,633   
        

 

 

 
           2,381,032   
        

 

 

 

In addition, convertible unsecured promissory notes originally issued by Pharma to certain of its stockholders prior to the recapitalization in the aggregate principal amount of approximately $6.2 million, plus accrued interest of approximately $0.9 million, were converted into 8,868,109 shares of common stock of the Company.

 

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All outstanding and unexercised stock options granted under Opco’s 2007 Equity Incentive Plan were cancelled and in exchange, the holders received 853 shares of common stock of the Company.

All outstanding warrants to purchase securities of Opco were terminated as a result of the reverse merger and recapitalization.

All shares and per share amounts have been retroactively restated for the effect of this reverse merger and recapitalization for all periods presented.

 

2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of the accompanying consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Going Concern and Management’s Plans

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has a history of incurring operating losses and negative cash flows from operating activities. The Company had an accumulated deficit of approximately $124.2 million as of December 31, 2013. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Through December 31, 2013, the Company has relied primarily on the proceeds from private equity offerings and loan proceeds to finance its operations. Management expects to incur additional losses in the future to conduct product research and development and to conduct pre-commercialization activities. Additional capital will be required to undertake these activities and to meet the operating requirements of the Company through 2014 and beyond. The Company intends to raise such capital through the issuance of additional equity through public or private offerings, borrowings, and strategic alliances with partner companies. However, if such financing is not available at adequate levels or on acceptable terms, the Company could be required to significantly reduce operating expenses and delay or reduce the scope of or eliminate some of its development programs or its commercialization efforts, enter into a collaboration or other similar arrangement with respect to commercialization rights to any of its product candidates, out-license intellectual property rights to its transdermal delivery technology and sell unsecured assets, or a combination of the above, which may have a material adverse effect on the Company’s business, results of operations, financial condition and/or its ability to fund its scheduled obligations on a timely basis or at all.

Consolidation

The consolidated financial statements include the accounts of Zosano Pharma Corporation, ZP Opco, Inc., and ZP Group LLC post-termination of the joint venture (see Note 6 – Joint Venture). Intercompany balances and transactions have been eliminated in consolidation.

Segment Reporting

The Company operates in one business segment to develop human pharmaceutical products. Management uses one measurement of profitability and does not segregate its business for internal reporting. All long-lived assets are maintained in the United States.

Short-Term Investment

On October 31, 2013, the Company entered into a Stock Purchase Agreement with Zosano, Inc. (the Shell Corporation), a Delaware corporation, pursuant to which the Company acquired 10,016,973 shares of the Shell

 

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Index to Financial Statements

Corporation’s common stock, $0.0001 par value, for an aggregate cash purchase price of $0.4 million. Immediately following the closing of the acquisition, 10,027,000 shares of the Shell Corporation’s common stock were issued and outstanding, approximately 99.9% of which were held by the Company.

The Company planned to raise new investment capital through the sale of the Company’s common stock or other securities to institutional investors in a private placement (the “PIPE Financing”). The Company had anticipated that in connection with the PIPE Financing it would enter into a registration rights agreement pursuant to which the Company would agree to file a registration statement with the SEC to register for resale the securities it planned to issue through the PIPE Financing. As of December 31, 2013, the Company has decided not to undertake the PIPE Financing as planned and it is actively pursuing the sale of the Shell Corporation. Accordingly, the Company accounts for its investment in the Shell Corporation using the cost method of accounting and classifies it as a short-term investment in its consolidated balance sheet.

Equity Investments and Joint Venture

The Company’s equity investments include investment in entities over which the Company has significant influence but not control, generally representing an ownership of between 20% and 50% of the voting rights or membership interest. The Company’s equity investments are accounted for using the equity method of accounting and are initially recognized at cost. The Company’s share of the equity investments’ profits or losses is recognized in the consolidated statements of operations. When the Company’s share of losses in an equity investment equals or exceeds the Company’s interest in the equity method investment, the Company will not recognize further losses unless the Company has incurred obligations or made payments on behalf of the equity investment.

Unrealized gains on transactions between the Company and entities accounted for as equity investments are eliminated to the extent of its interest in the equity investment. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

The entire carrying amount of the investments is tested for impairment by comparing its recoverable amount with its carrying amount, whenever there is an indication that the investment may be impaired.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Restricted Cash

The Company entered into a pledge and security agreement with a bank whereby $65,000 and $35,000 was restricted for use as security for its corporate purchasing cards and is classified as restricted cash as of December 31, 2013 and 2012, respectively.

Accounts Receivable from Joint Venture Partner

The Company records a receivable from Asahi Kasei Pharma Corporation (Asahi) and its affiliate AKP USA, Inc. (AKPUS) for payment due the Company pursuant to the terms of the joint venture operating agreement. Such receivable includes reimbursement for the depreciation of the Company’s contributed equipment capital in the formation of ZP Group LLC and other payments stipulated under the joint venture termination agreement. (See Note 6—Joint Venture.)

Fair Value Measurements

The Company records its financial assets and liabilities at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most

 

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Index to Financial Statements

advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting guidance for fair value establishes a three-level hierarchy for disclosure of fair value measurements, as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Inputs (other than quoted market prices included in Level 1) that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instrument’s anticipated life.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying values of certain financial assets and liabilities of the Company, such as cash and cash equivalents, accounts receivable from joint venture partner, short-term investment, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The carrying value of the Company’s short-term related parties notes payable approximates their fair value as the terms of the borrowing are consistent with current market rates and the duration to maturity is short. The carrying value of the Company’s long-term debt approximates its fair value because the interest rate approximates market rates that the Company could obtain for debt with similar terms and maturities.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash, cash equivalents, and restricted cash. Bank deposits are held by a single financial institution having a strong credit rating. These deposits may at times be in excess of insured limits. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents, and restricted cash.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, which range from three to five years for computer equipment and software, and nine years for manufacturing, laboratory, and office equipment. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the respective assets.

Impairment of Long-Lived Assets

The Company identifies and records impairment losses on long-lived assets used in operations when events and changes in circumstances indicate that the carrying amount of an asset likely is not recoverable. Recoverability is measured by comparing the anticipated undiscounted future net cash flows to the related asset’s carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of the asset. The Company has not experienced any impairment of its long-lived assets for the years ended December 31, 2013 and 2012.

Deferred Rent

Rent expense is recognized on a straight-line basis over the non-cancelable term of the Company’s operating lease and, accordingly, the Company records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. The Company also records lessor-funded lease incentives, such as reimbursable leasehold improvements, as a deferred rent liability, which is amortized as a reduction of rent expense over the non-cancelable term of its operating lease.

 

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Index to Financial Statements

Related Parties Promissory Notes

The Company accounts for its unsecured and secured promissory notes issued to certain related parties as liabilities. They are recorded on the Company’s consolidated balance sheets at cost plus accrued interest, and classified as short-term and long-term liabilities based on their maturities.

Revenue Recognition

The Company generates revenue from collaboration arrangements for the development and commercialization of its technology. Collaboration and license agreements may include non-refundable upfront license fees, partial or complete reimbursement of research and development costs, contingent consideration payments based on the achievement of defined collaboration objectives and royalties on sales of commercialized products. The Company’s performance obligations under the collaborations may include the license or transfer of intellectual property rights, obligations to provide research and development services and related materials and obligations to participate on certain development and/or commercialization committees with the collaborators.

The Company recognizes revenue when all four of the following criteria have been met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Revenue under collaboration and license arrangements is recognized based on the performance requirements of the contract. The Company’s credit policy does not provide for rights of refund or return. Determinations of whether persuasive evidence of an arrangement exists and whether delivery has occurred or services have been rendered are based on management’s judgments regarding the fixed nature of the fees charged for deliverables and the collectability of those fees. Should changes in conditions cause management to determine that these criteria are not met for any new or modified transactions, revenue recognized could be adversely affected.

The Company’s license and collaboration agreements may contain multiple elements as evaluated under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605-25, Revenue Recognition Multiple-Element Arrangements , including grants of licenses to know-how and technologies relating to the Company’s product candidates as well as agreements to provide research and development services, and manufacturing and commercialization services. Each deliverable under the agreement is evaluated to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has standalone value to the customer. The arrangement’s consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable. This evaluation requires subjective determinations and requires the Company to make judgments about the selling price of the individual elements and whether such elements are separable from the other aspects of the contractual relationship.

Upfront payments for licenses are evaluated to determine if the licensee can obtain standalone value from the license separate from the value of the research and development services and other deliverables in the arrangement to be provided by the Company. The assessment of multiple element arrangements also requires judgment in order to determine the allocation of revenue to each deliverable and the appropriate point in time, or period of time, over which revenue should be recognized. If the Company determines that the license does not have standalone value separate from the research and development services, the license and the services are combined as one unit of accounting and upfront payments are recorded as deferred revenue in the consolidated balance sheet and are recognized as revenue over an estimated performance period that is consistent with the term of performance obligations as determined by the Company. When standalone value is identified, the related consideration is recorded as revenue in the period in which the license or other intellectual property is delivered.

The Company’s license and collaboration agreements may also contain milestone payments that become due to the Company upon achievements of certain milestones. Under the milestone method, the Company recognizes revenue that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is an event (i) that can be achieved in whole or in part on either the Company’s performance or on the occurrence of a specific outcome resulting from the Company’s performance,

 

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Index to Financial Statements

(ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to the Company. A milestone payment is considered substantive when the consideration payable to the Company for each milestone (a) is consistent with the Company’s performance necessary to achieve the milestone or the increase in value to the collaboration resulting from the Company’s performance, (b) relates solely to the Company’s past performance, and (c) is reasonable relative to all of the other deliverables and payments within the arrangement. In making this assessment, the Company considers all facts and circumstances relevant to the arrangement, including 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 any portion of the milestone consideration is related to future performance or deliverables.

Amounts related to research and development funding are recognized as the related services or activities are performed, in accordance with the contract terms. Payments are generally made to the Company based on the number of full-time equivalent employees assigned to the collaboration project and the related research and development expenses incurred.

Royalty revenue from sales of the Company’s licensed products, if any, will be recognized when earned and collectible.

Research and Development Expenses

Research and development costs are charged to expense as incurred and consist of costs incurred to further the Company’s research and development activities including salaries and related employee benefits, costs associated with clinical trials, nonclinical research and development activities, regulatory activities, research related overhead expenses and fees paid to external service providers and contract research organizations that conduct certain research and development activities on behalf of the Company.

Clinical Trial Accruals

Clinical trial costs are a component of research and development expenses. The Company accrues and expenses clinical trial activities performed by third parties based upon actual work completed in accordance with agreements established with clinical research organizations and clinical sites. The Company determines the actual costs through discussions with internal personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.

Manufacturing Expenses

Manufacturing costs are related to the manufacturing of the Company’s transdermal microneedle patch and applicator for clinical trials. These costs are charged to expense as incurred and consist of active pharmaceutical ingredients, raw materials, equipment that are below capitalization threshold, salaries and related employee costs, manufacturing related overhead expenses and fees paid to external service providers and contract manufacturing organizations that conduct certain manufacturing activities on behalf of the Company.

Stock-Based Compensation

The Company accounts for its stock-based compensation expense based on the fair value of the stock-based awards that are ultimately expected to vest. The fair value of employee stock option grant is estimated on the date of grant using the Black-Scholes option pricing model, and is recognized as expense on a straight-line basis over the employee’s requisite service period (generally the vesting period), net of estimated forfeitures. Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from the prior estimates.

 

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The Company records the expense attributed to non-employee services paid with stock-based awards based on the estimated fair value of the awards determined using the Black-Scholes option pricing model. The measurement of stock-based compensation for non-employees is subject to re-measurement as the options vest, and the expense is recognized over the period during which services are received.

The Company accounts for stock options granted to employees of its joint venture, ZP Group LLC, in accordance with the recognition provisions of ASC 323-10-25 and ASC 323-10-35, Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee , using a fair value approach. The fair value of these awards is subject to re-measurement over the vesting period at each reporting date based upon the Company’s valuation at that time.

Income Taxes

The Company uses the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. Financial statement effects of uncertain tax positions are recognized when it is more-likely-than-not, based on the technical merits of the position, that it will be sustained upon examination. Interest and penalties related to unrecognized tax benefits are included within the provision for income tax.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. There have been no items qualifying as comprehensive income (loss) and, therefore, for all periods presented, the Company’s comprehensive income (loss) was the same as its reported net income (loss).

Net Income (Loss) per Common Share

Basic net income (loss) per common share is calculated by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period, without consideration for potential dilutive common stock equivalents. Diluted net income (loss) per common share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, convertible promissory notes and options to purchase common stock are considered potential dilutive common stock equivalents.

The Company follows guidance under ASC 260-10-45-48 for the calculation of diluted net income per common share for contingently convertible debt. The guidance provides that if convertible debt is convertible only upon a contingency that is not based on the issuer’s stock price or the price of the convertible instrument, the if-converted method generally should be applied only if the necessary conditions have been satisfied by the end of the period by using the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period.

For the year ended December 31, 2013, diluted net loss per common share was the same as basic net loss per common share since the effect of inclusion of potentially dilutive common stock equivalents would have an antidilutive impact due to the loss reported. For the year ended December 31, 2012, the effect of inclusion of common stock options in the computation of diluted net income per common share would have been anti-dilutive under the treasury stock method because the average fair value of the Company’s common stock for the period, as determined by the Board of Directors with input from management, did not exceed the exercise prices of the stock options.

 

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A total of 1,879,165 shares and 1,259,794 shares of common stock options were excluded from the computations of diluted net income (loss) per common share for the year ended December 31, 2013 and 2012, respectively.

Recent 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 impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

In July 2013, the FASB issued Accounting Standards Update (ASU) 2013-11, Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force) . The amendments in this ASU provide guidance on the financial statements presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward with certain exceptions, in which case such an unrecognized tax benefit should be presented in the financial statements as a liability. The amendments in this ASU do not require new recurring disclosures and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company is currently assessing the impact of this ASU on its consolidated financial statements.

In February 2013, the FASB issued guidance which addresses the presentation of amounts reclassified from accumulated other comprehensive income. This guidance does not change current financial reporting requirements, instead an entity is required to cross-reference to other required disclosures that provide additional detail about amounts reclassified out of accumulated other comprehensive income. In addition, the guidance requires an entity to present significant amounts reclassified out of accumulated other comprehensive income by line item of net income if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. Adoption of this standard is required for periods beginning after December 15, 2012 for public companies. The amended guidance became effective for the Company in the first quarter of fiscal year 2013. The election to adopt this guidance did not have a material impact on the Company’s consolidated financial statements.

 

3. Fair Value of Financial Instruments

The Company records its financial assets and liabilities at fair value. The carrying values of certain financial assets and liabilities of the Company, such as cash and cash equivalents, accounts receivable from joint venture partner, short-term investment, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The carrying value of the Company’s short-term related parties notes payable approximates their fair value as the terms of the borrowing are consistent with current market rates and the duration to maturity is short. The carrying value of the Company’s long-term related party secured promissory note approximates its fair value because the interest rate approximates market rates that the Company could obtain for debt with similar terms and maturities.

 

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The following tables set forth the fair value of the Company’s financial instruments as of December 31, 2013 and 2012:

 

     December 31, 2013  
     Level I      Level II      Level III      Total  
     (in thousands)  

Financial Assets:

           

Certificates of deposit (restricted cash)

   $ 65       $ —         $ —         $ 65   
     December 31, 2012  
     Level I      Level II      Level III      Total  
     (in thousands)  

Financial Assets:

           

Certificates of deposit (restricted cash)

   $ 35       $ —         $ —         $ 35   

 

4. Property and Equipment

The following table is a summary of property and equipment:

 

     December 31,  
           2013                 2012        
     (in thousands)  

Laboratory and office equipment

   $ 1,108      $ 1,049  

Manufacturing equipment

     10,769        1,196   

Computer equipment and software

     230        186  

Leasehold improvements

     15,534        1,084   

Construction in progress

     738        91  
  

 

 

   

 

 

 
     28,379        3,606   

Less: Accumulated depreciation

     (16,665     (2,217 )
  

 

 

   

 

 

 

Property and equipment, net

   $ 11,714      $ 1,389   
  

 

 

   

 

 

 

Property and equipment depreciation and amortization expense was approximately $0.4 million and $1.1 million for the years ended December 31, 2013 and 2012, respectively.

 

5. Collaboration with Asahi Kasei Pharma Corporation

In February 2011, the Company entered into a strategic collaboration and license agreement with Asahi Kasei Pharma Corporation (Asahi), a pharmaceutical company headquartered in Japan, to develop and commercialize Teribone™, Asahi’s formulation of parathyroid hormone 1-34, administered once per week using the Company’s microneedle patch system for the treatment of severe osteoporosis in Japan, China, Taiwan and South Korea.

Under the collaboration and license agreement, the Company was obligated to deliver, using its best efforts, multiple services over an extended period of time. Such deliverables included granting of perpetual licenses of its proprietary technology and research and development services (i.e., development of intended product, designing of manufacturing equipment for volume commercialization, transferring of its know-how to Asahi, among others). In exchange for these deliverables, during 2011 the Company received an up-front payment for the delivery of its proprietary licenses totaling $7.5 million, reimbursement for the full cost (at no margin) associated with research and development services and out-of-pocket expenses (billed on time and material basis), for which the associated costs are recorded in operating expenses in the consolidated statements of operations.

The Company applied the guidance under ASC 605-25, Multiple Element Arrangements , to account for the collaboration agreement with Asahi. The Company evaluated the underlying goods and services delivered and

 

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concluded that the licenses delivered under the collaboration agreement do not have standalone value and, accordingly, the consideration received under the upfront license fee of $7.5 million was initially deferred and recorded as deferred revenue in the consolidated balance sheet. The Company recognized the deferred revenue over the term of the research and development services. Revenue recognized from the upfront license fee was approximately $2.3 million for each of the year ended December 31, 2013 and 2012, and was recorded as license fees revenue in the consolidated statements of operations.

Also under the collaboration agreement, the Company was eligible to receive payments based upon the achievement of certain contractually specified events. Revenue recognized for the fulfillment of these contractually specified events of $2.0 million and $7.0 million was recorded as license fees revenue in the consolidated statements of operations for the years ended December 31, 2013 and 2012, respectively.

Reimbursement of research and development and out-of-pocket expenses becomes due as the related services are performed under the collaboration agreement and were recognized as revenue on a time and material basis and recorded as collaborative research and development services revenue, with the corresponding cost of service revenue recorded as research and development and manufacturing services expense in the consolidated statements of operations.

In January 2014, Asahi terminated the collaboration and license agreement with the Company and as a result, commercialization rights for the Company’s proprietary transdermal delivery technology in Japan, China, Taiwan and South Korea were returned to the Company. (See Note 13—Subsequent Events.)

 

6. Joint Venture

In April 2012, the Company acquired a 50% interest in ZP Group LLC. ZP Group LLC was formed to provide product development services and manufacturing of clinical trial material to Asahi that the Company was obligated to supply under the collaboration and license agreement with Asahi. The Company contributed approximately $14.6 million (net book value) of certain equipment to ZP Group LLC in exchange for its 50% membership interest. The Company accounts for the joint venture in ZP Group LLC as an equity investment using the equity method of accounting. The Company’s share of loss on investment in ZP Group LLC is presented as equity in loss of equity investment in the consolidated statements of operations.

Pursuant to ZP Group LLC’s operating agreement, the Company was entitled to reimbursement from Asahi for the depreciation of its contributed equipment capital for the formation of the joint venture. Amounts received are accounted for as a reduction of operating expense in the period the reimbursement is claimed. Accordingly, the Company recorded approximately $2.3 million and $1.5 million as reduction to the carrying amount of its investment in joint venture for the year ended December 31, 2013 and 2012, respectively.

On December 20, 2013, the Company and Asahi entered into a termination agreement to terminate the joint venture in ZP Group LLC, which effectively caused ZP Group LLC to cease all operations as of the effective date of the termination. In connection with the termination, the Company was to receive:

 

  (i) $2.4 million termination payment in connection with the notice period provision of the joint venture agreement;

 

  (ii) $3.5 million for the settlement of employee-related termination costs, including salaries and benefits, severance payment, and other termination-related fees and expenses, where the excess payment over actual settlement cost is non-refundable to Asahi; and

 

  (iii) reimbursement for certain out-of-pocket expenses and non-cancelable purchase commitments of ZP Group LLC.

The Company accounts for the notice period termination payment and the excess employee termination settlement payment as a gain on investment, and the reimbursement for out-of-pocket expenses and non-cancelable purchase commitments as a reduction in operating expenses in the consolidated statements of

 

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operations. Pursuant to the joint venture termination agreement, the Company recorded a receivable from joint venture partner for the net amount due the Company on its consolidated balance sheet as of December 31, 2013.

The joint venture termination agreement also provides for a period of reconciliation and true-up for costs and expenses in connection with the wind-down of ZP Group LLC’s operations and settlement for outstanding liabilities and commitments. The Company subsequently entered into a settlement agreement on March 25, 2014 to settle all costs and expenses as stipulated in the joint venture termination agreement. (See Note 13—Subsequent Events.)

The following summarizes the Company’s investment in the joint venture as of December 31, 2013 and 2012:

 

     Carrying Value  
     (in thousands)  

Balance as of January 1, 2012

   $ —     

Investment in ZP Group LLC

     14,575   

Share of loss from equity investment

     (738 )

Distribution

     (1,539 )
  

 

 

 

Balance as of December 31, 2012

     12,298  

Share of loss from equity investment

     (366

Distribution

     (2,324 )

Disposition of interest in ZP Group LLC

     (9,608
  

 

 

 

Balance as of December 31, 2013

   $ —     
  

 

 

 

The financial positions and results of operations of the investment accounted for under the equity method are as follows:

 

Joint Venture in ZP Group LLC    December 20,
2013
    December 31,
2012
 
     (in thousands, except percentages)  

Current assets

   $ 5,289     $ 7,391  

Non-current assets

     9,856        12,488   

Current liabilities

     5,785       7,447  

Non-current liabilities

     —          300   

Revenue

     17,143       13,004  

Operating expenses

     17,563        13,932   

Net loss

     (423 )     (929 )

Interest held (%)

     50     50

The following table provides a reconciliation of ZP Group LLC’s net loss to the Company’s equity in loss in the joint venture:

 

     For the Period Ended
December 20, 2013
    For the Year Ended
December 31, 2012
 
     (in thousands)  

Reported net loss of joint venture

   $ (423     $ (929 )  

Adjustments for depreciation of the Company’s contributed equipment capital:

        

Depreciation expense

       (2,632       (2,087

Quarterly distribution

       2,324          1,539   

Subtract: adjustments for depreciation on contributed capital

     (308       (548 )  
  

 

 

     

 

 

   

Remaining net loss of joint venture to be allocated to members

     (115       (381  

The Company’s share of allocated net loss

       (58       (190
    

 

 

     

 

 

 

Equity in loss of joint venture

     $ (366     $ (738
    

 

 

     

 

 

 

 

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7. Debt Financing

Bridge Financing—Related Parties Convertible Promissory Notes

In September 2013, the Company and certain of its major stockholders entered into a debt financing pursuant to a note purchase agreement under which the Company issued to these stockholders unsecured, subordinated convertible promissory notes for an aggregate of approximately $3.0 million. Each note bears simple interest of 8% per annum, with all unpaid principal and accrued interest due and payable on the earlier of: (i) September 9, 2014; (ii) an event of default, as defined; or (iii) the date that is 30 days following the closing of the Company’s first firm commitment underwritten initial public offering pursuant to a registration statement filed under the 1933 Securities Act. The Company may accelerate and repay any portion of the outstanding principal and/or interest at any time upon written consent of the noteholders representing not less than 60% of the principal amount then outstanding.

Upon the closing of a qualified financing, which is defined as an equity financing where the Company raises at least $25.0 million, the principal and all unpaid and accrued interest on each note shall automatically convert into shares of the Company’s common stock based on a pre-determined formula. Upon the sale of the Company, as defined in the note purchase agreement, each noteholder shall be entitled to receive an amount equal to any unpaid and accrued interest plus twice (2 times) the outstanding principal balance of each note.

The note purchase agreement contains customary conditions related to events of default and certain general covenants. The note purchase agreement does not require that the Company to comply with any affirmative covenants.

Secured Financing with BMR Holdings

In July 2011, the Company issued a convertible, unsecured promissory note (the 2011 Note) to its landlord, BioMed Realty Holdings, Inc. and affiliates (BMR Holdings), for unpaid rent with interest at a rate of 10% per annum, compounded annually, due January 31, 2012. In connection with the recapitalization of the Company in April 2012, the Company entered into and completed a stock purchase and loan restructuring agreement with BMR Holdings in which the outstanding balance of the 2011 Note of approximately $2.6 million and then outstanding warrants were cancelled. In exchange, the Company issued to BMR Holdings 5,377,256 shares of common stock, making BMR Holdings a 23.75% shareholder of the Company at time of the recapitalization.

Also in April 2012, the Company renegotiated a new lease agreement with BMR Holdings to include reduced rent obligations. In connection with the rent reduction, the Company issued a new secured promissory note (the 2012 Note) to BMR Holdings and all previously accrued interest, unpaid rent, future rent obligations and other fees due to BMR Holdings were either rolled into the 2012 Note or eliminated. The 2012 Note is a 4-year non-callable promissory note that bears interest at the rate of 8% per annum, compounded annually and has an original principal amount of approximately $8.6 million. The 2012 Note is secured by a first priority security interest and lien in and to all of the Company’s tangible and intangible properties and assets, including intellectual properties. All principal and interest are due and payable to BMR Holdings on the earliest of (i) April 26, 2016, (ii) the closing of a sale of the Company, as defined, or (iii) the date that any distribution is made, as defined under the terms of the 2012 Note. The Company may prepay the 2012 Note, in whole or in part, at any time without prepayment penalty or premium. Further, the Company is required to prepay the 2012 Note immediately prior to, or in connection with, a sale or partial sale of the Company, as defined as a transaction in which the Company is acquired or in which the Company exclusively licenses or sells all or substantially all of its assets. In any similar transaction that does not qualify as a sale but results in the Company’s cash balance being at least $5.0 million in excess of its cash requirements for the 12 months following the closing of such transaction, the Company is required to prepay an amount equal to half of the excess cash balance over $5.0 million.

The 2012 Note and the security agreement in connection with the note contain customary conditions related to borrowing, events of default, and covenants, including covenants limiting the Company’s ability to dispose of

 

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Index to Financial Statements

collateralized assets, undergo a change of jurisdiction or relocation of its business, incur debt or incur liens, subject to certain exceptions. The 2012 Note and security agreement also require the Company to comply with certain basic affirmative covenants, such as maintenance of financial records, insurance and prompt payment of taxes.

Line of Credit with AKP USA, Inc.

In April 2012, ZP Group LLC obtained a $25 million facility under a revolving line of credit arrangement with AKP USA, Inc. (AKPUS), an affiliate of Asahi. The facility bore an interest rate of 1.15% per year, and ZP Group LLC was obliged to pay interest on the principal outstanding on the last day of each month until any outstanding principal is paid in full. All outstanding and unpaid principal and interest were due and payable upon the earlier of (i) the date on which AKPUS no longer holds any membership interest in ZP Group LLC, or (ii) March 31, 2021.

Pursuant to the termination of the Company’s joint venture with AKPUS, the termination agreement resulted in the cancellation of the remaining unused line of credit under the revolving line of credit facility. The termination agreement also provides that the entire outstanding principal and any unpaid and accrued interest shall be discharged, released and forgiven on March 14, 2014, the effective date of the termination of this line of credit facility (See Note 13—Subsequent Events).

Security Priority

BMR Holdings has a first priority security interest and lien in and to all of the Company’s tangible and intangible properties and assets, including intellectual properties.

The following tables summarize the Company’s outstanding short-term financing and long-term debt as of December 31, 2013:

Short-term related parties notes payable:

 

Lender

  Description   Maturity
Date
  Outstanding
Principal
Amount
    Accrued
Interest
    Interest
Rate/
Weighted-
Average
Interest Rate
Per Annum
  Security/Covenant
    (in thousands)

BMV Direct SO LP

  Working capital   September 9, 2014   $ 303      $ 7      8.00%   Unsecured, convertible
to common

BMV Direct SOTRS LP

  Working capital   September 9, 2014     990        24      8.00%   Unsecured, convertible
to common

New Enterprise Associates 12, L.P.

  Working capital   September 9, 2014     1,160        30      8.00%   Unsecured, convertible
to common

ProQuest Investments IV, L.P.

  Working capital   September 9, 2014     580        14      8.00%   Unsecured, convertible
to common

AKP USA, Inc.

  Line of credit   March 14, 2014     491        5      1.15%   Unsecured
     

 

 

   

 

 

     
      $ 3,524      $ 80      7.05%  
     

 

 

   

 

 

     

 

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Index to Financial Statements

Long-term related party debt:

 

Lender

  Description   Maturity
Date
  Outstanding
Principal
Amount
    Accrued
Interest
    Interest
Rate
Per
Annum
  Security/Covenant
            (in thousands)    

BMV Direct SOTRS LP

  Recapitalization   April 26, 2016     $8,557        $1,154      8.00%   First security interest in
all properties and
assets, including certain
intellectual properties
     

 

 

   

 

 

     
      $ 8,557      $ 1,154       
     

 

 

   

 

 

     

The following table summarizes the Company’s outstanding long-term debt as of December 31, 2012:

 

Lender

  Description   Maturity
Date
  Outstanding
Principal
Amount
    Accrued
Interest
    Interest
Rate
Per
Annum
  Security/Covenant
            (in thousands)    

BMV Direct SOTRS LP

  Recapitalization   April 26, 2016     $8,557        $469      8.00%   First security interest in
all properties and
assets, including certain
intellectual properties
     

 

 

   

 

 

     
      $ 8,557      $ 469       
     

 

 

   

 

 

     

For the years ended December 31, 2013 and 2012, total interest expense on the Company’s short-term bridge financing was approximately $80,000 and none, respectively, and interest expense on the Company’s long-term related party debt was approximately $0.7 million and $0.5 million, respectively.

 

8. Commitments and Contingencies

Operating Leases

The Company has an operating lease with an affiliate of BMR for its office, research and development, and manufacturing facilities in Fremont, California. The original lease was scheduled to expire in 2017. The lease agreement provides for an escalation of rent payments. The initial lease agreement provided for tenant improvement allowances of up to $8.3 million for application against construction costs incurred by the Company. In October 2008, the lease agreement was amended to provide for additional tenant improvement advances of up to $2.1 million. Through December 31, 2010, the Company had received the entire amount of $10.4 million of tenant improvement allowances. The allowances are being amortized over the term of the lease as a reduction of rent expense.

The Company executed a Fifth Amendment to the lease in April 2012 which extended the lease term through March 2019 and provided a reduction in annual rents due to a potential reduction of premises from a recapturable premises clause.

The Company records rent expense under the lease on a straight-line basis over the term of the lease. The difference between the actual lease payments and the expense recognized under the lease, along with the unamortized tenant improvement allowances, resulted in a deferred rent liability of $6.3 million and $7.4 million as of December 31, 2013 and 2012, respectively.

As a result of the lease renegotiation in April 2012, the Company issued the 2012 Note in consideration for previously accrued interest, unpaid rent, future rent obligations and other fees due to the landlord resulting in

 

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Index to Financial Statements

prepaid rent which is being expensed on a straight-line basis over the term of the lease. As of December 31, 2013, the prepaid rent of approximately $5.9 million is offset against the deferred rent liability of approximately $6.3 million, resulting in a net deferred rent liability of approximately $0.4 million. As of December 31, 2012, the net deferred rent liability was approximately $0.6 million.

Also in April 2012, the Company entered into a sub-lease agreement with ZP Group LLC, an equity investment of the Company. The sub-lease terminated on December 20, 2013 as a result of the termination of the Company’s joint venture with Asahi. Rental income of $0.6 million and $0.5 million for the year ended December 31, 2013 and 2012, respectively, were recorded as reduction of rental expense.

For the years ended December 31, 2013 and 2012, rental expense under operating leases before rental income was $0.6 million and $0.9 million, respectively.

Future minimum payments under non-cancelable operating leases as of December 31, 2013, are as follows (in thousands):

 

2014

   $ 885   

2015

     673   

2016

     614  

2017

     632   

2018

     651  

Thereafter

     164   
  

 

 

 

Total future minimum payments

   $ 3,619   
  

 

 

 

Indemnification

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. The Company also has indemnification obligations to its officers and directors for specified events or occurrences, subject to some limits, while they are serving at the Company’s request in such capacities. There have been no claims to date and the Company has director and officer insurance that may enable the Company to recover a portion of any amounts paid for future potential claims. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of December 31, 2013.

 

9. Stockholders’ Equity

Common Stock

The Company’s certificate of incorporation authorizes the Company to issue 30.0 million shares of common stock. Common stockholders are entitled to dividends if and when declared by the board of directors, subject to the rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date. Each share of common stock is entitled to one vote. As of December 31, 2013 and 2012, 20,427,250 shares of the Company’s common stock were issued and outstanding.

 

10. Stock Incentive Plan

The Company adopted the 2012 Stock Incentive Plan (the 2012 Plan) which provides for the granting of stock options and restricted stock awards to employees, directors and consultants of the Company. Options

 

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granted under the 2012 Plan may be either incentive stock options or nonqualified stock options. Incentive stock options may be granted only to Company employees. Nonqualified stock options may be granted to Company employees, outside directors and consultants. As of December 31, 2013, the Company has reserved 2,264,108 shares of common stock for issuance under the 2012 Plan. Options and awards under the 2012 Plan may be granted for periods of up to ten years and are exercisable immediately subject to rights of repurchase by the Company dependent upon the continued employment of the optionee and/or other conditions as determined. Employee options granted by the Company generally vest over four years. Restricted stock awards granted to employees, directors and consultants can be subject to the same vesting conditions as determined by the Board of Directors. In 2012, 50,000 shares of fully vested restricted stock awards were granted to certain officers of the Company.

The following table summarizes options and restricted stock awards activity under the 2012 Plan and related information:

 

     Shares
Available for
Grant
    Outstanding
Number of
Awards
(in shares)
    Weighted-
Average
Exercise
Price per Share
     Weighted-
Average
Remaining
Contractual
Term
(In Years)
     Aggregate
Intrinsic
Value
 

Shares reserved under the 2012 Plan

     2,264,108             

Granted

     (1,309,794     1,309,794      $ 0.35         

Exercised/vested and released

     —          (50,000     —           

Cancelled/forfeited

     —          —          —           
  

 

 

   

 

 

         

Balance at December 31, 2012

     954,314        1,259,794        0.37         9.53      

Granted

     (815,806     815,806        0.35         

Exercised/vested and released

     —          —          —           

Cancelled/forfeited

     196,435        (196,435     0.35         
  

 

 

   

 

 

         

Balance at December 31, 2013

     334,943        1,879,165        0.36         8.88      
  

 

 

   

 

 

         

Exercisable at December 31, 2013

       431,265      $ 0.37         8.26       $ —     
    

 

 

      

 

 

    

 

 

 

Vested and expected to vest at December 31, 2013

       1,639,344      $ 0.36         8.69       $ —     
    

 

 

      

 

 

    

 

 

 

The aggregate intrinsic values of options outstanding and exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the estimated fair value of the Company’s common stock as determined by the Board of Directors with input from management as of December 31, 2013. The estimated fair value of the common stock underlying the stock options was determined at each grant date by the board of directors and was supported by periodic independent third-party valuations.

The following summarizes the composition of stock options outstanding and exercisable as of December 31, 2013:

 

       Options Outstanding and Exercisable    

Exercise Price

   Number of
Shares
     Weighted-
Average
Remaining
Contractual
Life (in years)
 

$0.35

     219,005         8.39   

$0.39

     212,260         8.13   

The weighted-average grant-date fair value of options and awards granted during the years ended December 31, 2013 and 2012 were $0.24 per share and $0.26 per share, respectively. The total fair value of

 

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options and awards that vested during the years ended December 31, 2013 and 2012 were approximately $0.1 million and $52,000, respectively. No option was exercised in the year ended December 31, 2013 and 2012. 50,000 shares of fully vested restricted stock awards were released in 2012.

Stock-Based Compensation Expense

Total stock-based compensation expense included in the Company’s consolidated statements of operations is as follows:

 

       Year Ended December 31,    
     2013      2012  
     (in thousands)  

Research and development

   $ 11       $ 26   

Manufacturing

     5         —     

General and administrative

     49         37   
  

 

 

    

 

 

 
   $ 65       $ 63   
  

 

 

    

 

 

 

The total unrecognized stock-based compensation expense related to stock-based compensation arrangements at December 31, 2013, was approximately $0.2 million, and is expected to be recognized over a weighted-average period of approximately 2.88 years.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. Since the Company is private and does not have any trading history for its common stock, the expected stock price volatility was calculated based on the average historical volatility for comparable publicly traded pharmaceutical companies. The Company selected companies with comparable characteristics, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the Company’s stock-based awards. The expected term of the options is based on the average period the stock options are expected to remain outstanding. As the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, the expected term is calculated as the midpoint between the weighted-average vesting term and the contractual expiration period, also known as the simplified method. The risk-free interest rate is based on U.S. Treasury zero coupon issues with remaining terms consistent with the expected terms of the stock options, as determined at the time of grant. To date, the Company has not declared or paid any cash dividends and does not have any plans to do so in the future. Therefore, the Company used an expected divided yield of zero.

The following table presents the weighted-average assumptions for the Black-Scholes option-pricing model used in determining the fair value of options granted to employees:

 

       Year Ended December 31,    
     2013     2012  

Dividend yield

     —          —     

Risk-free interest rate

     1.74     0.97

Expected volatility

     89.00     89.00

Expected term (in years)

     6.08        6.08   

In the years ended December 31, 2013 and 2012, the Company granted 10,000 shares and 19,349 shares of common stock options, respectively, with exercise price of $0.35 per share in exchange for services from consultants. Stock-based compensation expense related to stock options granted to nonemployees is measured and recognized as earned. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services rendered. The fair value of these options is measured using

 

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Index to Financial Statements

the Black-Scholes option pricing model reflecting an expected life that is assumed to be the remaining contractual life of the option. The compensation costs of these arrangements are subject to remeasurement over the vesting terms as earned. For the years ended December 31, 2013 and 2012, the Company recorded an immaterial amount of stock-based compensation expense related to the stock options granted to non-employees.

The fair value of the stock options granted to nonemployees was calculated using the Black-Scholes option pricing model with the following assumptions:

 

     Year Ended December 31,  
           2013                 2012        

Dividend yield

     —          —     

Risk-free interest rate

     3.01     1.78

Expected volatility

     89.00     89.00

Expected term (in years)

     10.00        10.00   

 

11. Income Taxes

The Company has incurred cumulative net operating losses since inception and, consequently, has not recorded any income tax expense for the years ended December 31, 2013 and 2012 due to its net operating loss position.

The reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:

 

     Year Ended December 31,  
           2013                 2012        

Federal statutory tax rate

     (34.00 )%      34.00

State statutory tax rate

     (5.85 )%      5.85

Warrant revaluation

     1.16     (3.32 )% 

Other

     0.37     5.87

Valuation allowance

     38.32     (42.40 )% 
  

 

 

   

 

 

 

Provision for income taxes

     —       —  
  

 

 

   

 

 

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of December 31, 2013 and 2012, the Company had net deferred tax assets of $56.5 million and $53.9 million, respectively. Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The net valuation allowance increased by approximately $2.6 million during the year ended December 31, 2013, and decreased by approximately $0.8 million during the year ended December 31, 2012.

 

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Index to Financial Statements

Significant components of the Company’s net deferred tax assets and liabilities at December 31, 2013 and 2012 are as follows:

 

     Year Ended December 31,  
           2013                 2012        
     (in thousands)  

Net operating loss carryforwards

   $ 52,823     $ 48,690  

Deferred revenue

     448        1,344   

Accruals

     300       46  

Deferred rent

     601        792   

Research and development credits

     5,850       5,376  

AMT credit

     20        20   

Other

     294       691  

Depreciation and amortization

     (2,498     (144

Investments

     —         (1,645 )

Research and development credit reserves

     (1,359     (1,249
  

 

 

   

 

 

 

Net deferred tax assets

     56,479       53,921  

Valuation allowance

     (56,479     (53,921
  

 

 

   

 

 

 
   $ —       $ —    
  

 

 

   

 

 

 

As of December 31, 2013, the Company had federal net operating loss carryforwards of approximately $133.1 million and state net operating loss carryforwards of approximately $129.6 million. If not utilized, the federal net operating loss carryforwards will begin to expire in 2026 and state net operating loss carryforwards will begin to expire in 2016.

Utilization of the Company’s net operating loss and tax credit carryforwards may be subject to substantial annual limitation in the event that there is a change in ownership as provided by section 382 of the Internal Revenue Code and similar state provisions. Such a limitation could result in the expiration of the net operating loss carryforwards and tax credits before utilization. The Company has not performed an analysis under Section 382 since its formation and, accordingly, some or all of its net operating loss carryforwards may not be available to offset future taxable income.

As of December 31, 2013, the Company had federal and state research and development credit carryforwards of approximately $3.4 million and $3.4 million, respectively. If not utilized, the federal tax credits will begin to expire in 2026 and state tax credits currently do not expire. Utilization of the research and development credit carryforwards are also subject to the limitations as discussed above. The Company has not performed an analysis under Internal Revenue Code Section 383 since its formation and, accordingly, some or all of its research and development credit carryforwards may not be available to offset future taxable income.

The American Taxpayer Relief Act of 2012, signed into law on January 2, 2013, extended Section 41 research credits for two years retroactively from January 1, 2012 through December 31, 2013. The new law also resolves an issue regarding the treatment of qualified research expenditures in the event of an acquisition or disposition of a trade or business. The credit rates for both the regular credit, 20%, and the alternative simplified credit, 14%, remain unchanged by this credit extension. The Act retroactively extended the federal research credit through 2013 and extended 50% bonus depreciation. The Act does not have any impact on the Company’s federal tax credits carryforward as of December 31, 2013.

The Company files income tax returns in the U.S. federal and California state jurisdictions. The Company is subject to U.S. federal and state income tax examinations by authorities for all tax years due to the accumulated net operating losses that are being carried forward for tax purposes.

 

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Index to Financial Statements

Uncertain Income Tax Positions

The Company only recognizes tax benefits if it is more likely than not that they will be sustained upon audit by the relevant tax authority based upon their technical merits. An uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained.

The Company had approximately $1.4 million and $1.2 million of unrecognized tax benefits as of December 31, 2013 and 2012, respectively. As the Company has a full valuation allowance on its deferred tax assets, the unrecognized tax benefits will reduce the deferred tax assets and the valuation allowance in the same amount. The Company does not expect the amount of unrecognized tax benefits to materially change in the next twelve months. A reconciliation of the beginning and ending balance of the unrecognized tax benefits is as follows:

 

     Year Ended December 31,  
           2013                  2012        
     (in thousands)  

Balance at the beginning of year

   $ 1,249       $ 1,167  

Increase related to prior year tax positions

     —           —     

Increase related to current year tax positions

     110         82  
  

 

 

    

 

 

 

Balance at the end of year

   $ 1,359       $ 1,249   
  

 

 

    

 

 

 

Interest and penalty related to unrecognized tax benefits would be included as income tax expense in the Company’s consolidated statements of operations. As of December 31, 2013 and 2012, the Company had not recognized any tax-related penalties or interest in its consolidated financial statements.

 

12. 401(k) Plan

The Company’s employees, upon meeting certain requirements, are eligible to participate in a 401(k) plan. The 401(k) plan provides that each participant may contribute a portion of his or her pre-tax compensation, up to a statutory limit. Participants that are 50 years or older can also make “catch-up” contributions up to certain additional amount above the statutory limit. Employee contributions are held and invested by the plan’s trustee. The 401(k) plan also permits the Company to make discretionary matching contributions. The Company did not make any matching contribution for the years ended December 31, 2013 and 2012.

 

13. Subsequent Events

Termination of License Agreement and Return of Asian Marketing Rights

The Company’s collaboration and license agreement with Asahi was terminated on January 27, 2014, at which time the performance and service period effectively ended. In connection with the collaboration and license agreement with Asahi, Company had previously received a $7.5 million nonrefundable upfront license fee. The $7.5 million payment was recorded in the Company’s consolidated balance sheet as deferred revenue upon receipt and recognized in its consolidated statements of operations as revenue on a straight-line basis over the performance and service period. Pursuant to the terms of the collaboration and license agreement, the Company is under no obligation to return any portion of the upfront license fee to Asahi. As a result, the Company will recognize as revenue the remaining $1.1 million of the nonrefundable upfront license fee as of March 31, 2014. Effective upon Asahi’s notice of termination on January 27, 2014, the Company no longer provides development support services to Asahi and therefore those services will no longer be a source of revenue. Pursuant to the terms of the collaboration and license agreement and upon its termination, commercialization rights in Japan, China, Taiwan and South Korea were returned to the Company.

Collaboration with Novo Nordisk

In January 2014, the Company entered into an agreement with Novo Nordisk A/S (Novo Nordisk) to develop a new transdermal presentation of semaglutide, an investigational proprietary human GLP-1 (Glucagon-Like Peptide-1) analogue, to be administered once weekly using the Company’s microneedle patch system for

 

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Index to Financial Statements

the treatment of type 2 diabetes. Initially, the Company and Novo Nordisk will engage in collaborative efforts to carry out preclinical experiments to verify delivery of semaglutide using the microneedle patch system.

Under the terms of the agreement, the Company granted Novo Nordisk a worldwide, exclusive license to develop and commercialize Novo Nordisk’s proprietary GLP-1 analogues using the Company’s microneedle patch system. Novo Nordisk will, pending successful outcomes of preclinical and clinical testing, be responsible for commercialization of all products under the agreement.

Potential payments to the Company under the agreement include an upfront payment and additional payments upon achieving certain preclinical, clinical, regulatory and sales milestones, with aggregate payments totaling more than $60 million for the first product. As of the date of this report, the Company has received an upfront payment. The Company is also eligible to receive milestones and royalties on sales of products and will receive development support, as well as reimbursement of all development and manufacturing costs.

Bridge Financing—Related Parties Convertible Promissory Notes

In February 2014, the Company further issued certain unsecured, subordinated convertible promissory notes to certain existing noteholders for an additional $2.5 million in debt financing. All terms of the promissory notes, including interest rate and maturity date, automatic conversation features, and change of control or sale of company provisions, remain the same as the promissory notes issued to the same parties in September 2013.

Final Settlement of Joint Venture Affairs

In March 2014, the Company entered into a settlement agreement with Asahi, AKPUS, and ZP Group LLC for the settlement of all remaining liabilities, distribution, disposition and transfer of assets pursuant to the joint venture termination agreement entered into in December 2013. All outstanding liabilities, materials, drug supplies and equipment are settled through provisions under the settlement agreement.

 

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Index to Financial Statements

Zosano Pharma Corporation and Subsidiaries

Index to Unaudited Interim Condensed Consolidated Financial Statements

 

Unaudited Interim Condensed Consolidated Financial Statements:

  

Condensed Consolidated Balance Sheets

     F-29  

Condensed Consolidated Statements of Operations

     F-30  

Condensed Consolidated Statements of Cash Flows

     F-31  

Notes to Unaudited Interim Condensed Consolidated Financial Statements

     F-32  

 

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Index to Financial Statements

ZOSANO PHARMA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 

     March 31,
2014
    Pro Forma
March 31, 2014
     December 31,
2013
 
     (Unaudited)         
ASSETS   

Current assets:

       

Cash and cash equivalents

   $ 5,608      $                    $ 5,913   

Accounts receivable

     226           —     

Accounts receivable from joint venture partner

     —             3,426   

Short-term investment

     391           361   

Prepaid expenses and other current assets

     85           465   
  

 

 

   

 

 

    

 

 

 

Total current assets

     6,310           10,165   

Restricted cash

     35           65   

Property and equipment, net

     11,384           11,714   

Other long-term assets

     140           140   
  

 

 

   

 

 

    

 

 

 

Total assets

   $ 17,869      $         $ 22,084   
  

 

 

   

 

 

    

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)      

Current liabilities:

       

Accounts payable

   $ 1,716      $         $ 3,412   

Accrued compensation

     883           2,676   

Revolving line of credit

     —             496   

Deferred revenue

     750           1,125   

Related parties notes payable (including accrued interest)

     5,687           3,108   

Other accrued liabilities

     444           716   
  

 

 

   

 

 

    

 

 

 

Total current liabilities

     9,480           11,533   

Deferred rent

     301           363   

Related party secured promissory note (including accrued interest)

     9,930           9,711   

Commitments and contingencies

       

Stockholders’ equity (deficit):

       

Common stock, $0.0001 par value: 30,000 shares authorized; 20,427 shares issued and outstanding as of March 31, 2014 and December 31, 2013

     2           2   

Additional paid-in capital

     124,751           124,698   

Accumulated deficit

     (126,595        (124,223
  

 

 

   

 

 

    

 

 

 

Stockholders’ equity (deficit)

     (1,842        477   
  

 

 

   

 

 

    

 

 

 

Total liabilities and stockholders’ equity (deficit)

   $ 17,869      $         $ 22,084   
  

 

 

   

 

 

    

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Index to Financial Statements

ZOSANO PHARMA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

     Three Months Ended
March 31,
 
     2014     2013  
     (Unaudited)  

Revenue:

    

License fees revenue

   $ 1,375      $ 2,563   

Collaborative development support services

     226        —     
  

 

 

   

 

 

 

Total revenue

     1,601        2,563   
  

 

 

   

 

 

 

Operating expenses:

    

Cost of license fees revenue

     100        —     

Research and development

     1,507        1,098   

Manufacturing services

     1,378        114   

General and administrative

     1,184        809   
  

 

 

   

 

 

 

Total operating expenses

     4,169        2,021   
  

 

 

   

 

 

 

(Loss) income from operations

     (2,568     542   

Other (expense) income:

    

Interest expense, net

     (301     (168
  

 

 

   

 

 

 

(Loss) income before equity in gain of joint venture and gain on debt forgiveness

     (2,869     374   

Equity in gain of joint venture

     —          89   

Gain on debt forgiveness

     497        —     
  

 

 

   

 

 

 

Net (loss) income

   $ (2,372   $ 463   
  

 

 

   

 

 

 

Net (loss) income per common share:

    

Basic

   $ (0.12   $ 0.02   
  

 

 

   

 

 

 

Diluted

   $ (0.12   $ 0.02   
  

 

 

   

 

 

 

Weighted-average shares used in computing net (loss) income per common share:

    

Basic

     20,427        20,427   
  

 

 

   

 

 

 

Diluted

     20,427        20,427   
  

 

 

   

 

 

 

Pro forma net loss per common share—basic and diluted

   $      
  

 

 

   

Weighted-average shares used in computing pro forma net loss per common share—basic and diluted

    
  

 

 

   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Index to Financial Statements

ZOSANO PHARMA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED CASH FLOW STATEMENTS

(in thousands)

 

     Three Months Ended March 31,  
             2014                     2013          
     (Unaudited)  

Cash flows from operating activities:

    

Net (loss) income

   $ (2,372   $ 463   

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

    

Depreciation

     762        88   

Stock-based compensation

     53        7   

Equity in (gain) loss of joint venture

     —          (89

Gain on debt forgiveness

     (497     —     

Accretion of interest payment

     298        169   

Deferred rent

     (62     (55

Change in operating assets and liabilities:

    

Accounts receivable

     (226     (364

Accounts receivable from joint venture partner

     3,426        58   

Prepaid expenses and other assets

     380        23   

Accounts payable

     (1,696     (114

Accrued compensation and other liabilities

     (2,065     425   

Deferred revenue

     (375     (563
  

 

 

   

 

 

 

Net cash flow (used in) provided by operating activities

     (2,374     48   
  

 

 

   

 

 

 

Cash flow from investing activities:

    

Distribution from joint venture

     —          648   

Purchase of property and equipment

     (431     —     

Decrease in restricted cash

     30        —     

Purchase of short-term investment

     (30     —     
  

 

 

   

 

 

 

Net cash flow (used in) provided by investing activities

     (431     648   
  

 

 

   

 

 

 

Cash flow from financing activities:

    

Proceeds from borrowings under bridge financing

     2,500        —     
  

 

 

   

 

 

 

Net cash flow provided by financing activities

     2,500        —     
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (305     696   

Cash and cash equivalents at beginning of period

     5,913        4,973   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 5,608      $ 5,669   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Index to Financial Statements

Zosano Pharma Corporation and Subsidiaries

Notes to Unaudited Interim Condensed Consolidated Financial Statements

 

1. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial reporting and as required by Regulation S-X, Rule 10-01. The preparation of the accompanying condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Going Concern and Management’s Plans

The accompanying condensed consolidated financial statements have been prepared assuming Zosano Pharma Corporation and subsidiaries (the Company) will continue as a going concern. The Company has a history of incurring operating losses and negative cash flows from operating activities. The Company had an accumulated deficit of approximately $126.6 million as of March 31, 2014. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Through March 31, 2014, the Company has relied primarily on the proceeds from private equity offerings and loan proceeds to finance its operations. Management expects to incur additional losses in the future to conduct product research and development and to conduct pre-commercialization activities. Additional capital will be required to undertake these activities and to meet the operating requirements of the Company in the next twelve months and beyond. The Company intends to raise such capital through the issuance of additional equity through public or private offerings, borrowings, and strategic alliances with partner companies. However, if such financing is not available at adequate levels or on acceptable terms, the Company could be required to significantly reduce operating expenses and delay or reduce the scope of or eliminate some of its development programs or its commercialization efforts, enter into a collaboration or other similar arrangement with respect to commercialization rights to any of its product candidates, out-license intellectual property rights to its transdermal delivery technology and sell unsecured assets, or a combination of the above, which may have a material adverse effect on the Company’s business, results of operations, financial condition and/or its ability to fund its scheduled obligations on a timely basis or at all.

Unaudited Interim Financial Information

The condensed consolidated balance sheet as of March 31, 2014, condensed consolidated statements of operations and cash flows for the three months ended March 31, 2014 and 2013 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly our financial position as of March 31, 2014 and results of operations and cash flows for the three months ended March 31, 2014 and 2013. The financial data and other information disclosed in these notes to the interim condensed consolidated financial statements as of March 31, 2014 and for the three-month periods ended March 31, 2014 and 2013 are unaudited. The results for the three months ended March 31, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014 or for any other interim period or for any future year. These financial statements should be read in conjunction with the Company’s audited financial statements included elsewhere in this prospectus.

Unaudited Pro Forma Presentation

The unaudited pro forma balance sheet as of March 31, 2014 gives effect to the automatic conversion of the Company’s related parties convertible bridge notes of $5.7 million of principal and interest into an aggregate of

 

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Index to Financial Statements

             shares of common stock upon completion of this offering at a price equal to 85% of the assumed initial public offering price, resulting in the reclassification the related liabilities to additional paid-in capital.

The pro forma net loss per share for the three-month period ended March 31, 2014 is computed using the weighted-average number of common shares outstanding, including the pro forma effects of the items in the foregoing paragraph effective upon the closing of this offering, as if they had occurred at the beginning of the period.

Consolidation

The consolidated financial statements include the accounts of Zosano Pharma Corporation, ZP Opco, Inc., and ZP Group LLC post-termination of the joint venture. Intercompany balances and transactions have been eliminated in consolidation.

Segment Reporting

The Company operates in one business segment to develop human pharmaceutical products. Management uses one measurement of profitability and does not segregate its business for internal reporting.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Restricted Cash

The Company entered into a pledge and security agreement with a bank whereby $35,000 and $65,000 was restricted for use as security for its corporate purchasing cards and is classified as restricted cash as of March 31, 2014 and December 31, 2013, respectively.

Short-Term Investment

The Company accounts for its investment in Zosano, Inc., the public shell corporation it acquired in October 2013, using the cost method of accounting and classifies this investment as a short-term investment in its consolidated balance sheet. The Company continues to actively pursue selling this investment.

Deferred Offering Costs

Deferred offering costs, consisting of legal, accounting and filing fees related to the initial public offering are capitalized. The deferred offering costs will be offset against proceeds from the initial public offering upon the closing of the offering. In the event the offering is terminated, all capitalized deferred offering costs will be expensed. As of March 31, 2014, no amount was deferred as the initial public offering related services began in April 2014.

Revenue Recognition

The Company generates revenue from collaboration arrangements for the development and commercialization of its microneedle patch system and product candidates. Collaboration and license agreements may include non-refundable upfront license fees, partial or complete reimbursement of research and development costs, contingent consideration payments based on the achievement of defined collaboration objectives and royalties on sales of commercialized products.

The Company’s license and collaboration agreements may contain multiple elements, including grants of licenses to the Company’s proprietary technology and know-how related to the Company’s product candidates as well as agreements to provide research and development services, and manufacturing and commercialization

 

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Index to Financial Statements

services. Each deliverable under the agreement is evaluated to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has standalone value to the customer. Upfront payments for licenses are evaluated to determine if the licensee can obtain standalone value from the license separate from the value of the research and development services and other deliverables in the arrangement to be provided by the Company. If the Company determines that the license does not have standalone value separate from the research and development services, the license and the services are combined as one unit of accounting and upfront payments are recorded as deferred revenue in the consolidated balance sheet and are recognized as revenue over an estimated performance period that is consistent with the term of performance obligations as determined by the Company. The Company periodically reviews the estimated period of performance based on the progress made under each arrangement.

Payments that are contingent upon achievement of a substantive milestone are recognized in their entirety in the period in which the milestone is achieved. Milestones are defined as an event that can only be achieved based on the Company’s performance and there is substantive uncertainty about whether the event will be achieved at the inception of the arrangement. Events that are contingent only on the passage of time or only on counterparty performance are not considered milestones subject to the milestone method guidance. Further, the amounts received must relate solely to prior performance, be reasonable relative to all of the deliverables and payment terms within the agreement and commensurate with the Company’s performance to achieve the milestone after commencement of the agreement. Other contingent payments received for which payment is contingent solely on the results of a collaborative partner’s performance or the achievement of certain pre-defined corporate objectives are not accounted for using the milestone method. Such payments will be recognized as revenue when the objective is met and collectability is reasonably assured.

Amount related to research and development funding is recognized as the related services or activities are performed, in accordance with the contractual terms. Payments are generally made to the Company based on the number of full-time equivalent employees assigned to the collaboration project and the related research and development expenses incurred.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. There have been no items qualifying as comprehensive income (loss) and, therefore, for all periods presented, the Company’s comprehensive income (loss) was the same as its reported net income (loss).

Net Income (Loss) per Common Share

Basic net income (loss) per common share is calculated by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period, without consideration for potential dilutive common stock equivalents. Diluted net income (loss) per common share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, convertible promissory notes and options to purchase common stock are considered potential dilutive common stock equivalents.

For the three months ended March 31, 2014, diluted net loss per common share was the same as basic net loss per common share since the effect of inclusion of potentially dilutive common stock equivalents would have an antidilutive impact due to the loss reported. For the three months ended March 31, 2013, the effect of inclusion of common stock options in the computation of diluted net income per common share would have been anti-dilutive under the treasury stock method because the average fair value of the Company’s common stock for the period, as determined by the Board of Directors with input from management, did not exceed the exercise prices of the stock options.

 

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Index to Financial Statements

A total of 1,792,016 shares and 1,359,112 shares of common stock options were excluded from the computations of diluted net income (loss) per common share for the three months ended March 31, 2014 and 2013, respectively.

 

2. Fair Value of Financial Instruments

The Company records its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

 

    Level 1: Inputs which include quoted prices in active markets for identical assets and liabilities.

 

    Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

    Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying values of certain financial assets and liabilities of the Company, such as cash and cash equivalents, accounts receivable from joint venture partner, short-term investment, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The carrying value of the Company’s short-term related parties notes payable approximates their fair value as the terms of the borrowing are consistent with current market rates and the duration to maturity is short. The carrying value of the Company’s long-term related party secured promissory note approximates its fair value because the interest rate approximates market rates that the Company could obtain for debt with similar terms and maturities.

The following tables set forth the fair value of the Company’s financial instruments as of March 31, 2014 and December 31, 2013:

 

     March 31, 2014  
     Level I      Level II      Level III      Total  
     (Unaudited; in thousands)  

Financial assets:

           

Certificates of deposit (restricted cash)

   $ 35       $ —         $ —         $ 35   
     December 31, 2013  
     Level I      Level II      Level III      Total  
     (in thousands)  

Financial assets:

           

Certificates of deposit (restricted cash)

   $ 65       $ —         $ —         $ 65   

 

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3. Property and Equipment

The following table is a summary of property and equipment:

 

         March 31, 2014             December 31, 2013      
     (Unaudited)        
     (in thousands)  

Laboratory and office equipment

   $ 1,108      $ 1,108   

Manufacturing equipment

     10,801        10,769   

Computer equipment and software

     230        230   

Leasehold improvements

     15,534        15,534   

Construction in progress

     1,137        738   
  

 

 

   

 

 

 
     28,810        28,379   

Less: Accumulated depreciation

     (17,426     (16,665
  

 

 

   

 

 

 

Property and equipment, net

   $ 11,384      $ 11,714   
  

 

 

   

 

 

 

Property and equipment depreciation and amortization expense was approximately $0.8 million and $88,000 for the three months ended March 31, 2014 and 2013, respectively.

 

4. Termination of Collaboration with Asahi Kasei Pharma Corporation

The Company’s collaboration and license agreement with Asahi was terminated on January 27, 2014, at which time the performance and service period effectively ended. In connection with the collaboration and license agreement with Asahi, the Company had previously received a $7.5 million nonrefundable upfront license fee. The $7.5 million payment was recorded in the Company’s consolidated balance sheet as deferred revenue upon receipt and recognized in its consolidated statements of operations as revenue on a straight-line basis over the performance and service period. Pursuant to the terms of the collaboration and license agreement, the Company is under no obligation to return any portion of the upfront license fee to Asahi. As a result, the Company has recognized as revenue the remaining $1.1 million of the nonrefundable upfront license fee in the three-month period ended March 31, 2014. Effective upon Asahi’s notice of termination on January 27, 2014, the Company no longer provides development support services to Asahi and therefore those services will no longer be a source of revenue to the Company. Pursuant to the terms of the collaboration and license agreement and upon its termination, commercialization rights to the Company’s transdermal drug delivery technology in Japan, China, Taiwan and South Korea were returned to the Company.

 

5. Settlement of Joint Venture Affairs

On December 20, 2013, the Company and Asahi entered into a termination agreement to terminate the joint venture in ZP Group LLC, which effectively caused ZP Group LLC to cease all operations as of the effective date of the termination. The joint venture termination agreement provided for a period of reconciliation and true-up for costs and expenses in connection with the wind-down of ZP Group LLC’s operations and settlement for outstanding liabilities and commitments. In March 2014, the Company entered into a settlement agreement with Asahi, AKPUS, and ZP Group LLC for the settlement of all remaining liabilities, distribution, disposition and transfer of assets pursuant to the joint venture termination agreement entered into in December 2013.

 

6. Collaboration with Novo Nordisk

In January 2014, the Company entered into an agreement with Novo Nordisk A/S (Novo Nordisk) to develop a new transdermal presentation of semaglutide, an investigational proprietary human GLP-1 (Glucagon-Like Peptide-1) analogue, to be administered once weekly using the Company’s microneedle patch system for

 

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the treatment of type 2 diabetes. Under the terms of the agreement, the Company granted Novo Nordisk a worldwide, exclusive license to develop and commercialize Novo Nordisk’s proprietary GLP-1 analogues using the Company’s microneedle patch system. Novo Nordisk will, pending successful outcomes of preclinical and clinical testing, be responsible for commercialization of all products under the agreement.

Potential payments to the Company under the agreement include an upfront payment and additional payments upon achieving certain preclinical, clinical, regulatory and sales milestones, with aggregate payments totaling more than $60 million for the first product. The Company is also eligible to receive royalties on sales of products and will receive development support, as well as reimbursement of all development and manufacturing costs.

Initially, the Company and Novo Nordisk had agreed to engage in collaborative efforts to carry out preclinical experiments to verify delivery of semaglutide using the microneedle patch system, known as a feasibility study plan. As of March 31, 2014, the Company has received an upfront payment of $1 million. The Company evaluated the upfront payment for the license of its technology and determined that the license does not have standalone value apart from the development support services. Accordingly, the license and the development support services are combined as one unit of accounting and the upfront payment is recorded as deferred revenue in the consolidated balance sheet and recognized as revenue over an estimated eight months performance period that is consistent with the term of performance obligations under the specified feasibility study plan. The Company will continue to reevaluate the estimated performance period as the study progress and adjust the period over which the upfront payment is recognized prospectively.

 

7. Payment Obligations to ALZA

The Company is a party to an intellectual property license agreement dated October 5, 2006, as amended, with ALZA Corporation, or ALZA, where the Company licensed certain patents and patent applications from ALZA on an exclusive basis worldwide. Under the terms of the license agreement with ALZA, the Company is obligated to pay ALZA royalties on sales by the Company of products that would otherwise infringe one of the licensed patents or that is developed by the Company based on certain ALZA know-how or inventions, and to pay ALZA royalties on sales by its sublicensees of such products. The Company is also obligated to pay ALZA a percentage of non-royalty revenue, defined as upfront payments, milestone payments and all other considerations (other than royalties), that the Company receives from its sublicensees on third party products where no generic equivalent is available to the public. The license agreement will terminate upon the expiration of the Company’s obligations to make the royalty and other payments described above. The Company may terminate the agreement at any time upon prior written notice to ALZA.

Pursuant to the intellectual property license agreement with ALZA, the Company is therefore obligated to make the respective royalty payments to ALZA for each milestone received under its agreement with Novo Nordisk beginning with the upfront payment it received upon the execution of the agreement. The payment of $100,000 is charged to expense in the Company’s condensed consolidated statement of operations for the three months ended March 31, 2014.

 

8. Debt Financing

Bridge Financing—Related Parties Convertible Promissory Notes

In February 2014, the Company issued certain unsecured, subordinated convertible promissory notes to certain existing noteholders for an additional $2.5 million in debt financing. All terms of the promissory notes, including interest rate and maturity date, automatic conversation features and change of control or sale of company provisions, remain the same as the promissory notes issued to the same parties in September 2013.

Line of Credit with AKP USA, Inc. Forgiven

Pursuant to the termination of the Company’s joint venture with AKPUS, the termination agreement resulted in the cancellation of the remaining unused line of credit under the revolving line of credit facility. The

 

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termination agreement also provides that the entire outstanding principal and any unpaid and accrued interest shall be discharged, released and forgiven on March 14, 2014, the effective date of the termination of this line of credit facility. Accordingly, the Company recorded a gain on debt forgiven for approximately $0.5 million on its consolidated statement of operations for the three months ended March 31, 2014.

The following tables summarize the Company’s outstanding short-term financing and long-term debt as of March 31, 2014:

Short-term related parties notes payable:

 

Lender

  Description   Maturity
Date
  Outstanding
Principal
Amount
    Accrued
Interest
    Interest
Rate/

Weighted-
Average
Interest Rate
Per Annum
    Security/Covenant
            (Unaudited; in
thousands)
           

BMV Direct SO LP

  Working capital   September 9, 2014   $ 552      $ 15        8.00   Unsecured, convertible
to common

BMV Direct SOTRS LP

  Working capital   September 9, 2014     2,061        52        8.00   Unsecured, convertible
to common

New Enterprise Associates 12, L.P.

  Working capital   September 9, 2014     2,341        60        8.00   Unsecured, convertible
to common

ProQuest Investments IV, L.P.

  Working capital   September 9, 2014     580        26        8.00   Unsecured, convertible
to common
     

 

 

   

 

 

     
      $ 5,534      $ 153        8.00  
     

 

 

   

 

 

     

Long-term related party debt:

 

Lender

  Description     Maturity
Date
    Outstanding
Principal
Amount
    Accrued
Interest
    Interest
Rate

Per
Annum
    Security/Covenant
                (Unaudited; in
thousands)
           

BMV Direct SOTRS LP

    Recapitalization        April 26, 2016      $ 8,557      $ 1,373        8.00   First security interest in
all properties and
assets, including certain
intellectual properties
     

 

 

   

 

 

     
      $ 8,557      $ 1,373       
     

 

 

   

 

 

     

 

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The following tables summarize the Company’s outstanding short-term financing and long-term debt as of December 31, 2013:

Short-term related parties notes payable:

 

Lender

  Description   Maturity
Date
  Outstanding
Principal
Amount
    Accrued
Interest
    Interest
Rate/

Weighted-
Average
Interest Rate
Per Annum
    Security/Covenant
            (in thousands)            

BMV Direct SO LP

  Working capital   September 9, 2014   $ 303      $ 7        8.00   Unsecured, convertible
to common

BMV Direct SOTRS LP

  Working capital   September 9, 2014     990        24        8.00   Unsecured, convertible
to common

New Enterprise Associates 12, L.P.

  Working capital   September 9, 2014     1,160        30        8.00   Unsecured, convertible
to common

ProQuest Investments IV, L.P.

  Working capital   September 9, 2014     580        14        8.00   Unsecured, convertible
to common

AKP USA, Inc.

  Line of credit   March 14, 2014     491        5        1.15   Unsecured
     

 

 

   

 

 

     
      $ 3,524      $ 80        7.05  
     

 

 

   

 

 

     

Long-term related party debt:

 

Lender

  Description     Maturity
Date
    Outstanding
Principal
Amount
    Accrued
Interest
    Interest
Rate

Per
Annum
    Security/Covenant
                (in thousands)            

BMV Direct SOTRS LP

    Recapitalization        April 26, 2016      $ 8,557      $ 1,154        8.00   First security interest in
all properties and
assets, including certain
intellectual properties
     

 

 

   

 

 

     
      $ 8,557      $ 1,154       
     

 

 

   

 

 

     

For the three months ended March 31, 2014 and 2013, total interest expense on the Company’s short-term related party notes payable was approximately $78,000 and none, respectively, and interest expense on the Company’s long-term related party debt was approximately $0.2 million and $0.2 million, respectively.

 

9. Stock Incentive Plan

As of March 31, 2014, the Company has reserved 2,264,108 shares of common stock for issuance under the 2012 Plan.

 

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The following table summarizes options and restricted stock awards activity under the 2012 Plan and related information:

 

     Shares
Available
for

Grant
     Outstanding
Number
of Awards
(in shares)
    Weighted-
Average
Exercise
Price per
Share
     Weighted-
Average
Remaining
Contractual
Term
(In Years)
     Aggregate
Intrinsic
Value
 

Balance at December 31, 2013

     334,943         1,879,165      $ 0.36         8.88      

Granted (unaudited)

     —           —          —           

Exercised/vested and released (unaudited)

     —           —          —           

Cancelled/forfeited (unaudited)

     87,149         (87,149     0.35         
  

 

 

    

 

 

         

Balance at March 31, 2014 (unaudited)

     422,092         1,792,016      $ 0.36         8.63      
  

 

 

    

 

 

         

Exercisable at March 31, 2104 (unaudited)

        574,911      $ 0.37         8.47       $ —     
     

 

 

      

 

 

    

 

 

 

Vested and expected to vest at March 31, 2014 (unaudited)

        1,696,079      $ 0.36         8.63       $ —     
     

 

 

      

 

 

    

 

 

 

The aggregate intrinsic values of options outstanding and exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the estimated fair value of the Company’s common stock as determined by the Board of Directors with input from management as of March 31, 2014. The estimated fair value of the common stock underlying the stock options was determined at each grant date by the board of directors and was supported by periodic independent third-party valuations.

The following summarizes the composition of stock options outstanding and exercisable as of March 31, 2014:

 

       Options Outstanding and Exercisable    

Exercise Price

   Number of
Shares
     Weighted-
Average
Remaining
Contractual
Life (in years)
 
     (Unaudited)  

$0.35

     339,066         8.66   

$0.39

     235,845         8.21   
  

 

 

    

$0.35 – $0.39

     574,911         8.47   
  

 

 

    

The weighted-average grant-date fair value of options and awards granted during the three months ended March 31, 2014 and 2013 were $0.25 per share and $0.25 per share, respectively. The total fair value of options and awards that vested during the three months ended March 31, 2014 and 2013 were approximately $24,000 and $14,000, respectively. No option was exercised in the three months ended March 31, 2014 and 2013.

Stock-Based Compensation Expense

Total stock-based compensation expense included in the Company’s consolidated statements of operations is as follows:

 

       Three Months Ended March 31,    
     2014      2013  
     (Unaudited; in thousands)  

Research and development

   $ 19       $ 2   

Manufacturing

     4         —     

General and administrative

     30         5   
  

 

 

    

 

 

 
   $ 53       $ 7   
  

 

 

    

 

 

 

 

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In February 2014, the Company’s board of directors, based on recommendation by management, adopted a resolution to extend the stock option exercise period to certain former ZP Group LLC employees whose employment was terminated as a result of the termination of the joint venture with Asahi from 60 days to 120 days post-termination. As a result, a total of 77,426 options were modified. In accordance with the provisions of ASC 718, the Company accounted for the modification as an exchange of the original award for a new award and accordingly, approximately $3,000 of compensation cost was recognized during the three-month period ended March 31, 2014 related to these options.

The total unrecognized stock-based compensation expense related to stock-based compensation arrangements as of March 31, 2014 was approximately $0.3 million, and is expected to be recognized over a weighted-average period of approximately 2.64 years.

The following table illustrates the weighted-average assumptions for the Black-Scholes option-pricing model used in determining the fair value of options granted to employees:

 

       Three Months Ended March 31,    
     2014 (1)      2013  
     (Unaudited)  

Dividend yield

     —           —     

Risk-free interest rate

     —           1.74

Expected volatility

     —           89

Expected term (in years)

     —           6.08   

 

(1) No options were granted to employees in the three-month period ended March 31, 2014.

Stock-based compensation expense related to stock options granted to nonemployees is measured and recognized as earned. The fair value of these options is measured using the Black-Scholes option pricing model reflecting an expected life that is assumed to be the remaining contractual life of the option. The compensation costs of these arrangements are subject to remeasurement over the vesting terms as earned. No options were granted to nonemployees in the three months ended March 31, 2014 and 2013. For the three months ended March 31, 2014 and 2013, the Company recorded approximately $2,000 and an immaterial amount, respectively, of stock-based compensation expense related to the stock options granted to non-employees.

 

10. Subsequent Events

Senior Secured Term Loan with Hercules

On June 3, 2014, the Company entered into a loan and security agreement with Hercules Technology Growth Capital, Inc., or Hercules, which provided the Company $4.0 million in debt financing (Hercules Term Loan). In accordance with the terms of the loan and security agreement, the Company paid $25,000 as a non-refundable upfront loan negotiation fee to Hercules and issued Hercules a warrant to purchase $280,000 worth of shares of the Company’s stock at an exercise price equal to the lesser of the lowest price per share of the stock sold in the Company’s next round of equity financing that results in gross proceeds of at least $3 million prior to the closing of an initial public offering, or $2.21 per share. The agreement provides that amounts borrowed will be subject to an interest-only period beginning July 1, 2014 and expiring on December 31, 2014, followed by 30 equal monthly installment payments of principal and interest beginning January 1, 2015 at a variable rate of the greater of (i) 12.05%, or (ii) 12.05% plus the prime rate as quoted in the Wall Street Journal minus 5.25%. In addition, the Company will be obligated to make an end-of-term payment of $100,000 at loan maturity or at the date the Company prepays the outstanding obligation. Further, should the Company elects to prepay the loan after the twelve month lock-in period, a 1% prepayment penalty on the outstanding principal will become due and payable.

In connection with the loan and security agreement, Hercules is given the right to invest up to $1.0 million in the Company’s common stock on the same terms, conditions and pricing as others participating in the

 

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Company’s first subsequent equity financing after the closing of the Hercules Term Loan. Hercules is further given an additional right to convert up to $0.5 million of the principal amount of the Hercules Term Loan in the first subsequent equity financing on the same terms, conditions and pricing as others on such equity financing.

Other Initial Public Offering Related Events

On May 12, 2014, the Company’s board of directors authorized management to file a registration statement with the Securities and Exchange Commission permitting us to sell shares of our common stock pursuant to this offering. If the initial public offering is closed under the terms presently anticipated, all of the convertible debt outstanding will automatically convert into shares of common stock.

On June 20, 2014, the Company’s board of directors approved a change of name of the Company from ZP Holdings, Inc. to Zosano Pharma Corporation.

 

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            Shares

ZOSANO PHARMA CORPORATION

Common Stock

 

 

 

PROSPECTUS

 

 

 

 

Wedbush PacGrow Life Sciences
  Ladenburg Thalmann
    Roth Capital Partners

                    , 2014

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 requirement is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

 

 

 


Table of Contents
Index to Financial Statements

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

   $ 8,372   

FINRA filing fee

     10,250   

NASDAQ Global Market listing fee

     *   

Accountants’ fees and expenses

     *   

Legal fees and expenses

     *   

Transfer agent’s fees and expenses

     *   

Printing and engraving expenses

     *   

Miscellaneous

     *   

Total Expenses

   $         *   
  

 

 

 

 

* To be provided 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 closing 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 closing of this offering, our amended and restated bylaws will provide that we will indemnify each person who was or is a party or threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director or officer of Zosano

 

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Pharma Corporation, 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 closing of this offering, our amended and restated bylaws will provide that expenses must be advanced to these indemnitees under certain circumstances.

The indemnification provisions contained in our amended and restated bylaws that will be effective as of the closing of this offering are not exclusive. In addition, we have entered into indemnification agreements with each of our directors. Each indemnification agreement provides that we will indemnify the director to the fullest extent permitted by law for claims arising in his capacity as a director, provided that he acted in good faith and in a manner that he reasonably believed to be in, or not opposed to, our best interests and, with respect to any criminal proceeding, had no reasonable cause to believe that his conduct was unlawful. In the event that we do not assume the defense of a claim against a director, we are required to advance his expenses in connection with his defense, provided that he undertakes to repay all amounts advanced if it is ultimately determined that he is not entitled to be indemnified by us.

In addition, we maintain standard policies of insurance under which coverage is provided to our directors and officers against losses arising from claims made by reason of breach of duty or other wrongful act, and to us with respect to payments which may be made by us to such directors and officers pursuant to the above indemnification provisions or otherwise as a matter of law. In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act of 1933, as amended, against certain liabilities.

 

Item 15. Recent Sales of Unregistered Securities.

Stock Options

At various times since June 2012, we have granted options to purchase an aggregate of 2,485,533 shares of common stock to our employees, directors, and consultants pursuant to our 2012 Stock Incentive Plan, at exercise prices ranging from $0.32 to $0.39 per share. None of these options have been exercised to date. The issuance of these options was exempt from registration pursuant to Rule 701 of the Securities Act of 1933, as securities issued pursuant to a compensatory benefit plan.

The following table provides information regarding the number of options issued pursuant to our 2012 Stock Incentive Plan in each calendar year during this period.

 

Year

   Options Issued (#)      Weighted average
exercise price of
issued options ($)
     Total shares of stock issued
upon exercise of outstanding
options (#)
     Weighted average
exercise price of
exercised options ($)
 

2012

     1,259,794       $ 0.37         0       $ —     

2013

     816,805       $ 0.35         0       $ —     

2014

     409,933       $ 0.32         0       $ —     

Common Stock

On January 26, 2012, we sold an aggregate of 3,750,000 shares of common stock to our Chief Executive Officer, Vikram Lamba, and our Chief Scientific Officer, Peter Daddona. On December 11, 2012, we issued an aggregate of 50,000 additional shares of common stock to Mr. Lamba and Dr. Daddona pursuant to our 2012 Stock Incentive Plan. The issuance of these shares was exempt from registration under Section 4(a)(2) of the Securities Act, as a sale not involving a public offering, and pursuant to Rule 701 of the Securities Act of 1933, as securities issued pursuant to a compensatory benefit plan.

In April 2012, in a transaction to recapitalize our business, structured as a reverse triangular merger, a wholly-owned subsidiary of Zosano Pharma Corporation (then named ZP Holdings, Inc.) was merged with and

 

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into ZP Opco, Inc. (then named Zosano Pharma, Inc.), whereby ZP Opco was the surviving entity and became a wholly-owned subsidiary of Zosano Pharma Corporation. As part of this reorganization, we issued 11,249,994.579 shares of our common stock to the stockholders and optionholders of ZP Opco in exchange for the cancellation of all outstanding common and preferred stock of ZP Opco and all outstanding stock options. Also, in connection with this reorganization, all outstanding debt and related accrued interest of ZP Opco held by investors was cancelled, and all outstanding warrants to purchase capital stock were terminated. The issuance of these shares was exempt from registration under Section 4(a)(2) of the Securities Act, as a sale not involving a public offering.

In April 2012, in connection with the restructuring of our lease with an affiliate of BioMed Realty Holdings, Inc., or BMR, for our facilities located in Fremont, California, we issued an aggregate of 5,377,256 shares of our common stock to BMR and another affiliate of BMR. The issuance of these shares was exempt from registration under Section 4(a)(2) of the Securities Act, as a sale not involving a public offering. In June 2014, in consideration of BMR agreeing to subordinate its secured promissory note and related security interest to our term loan facility with Hercules and its related security interest, we issued an aggregate of 125,000 shares of our common stock to BMR. The issuance of these shares was exempt from registration under Section 4(a)(2) of the Securities Act, as a sale not involving a public offering.

BMR Promissory Note

In April 2012, in consideration of the amendment of our lease agreement with BMR’s affiliate, we issued a new four year non-callable secured promissory note to BMR with an original principal amount of $8.6 million bearing interest at the rate of 8% per annum, compounded annually. All principal and interest will become due and payable under the note in April 2016. The note is secured by substantially all of our assets, including intellectual property. In addition to the note, we issued shares of our common stock to BMR and another affiliate of BMR in connection with the restructuring, described above under the heading “ Common Stock ”. The issuance of the secured promissory note to BMR was exempt from registration under Section 4(a)(2) of the Securities Act, as a sale not involving a public offering.

Convertible Promissory Notes

In September 2013, we issued and sold convertible promissory notes in the aggregate original principal amount of approximately $3.0 million to certain of our existing stockholders. In February 2014, we issued and sold additional convertible promissory notes in the aggregate original principal amount of $2.5 million to certain of our existing stockholders. Pursuant to their terms, all of these notes will automatically convert upon the closing of this offering into shares of our common stock, at a conversion price equal to 85% of the price per share at which our common stock is sold in this offering. The issuance of these bridge notes was exempt from registration under Section 4(a)(2) of the Securities Act, as a sale not involving a public offering.

 

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.

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

 

II - 3


Table of Contents
Index to Financial Statements

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.

The undersigned registrant hereby undertakes that:

 

    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.

 

    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.

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.

 

II - 4


Table of Contents
Index to Financial Statements

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 City of Fremont, State of California, on the 23rd day of June, 2014.

 

ZOSANO PHARMA CORPORATION
By:   /s/ Vikram Lamba
 

Vikram Lamba

 

President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints each of Vikram Lamba and Winnie W. Tso as such person’s true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such person in such person’s name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement (or any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with all exhibits thereto, and all documents in connection therewith, with the SEC, granting unto each said attorney-in-fact and agent 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 such person might or could do in person, hereby ratifying and confirming all that any said attorney-in-fact and agent, or any substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature

  

Title

 

Date

/s/ Vikram Lamba

Vikram Lamba

   Chief Executive Officer, President and Director (Principal Executive Officer)   June 23, 2014

/s/ Winnie W. Tso

Winnie W. Tso

   Chief Financial Officer and Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer)   June 23, 2014

/s/ Peter Daddona

Peter Daddona

   Director   June 23, 2014

/s/ Bruce Steel

Bruce Steel

   Director   June 23, 2014

/s/ M. James Barrett

M. James Barrett

   Director   June 23, 2014

/s/ Kleanthis G. Xanthopoulos

Kleanthis G. Xanthopoulos

   Director   June 23, 2014

/s/ Troy Wilson

Troy Wilson

   Director   June 23, 2014


Table of Contents
Index to Financial Statements

EXHIBIT INDEX

 

Exhibit
number

 

Description

  1.1*   Underwriting Agreement
  3.1   Certificate of Incorporation of Zosano Pharma Corporation
  3.2   Certificate of Amendment to Certificate of Incorporation of Zosano Pharma Corporation, effective April 18, 2012
  3.3   Certificate of Amendment to Certificate of Incorporation of Zosano Pharma Corporation, effective June 23, 2014
  3.4*   Amended and Restated Certificate of Incorporation of Zosano Pharma Corporation, to be effective upon the closing of this offering
  3.5   Bylaws of Zosano Pharma Corporation
  3.6*   Amended and Restated Bylaws of Zosano Pharma Corporation, to be effective upon the closing of this offering
  4.1*   Specimen certificate evidencing shares of common stock
  4.2   Note Purchase Agreement, dated as of September 9, 2013, among ZP Holdings, Inc., BMV Direct SO LP, BMV Direct SOTRS LP, New Enterprise Associates 12, Limited Partnership, ProQuest Investments IV, L.P. and ProQuest Management LLC
  4.3   Form of Subordinated Convertible Promissory Note dated September 9, 2013
  4.4   Note Purchase Agreement, dated as of February 26, 2014, among ZP Holdings, Inc., BMV Direct SO LP, BMV Direct SOTRS LP and New Enterprise Associates 12, Limited Partnership
  4.5   Form of Subordinated Convertible Promissory Note dated February 26, 2014
  4.6   Stock Repurchase Option Agreement, dated May 15, 2012, between ZP Holdings, Inc. and Peter Daddona
  4.7   Stock Repurchase Option Agreement, dated May 15, 2012, between ZP Holdings, Inc. and Vikram Lamba
  4.8   First Amendment, dated as of June 3, 2014, to Note Purchase Agreement and 8% Subordinated Convertible Promissory Notes dated September 9, 2013
  4.9   First Amendment, dated as of June 3, 2014, to Note Purchase Agreement and 8% Subordinated Convertible Promissory Notes dated February 26, 2014
  5.1*   Opinion of Foley Hoag LLP
10.1**   Collaboration, Development and License Agreement, dated January 31, 2014, between Zosano Pharma, Inc. and Novo Nordisk A/S
10.2   Notice of Termination, dated January 27, 2014, of the Amended and Restated License Agreement dated as of April 1, 2012 among Zosano Pharma, Inc. and Asahi Kasei Pharma Corporation
10.3   Letter Amendment to Intellectual Property License Agreement, dated February 22, 2011 between ALZA Corporation and Zosano Pharma, Inc.
10.4**   Intellectual Property License Agreement, dated as of October 5, 2006, between ALZA Corporation and The Macroflux Corporation
10.5   Secured Promissory Note, dated April 26, 2012, between ZP Holdings, Inc. and BioMed Realty Holdings, Inc.


Table of Contents
Index to Financial Statements

Exhibit
number

  

Description

10.6    Security Agreement, dated as of April 26, 2012, between ZP Holdings, Inc. and BioMed Realty Holdings, Inc.
10.7    Intellectual Property Security Agreement, dated as of April 26, 2012, between ZP Holdings, Inc. and BioMed Realty Holdings, Inc.
10.8    Guaranty, made as of April 1, 2012, by ZP Holdings, Inc. in favor of BMR-34790 Ardentech Court LP
10.9    Lease Agreement, dated May 1, 2007, between Zosano Pharma, Inc. and BMR-34790 Ardentech Court LP
10.10    First Amendment to Lease, dated June 20, 2008, between Zosano Pharma, Inc. and BMR-34790 Ardentech Court LP
10.11    Second Amendment to Lease, dated October 16, 2008, between Zosano Pharma, Inc. and BMR-34790 Ardentech Court LP
10.12    Third Amendment to Lease, dated April 29, 2011, between Zosano Pharma, Inc. and BMR-34790 Ardentech Court LP
10.13    Fourth Amendment to Lease, dated July 31, 2011, between Zosano Pharma, Inc. and BMR-34790 Ardentech Court LP
10.14    Fifth Amendment to Lease, dated April 1, 2012, between Zosano Pharma, Inc. and BMR-34790 Ardentech Court LP
10.15    Form of Indemnification Agreement for Directors associated with an Investment Fund
10.16    Form of Indemnification Agreement for Directors not associated with an Investment Fund
10.17 ±    Employment Letter Agreement, dated April 30, 2014, among Zosano Pharma, Inc., ZP Holdings, Inc. and W. Tso
10.18 ±    Amendment to Amended and Restated Employment Letter Agreement, dated January 31, 2014, among Zosano Pharma, Inc., ZP Holdings, Inc. and Nandan Oza
10.19 ±    Amended and Restated Employment Letter Agreement, dated July 22, 2013, among Zosano Pharma, Inc., ZP Holdings, Inc. and Nandan Oza
10.20   

Loan and Security Agreement, dated as of June 3, 2014, between Zosano Pharma, Inc. and Hercules Technology Growth Capital, Inc.

10.21   

Joinder Agreement, dated as of June 3, 2014, between ZP Holdings, Inc. and Hercules Technology Growth Capital, Inc.

10.22   

ZP Holdings, Inc. Pledge Agreement, dated as of June 3, 2014, between ZP Holdings, Inc. and Hercules Technology Growth Capital, Inc.

10.23 ±    Amendment No. 2 to Employment Letter Agreement, dated January 16, 2014, among Zosano Pharma, Inc., ZP Holdings, Inc. and Peter Daddona
10.24 ±    Amendment to Employment Letter Agreement, dated January 6, 2014, among Zosano Pharma, Inc., ZP Holdings, Inc. and Peter Daddona
10.25 ±    Employment Letter Agreement, dated May 11, 2012, among Zosano Pharma, Inc., ZP Holdings, Inc. and Peter Daddona
10.26 ±    Amendment to Employment Letter Agreement, dated December 17, 2013, among Zosano Pharma, Inc., ZP Holdings, Inc. and Vikram Lamba


Table of Contents
Index to Financial Statements

Exhibit
number

  

Description

10.27 ±    Employment Letter Agreement, dated May 11, 2012, among Zosano Pharma, Inc., ZP Holdings, Inc. and Vikram Lamba
10.28    Letter Amendment to Independent Director Agreement, dated July 15, 2013, between ZP Holdings, Inc. and Kleanthis G. Xanthopoulos
10.29    Independent Director Agreement, dated as of March 28, 2013, between ZP Holdings, Inc. and Kleanthis G. Xanthopoulos
10.30 ±    ZP Holdings, Inc. 2012 Stock Incentive Plan
10.31 ±    Form of Incentive Stock Option under ZP Holdings, Inc. 2012 Stock Incentive Plan
10.32 ±    Form of Non-Statutory Stock Option under ZP Holdings, Inc. 2012 Stock Incentive Plan
10.33 ± *    ZP Holdings, Inc. 2014 Equity and Incentive Plan
10.34    Warrant Agreement, dated as of June 3, 2014, between ZP Holdings, Inc. and Hercules Technology Growth Capital, Inc.
10.35    Subordination Agreement, dated as of June 3, 2014, among BMV Direct SOTRS LP, BioMed Realty Holdings, Inc., Zosano Pharma, Inc., ZP Holdings, Inc. and Hercules Technology Growth Capital, Inc.
10.36    Subordination Agreement, dated as of June 3, 2014, among BMV Direct SOTRS LP, BMV Direct SO LP, New Enterprise Associates 12, Limited Partnership, ProQuest Investments IV, L.P., ProQuest Management LLC, Zosano Pharma, Inc., ZP Holdings, Inc. and Hercules Technology Growth Capital, Inc.
10.37    Subordination Agreement, dated as of June 3, 2014, among BMV Direct SOTRS LP, BMV Direct SO LP, New Enterprise Associates 12, Limited Partnership, Zosano Pharma, Inc., ZP Holdings, Inc. and Hercules Technology Growth Capital, Inc.
10.38    First Amendment to Secured Promissory Note, dated as of June 3, 2014, among BMV Direct SOTRS LP, ZP Holdings, Inc. and Zosano Pharma, Inc.
10.39    Independent Director Agreement, dated as June 23, 2014, between Zosano Pharma Corporation and Troy Wilson
21.1    Subsidiaries of Registrant
23.1    Consent of Marcum LLP
23.2    Consent of Foley Hoag 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
±   Management contract or compensatory plan or arrangement

Exhibit 3.1

CERTIFICATE OF INCORPORATION

OF

ZP HOLDINGS, INC.

FIRST : The name of the corporation (the “ Corporation ”) is ZP Holdings, Inc.

SECOND : The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, Wilmington, Delaware, 19801, County of New Castle, and the name of its registered agent at such address is The Corporation Trust Company.

THIRD : The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

FOURTH : The total number of shares of capital stock that the Corporation has the authority to issue shall be 10,000,000 shares of common stock, par value $0.0001 per share (“ Common Stock ”).

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, such by-laws may be adopted, amended or repealed by the board of directors of the Corporation; and

 

  (b) Elections of directors need not be by written ballot unless, and only to the extent, otherwise provided in the by-laws of the Corporation; and

 

  (c) Subject to any applicable requirements of law, the books of the Corporation may be kept outside the State of Delaware at such location or locations as may be designated by the board of directors of the Corporation or in the by-laws of the Corporation; and

 

  (d) Except as provided to the contrary in the provisions establishing a class of stock, the number of authorized shares of such class may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, voting as a single class.

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 or she 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; provided, however, that the foregoing shall not require the Corporation to indemnify or advance expenses to any person in connection with any action, suit, proceeding, claim or counterclaim initiated by or on behalf of such person. 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. 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.

SEVENTH : Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

EIGHTH : 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 director’s breach of fiduciary duty as a director of the Corporation, except to the extent that the elimination or 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 EIGHTH 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.

 

2


NINTH : 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 the General Corporation Law of the State of Delaware and this Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation.

TENTH : The name of the sole incorporator of the Corporation is Jeffrey L. Quillen. The sole incorporator’s mailing address is Foley Hoag LLP, 155 Seaport Boulevard, Boston, Massachusetts 02210-2600.

IN WITNESS WHEREOF, I have hereunto set my hand as of January 26, 2012.

 

/s/ Jeffrey L. Quillen

Jeffrey L. Quillen
Sole Incorporator

 

3

Exhibit 3.2

CERTIFICATE OF AMENDMENT

TO

CERTIFICATE OF INCORPORATION

OF

ZP HOLDINGS, INC.

ZP Holdings, Inc. (the “ Corporation ”), a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “ DGCL ”), DOES HEREBY CERTIFY:

 

FIRST:    That the Board of Directors of the Corporation has duly adopted, by written consent, resolutions proposing and declaring advisable that the Certificate of Incorporation of the Corporation be amended and that such amendment be submitted to the stockholders of the Corporation for their consideration, as follows:

 

RESOLVED:    That the Board of Directors recommends and deems it advisable that the Certificate of Incorporation of the Corporation be amended as follows:

 

  (i) By deleting the first sentence of Article FOURTH thereof in its entirety and inserting the following new first sentence of Article FOURTH in its place:

“The total number of shares of capital stock that the Corporation has the authority to issue shall be 30,000,000 shares of common stock, par value $0.0001 per share (“ Common Stock ”).”

 

  (ii) By adding the following new second sentence of Article FOURTH:

“Unless otherwise approved by the board of directors of the Corporation, the Corporation shall not, without the written consent or affirmative vote of the holders of at least 90% of the then outstanding shares of Common Stock, given in writing or by vote at a meeting, (A) commence any case, proceeding or other action (1) under any existing or future law relating to bankruptcy, insolvency, reorganization or other relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts or (2) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or (B) make a general assignment for the benefit of its creditors.”


RESOLVED:   That the aforesaid proposed amendment to the Certificate of Incorporation of the Corporation (the “ Charter Amendment ”) is recommended to the stockholders of the Corporation as being in the best interests of the Corporation and its stockholders, and the Board of Directors directs that the Charter Amendment be submitted to the stockholders for their approval.

 

SECOND:   That in lieu of a meeting and vote of stockholders, the stockholders of the Corporation have given written consent to said amendment in accordance with the provisions of section 228 of the DGCL, and written notice of the adoption of said amendment has been or will be given as provided in section 228 of the DGCL to every stockholder entitled to such notice.
THIRD:   That the aforesaid amendment was duly adopted in accordance with the provisions of section 242 of the DGCL.

[the remainder of this page is intentionally blank]

 

2


IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its President on the 17th day of April, 2012.

 

ZP HOLDINGS, INC.
By:  

/s/ Vikram Lamba

  Name:   Vikram Lamba
  Title:   President

Exhibit 3.3

CERTIFICATE OF AMENDMENT

TO

CERTIFICATE OF INCORPORATION

OF

ZP HOLDINGS, INC.

ZP Holdings, Inc. (the “ Corporation ”), a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “ DGCL ”), DOES HEREBY CERTIFY:

 

FIRST: That the Board of Directors of the Corporation, by written consent, adopted resolutions proposing and declaring advisable that the Certificate of Incorporation of the Corporation be amended and that such amendment be submitted to the stockholders of the Corporation for their consideration, as follows:

 

  RESOLVED: That the Board of Directors recommends and deems it advisable that the Certificate of Incorporation, as amended to date, of the Corporation (the “ Certificate of Incorporation ”) be further amended by deleting Article FIRST thereof in its entirety and inserting the following new Article FIRST in its place:

FIRST :        The name of the corporation (the “ Corporation ”) is Zosano Pharma Corporation.”

 

  RESOLVED: That the aforesaid proposed amendment to the Certificate of Incorporation (the “ Charter Amendment ”) be submitted to the stockholders of the Corporation for their consideration.

 

SECOND: That in lieu of a meeting and vote of stockholders, the stockholders of the Corporation have given written consent to said amendment in accordance with the provisions of Section 228 of the DGCL, and written notice of the adoption of said amendment has been or will be given as provided in Section 228 of the DGCL to every stockholder entitled to such notice.

 

THIRD: That the aforesaid amendment was duly adopted in accordance with the provisions of section 242 of the DGCL.

[the remainder of this page is intentionally blank]


IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its President on the 20th day of June, 2014.

 

ZP HOLDINGS, INC.
By:  

/s/ Vikram Lamba

  Name:   Vikram Lamba
  Title:   President

Exhibit 3.5

BY-LAWS

OF

ZP HOLDINGS, INC.

Adopted on January 26, 2012


ZP HOLDINGS, INC.

BY-LAWS

Table of Contents

 

             Page  
Section 1  

CERTIFICATE OF INCORPORATION AND BY-LAWS

     1   
Section 2  

OFFICES

     1   
  2.1  

Registered Office.

     1   
  2.2  

Other Offices.

     1   
Section 3  

STOCKHOLDERS

     1   
  3.1  

Location of Meetings.

     1   
  3.2  

Annual Meeting.

     1   
  3.3  

Special Meeting in Place of Annual Meeting.

     2   
  3.4  

Notice of Annual Meeting.

     2   
  3.5  

Other Special Meetings.

     2   
  3.6  

Notice of Special Meeting.

     2   
  3.7  

Stockholder List.

     2   
  3.8  

Quorum of Stockholders.

     3   
  3.9  

Adjournment.

     3   
  3.10  

Proxy Representation.

     3   
  3.11  

Inspectors.

     3   
  3.12  

Action by Vote.

     4   
  3.13  

Action Without Meetings.

     4   
  3.14  

Organization.

     4   
  3.15  

Conduct of Meetings.

     4   
Section 4  

DIRECTORS

     5   
  4.1  

Number.

     5   
  4.2  

Tenure.

     5   
  4.3  

Powers.

     5   
  4.4  

Vacancies.

     5   
  4.5  

Committees.

     5   
  4.6  

Regular Meeting.

     6   
  4.7  

Special Meetings.

     6   
  4.8  

Notice.

     6   
  4.9  

Quorum.

     6   
  4.10  

Action by Vote.

     7   
  4.11  

Action Without a Meeting.

     7   
  4.12  

Participation in Meetings by Conference Telephone.

     7   
  4.13  

Compensation.

     7   
  4.14  

Interested Directors and Officers.

     7   
  4.15  

Resignation or Removal of Directors.

     8   

 

i


Section 5   NOTICES      8   
 

5.1

  Form of Notice.      8   
 

5.2

  Waiver of Notice.      9   
Section 6   OFFICERS AND AGENTS      9   
 

6.1

  Enumeration; Qualification.      9   
 

6.2

  Powers.      9   
 

6.3

  Election.      9   
 

6.4

  Tenure.      9   
 

6.5

  Chairperson of the Board of Directors.      9   
 

6.6

  President and Vice Presidents.      10   
 

6.7

  Treasurer and Assistant Treasurers.      10   
 

6.8

  Secretary and Assistant Secretaries.      10   
 

6.9

  Resignation and Removal.      10   
 

6.10

  Vacancies.      11   
Section 7   CAPITAL STOCK      11   
 

7.1

  Stock Certificates.      11   
 

7.2

  Lost Certificates.      11   
Section 8   TRANSFER OF SHARES OF STOCK      11   
Section 9   GENERAL PROVISIONS      12   
 

9.1

  Record Date.      12   
 

9.2

  Dividends.      12   
 

9.3

  Payment of Dividends.      12   
 

9.4

  Checks.      13   
 

9.5

  Fiscal Year.      13   
 

9.6

  Seal.      13   
Section 10   INDEMNIFICATION      13   
Section 11   AMENDMENTS      13   

 

ii


BY-LAWS

OF

ZP HOLDINGS, INC.

 

  Section 1 CERTIFICATE OF INCORPORATION AND BY-LAWS

1.1 Certificate of Incorporation and By-laws . These by-laws are subject to the certificate of incorporation of the corporation. In these by-laws, references to the certificate of incorporation and by-laws mean the provisions of the certificate of incorporation and the by-laws as are from time to time in effect.

 

  Section 2 OFFICES

2.1 Registered Office . The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware.

2.2 Other Offices . The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require.

 

  Section 3 STOCKHOLDERS

3.1 Location of Meetings . All meetings of the stockholders shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the board of directors, or if not so designated, at the registered office of the corporation. Notwithstanding the foregoing, the board of directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law. If so authorized, and subject to such guidelines and procedures as the board of directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication, participate in a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation. Any adjourned session of any meeting shall be held at the place designated in the vote of adjournment.

3.2 Annual Meeting . The annual meeting of stockholders shall be held at 10:00 a.m. on the second Wednesday in May in each year, 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

 

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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, 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.

3.3 Special Meeting in Place of Annual Meeting . If the election for directors shall not be held on the day designated by these by-laws, the directors shall cause the election to be held as soon thereafter as convenient, and to that end, if the annual meeting is omitted on the day herein provided therefor or if the election of directors shall not be held thereat, a special meeting of the stockholders may be held in place of such omitted meeting or election, and any business transacted or election held at such special meeting shall have the same effect as if transacted or held at the annual meeting, and in such case all references in these by-laws to the annual meeting of the stockholders, or to the annual election of directors, shall be deemed to refer to or include such special meeting. Any such special meeting shall be called and the purposes thereof shall be specified in the call, as provided in Section 3.5.

3.4 Notice of Annual Meeting . Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Such notice may specify the business to be transacted and actions to be taken at such meeting. No action shall be taken at such meeting unless such notice is given or unless waiver of such notice is given in accordance with Section 5.2 by each stockholder entitled to such notice to whom such notice was not given.

3.5 Other Special Meetings . Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by law or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of the holders of at least ten percent of all capital stock of the corporation issued and outstanding and entitled to vote at such meeting. Such request shall state the purpose or purposes of the proposed meeting and business to be transacted at any special meeting of the stockholders.

3.6 Notice of Special Meeting . Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting. No action shall be taken at such meeting unless such notice is given or unless waiver of such notice is given in accordance with Section 5.2 by each stockholder entitled to such notice to whom such notice was not given.

3.7 Stockholder List . The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least ten days prior to the meeting, either (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at

 

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the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to examination of any stockholder during the entire meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

3.8 Quorum of Stockholders . The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise required by law, by the certificate of incorporation or by these by-laws. Except as otherwise provided by law, no stockholder present at a meeting may withhold his shares from the quorum count by declaring his shares absent from the meeting.

3.9 Adjournment . Any meeting of stockholders may be adjourned from time to time to any other time and to any other place at which a meeting of stockholders may be held under these by-laws, which time and place shall be announced at the meeting, by a majority of votes cast upon the question, whether or not a quorum is present, or, if no stockholder is present or represented by proxy, by any officer entitled to preside at or to act as secretary of such meeting. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

3.10 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. Except as provided by law, a revocable proxy shall be deemed revoked if the stockholder is present at the meeting for which the proxy was given. 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.

3.11 Inspectors . The directors or the person presiding at the meeting may, but need not unless required by 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

 

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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 and 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.

3.12 Action by Vote . When a quorum is present at any meeting, whether the same be an original or an adjourned session, 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. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election.

3.13 Action Without Meetings . Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent 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. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Consent may be given by electronic transmission to the extent permitted by the Delaware General Corporation Law.

3.14 Organization . Meetings of stockholders shall be presided over by the chairperson of the board of directors, if any, or in his absence by the president, or in his absence by a vice president, or in the absence of the foregoing persons by a chairperson chosen at the meeting by the board. The secretary shall act as secretary of the meeting, but in his absence the chairperson of the meeting may appoint any person to act as secretary of the meeting. The chairperson of the meeting shall announce at the meeting of stockholders the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote.

3.15 Conduct of Meetings . The board of directors of the corporation may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the board of directors, the chairperson of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairperson, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the board of directors or prescribed by the chairperson of the meeting, may include, without limitation, the following: (i) the establishment

 

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of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairperson of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the board of directors or the chairperson of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

 

  Section 4 DIRECTORS

4.1 Number . The number of directors which shall constitute the whole board shall not be less than one. The first board shall consist of two (2) directors. Thereafter, the stockholders at the annual meeting shall determine the number of directors, and the number of directors may be increased or decreased at any time or from time to time by the stockholders or by the directors by vote of a majority of directors then in office, except that any such decrease by vote of the directors shall only be made to eliminate vacancies existing by reason of the death, resignation or removal of one or more directors. The directors shall be elected at the annual meeting of the stockholders, except as provided in these by-laws. Directors need not be stockholders.

4.2 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.

4.3 Powers . The business of the corporation shall be managed by or under the direction of the board of directors which 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.

4.4 Vacancies . Vacancies and any newly created directorships resulting from any increase in the number of directors may be filled by vote of the stockholders 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. 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, shall have power to fill such vacancy or vacancies, the vote or action in 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.

4.5 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

 

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such committee shall have and may exercise the powers and authority 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, alter and repeal 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.

4.6 Regular Meeting . Regular meetings of the board of directors may be held without call or notice at such place 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 the stockholders.

4.7 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 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 president or by any one of the directors calling the meeting.

4.8 Notice . It shall be reasonable and sufficient notice to a director to send notice by mail at least forty-eight hours or by telegram or telecopy or other form of electronic transmission 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.

4.9 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.

 

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4.10 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.

4.11 Action Without a Meeting . Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if all the members of the board or of such committee, as the case may be, consent thereto in writing, or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board, or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. Such consent shall be treated for all purposes as the act of the board or of such committee, as the case may be.

4.12 Participation in Meetings by Conference Telephone . Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the board of directors or of any committee thereof 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 each other. Such participation shall constitute presence in person at such meeting.

4.13 Compensation . Unless otherwise restricted by the certificate of incorporation or these by-laws, the board of directors shall have the authority to fix from time to time the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and the performance of their responsibilities as directors and may be paid a fixed sum for attendance at each meeting of the board of directors and/or a stated salary as director. No such payment shall preclude any director from serving the corporation or its parent or subsidiary corporations in any other capacity and receiving compensation therefor. The board of directors may also allow compensation for members of special or standing committees for service on such committees.

4.14 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 corporation’s 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

 

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(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.

4.15 Resignation or Removal of Directors . Unless otherwise restricted by the certificate of incorporation or by law, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the stock issued and outstanding and entitled to vote at an election of directors. Any director may resign at any time by delivering his resignation in writing to 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. No director resigning and no director removed shall have any right to receive compensation as such director for any period following his resignation or removal, except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise; unless in the case of a resignation, the directors, or in the case of removal, the body acting on the removal, shall in their or its discretion provide for compensation.

 

  Section 5 NOTICES

5.1 Form of Notice . Whenever, under the provisions of law, of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, such notice may be given by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Unless written notice by mail is required by law, written notice may also be given by telegram, cable, telecopy, commercial delivery service, telex or similar means, addressed to such director or stockholder at his address as it appears on the records of the corporation, in which case such notice shall be deemed to be given when delivered into the control of the persons charged with effecting such transmission, the transmission charge to be paid by the corporation or the person sending such notice and not by the addressee. Notice may also be given to any stockholder and to any director by any form of electronic transmission, to the same extent that Section 232 of the Delaware General Corporation Law permits notice in such form to be given to stockholders, and will be deemed given at the time provided therein. Oral notice or other in-hand delivery (in person or by telephone) shall be deemed given at the time it is actually given.

 

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5.2 Waiver of Notice . Whenever notice is required to be given under the provisions of law, the certificate of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders, directors or members of a committee of the directors need be specified in any written waiver of notice.

 

  Section 6 OFFICERS AND AGENTS

6.1 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 chairperson of the board of directors and one or more vice presidents. 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.

6.2 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.

6.3 Election . The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, a secretary and a treasurer. Other officers may be appointed by the board of directors at such meeting, at any other meeting or by written consent. 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.

6.4 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 successor is elected and qualified unless a shorter period shall have been specified in terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes disqualified. Each agent of the corporation 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.

6.5 Chairperson of the Board of Directors . The chairperson of the board of directors, 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 chairperson of the board, or if there is none the president, shall preside, or designate the person who shall preside, at all meetings of the stockholders and of the board of directors. References in these by-laws to a chairperson shall include references to persons designated by the board of directors with the title chairman, chairwoman or chair or any similar title.

 

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6.6 President and Vice Presidents . The president shall be the chief executive officer and shall have direct and active charge of all business operations of the corporation and shall have general supervision of the entire business of the corporation, subject to the control of the board of directors. As provided in Section 6.5, in the absence of the chairperson of the board of directors, the president shall preside at all meetings of the stockholders and of the board of directors at which the president is present, except as otherwise voted by the board of directors.

The president or treasurer shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation.

Any vice presidents shall have such duties and powers as shall be designated from time to time by the board of directors or by the president.

6.7 Treasurer and Assistant Treasurers . 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 assigned to him from time to time by the board of directors or by the president.

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.

6.8 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 writings of, or related to, action by stockholder or director consent. In the absence of the secretary from any meeting, an assistant secretary, or if there is 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. The secretary 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.

6.9 Resignation and Removal . Any officer may resign at any time by delivering his resignation in writing to 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 any case the necessity of its being accepted unless the resignation shall so state. 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. No officer resigning and no officer removed shall have any right to any compensation as such officer for any period following his resignation or removal, except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation, or any right to damages on account of such removal, whether his compensation be

 

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by the month or by the year or otherwise; unless in the case of a resignation, the directors, or in the case of removal, the body acting on the removal, shall in their or its discretion provide for compensation.

6.10 Vacancies . 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 office may choose a successor. Each such successor shall hold office for the unexpired term of his predecessor, 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.

 

  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 (i) the chairperson of the board of directors or the president or a vice-president and (ii) the treasurer or an assistant treasurer or the secretary or an assistant secretary. Any or all of 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 Lost Certificates . The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

 

  Section 8 TRANSFER OF SHARES OF STOCK

8.1 Transfer on Books . Subject to any restrictions with respect to the transfer of shares of stock, 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

 

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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.

 

  Section 9 GENERAL PROVISIONS

9.1 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, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action to which such record date relates. 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. If no record date is fixed,

(a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held;

(b) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed; and

(c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating to such purpose.

9.2 Dividends . Dividends upon the capital stock of the corporation may be declared by the board of directors at any regular or special meeting or by written consent, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation.

9.3 Payment of Dividends . Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

 

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9.4 Checks . All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate.

9.5 Fiscal Year . The fiscal year of the corporation shall begin on the first of January in each year and shall end on the last day of December next following, unless otherwise determined by the board of directors.

9.6 Seal . The board of directors may, by resolution, adopt a corporate seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the word “Delaware.” The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. The seal may be altered from time to time by the board of directors.

 

  Section 10 INDEMNIFICATION

10.1 Indemnification . It being the intent of the corporation to provide maximum protection available under the law to its officers and directors, the corporation shall indemnify its officers and directors to the full extent the corporation is permitted or required to do so by the Delaware General Corporation Law. 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 ultimately be determined that he is not entitled to be indemnified by the corporation. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who 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 any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation has the power to indemnify such person under the Delaware General Corporation Law. Notwithstanding the foregoing, the Corporation shall not be required to indemnify or advance expenses to any person in connection with any action, suit, proceeding, claim or counterclaim initiated by or on behalf of such person.

 

  Section 11 AMENDMENTS

11.1 Amendments . These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the board of directors when such power is conferred upon the board of directors by the certificate of incorporation, at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors. If the power to adopt, amend or repeal by-laws is conferred upon the board of directors by the certificate of incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws.

 

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Register of Amendments to the By-Laws of ZP Holdings, Inc.

 

Date

  

Section Affected

  

Change

     
     

 

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Exhibit 4.2

NOTE PURCHASE AGREEMENT

This Note Purchase Agreement (this “ Agreement ”) is dated as of September 9, 2013 by and among ZP Holdings, Inc., a Delaware corporation (the “ Company ”), and the entities listed on Exhibit A attached hereto (each, a “ Purchaser ” and collectively, the “ Purchasers ”).

In consideration of the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows:

1. Authorization; Sale of Notes .

1.1. Authorization . The Company has duly authorized the sale and issuance, pursuant to the terms of this Agreement, of unsecured, subordinated Convertible Promissory Notes in the form attached hereto as Exhibit B in the aggregate principal amount of up to $3,033,723.04 (each, a “ Note ” and collectively, the “ Notes ”).

1.2. Use of Proceeds . The Company will use the proceeds from the sale of the Notes for working capital and other general corporate purposes.

2. Closing .

2.1. Time; Location . Subject to the terms and conditions of this Agreement, the closing of the sale and purchase of Notes under this Agreement (the “ Closing ”) shall take place at the offices of Foley Hoag LLP, 155 Seaport Boulevard, Boston, MA 02210-2600 (or remotely via the exchange of documents and signatures) on or after the date hereof on the date that the Company and all of the Purchasers shall agree (the date of the Closing, the “ Closing Date ”). At the Closing, the Company shall deliver a Note to each Purchaser in the original principal amount set forth next to such Purchaser’s name on Exhibit A attached hereto, and each Purchaser shall pay to the Company the purchase price therefor, which shall be equal to such original principal amount.

2.2. Closing Conditions . The obligations of the Purchasers to consummate the Closing are subject to the consummation of the stock purchases contemplated by that certain Stock Purchase Agreement in the form attached hereto as Exhibit C (the “ Stock Purchases ”).

3. Certain Terms of the Notes .

3.1. Maturity; Prepayment . Each Note shall be due and payable on the earlier of: (a) the first anniversary of the Closing Date (the “ Maturity Date ”); (b) the occurrence of an Event of Default (as defined in Section 3.5 below); or (c) the date that is thirty days following the closing of the Company’s first firm commitment underwritten initial public offering pursuant to a registration statement filed under the Securities Act (as defined below and such offering, an “ IPO ”) unless such Note is converted into equity securities in connection with such offering. Notwithstanding the immediately preceding sentence, the Company may accelerate and repay any portion of the outstanding principal and/or interest balance of the Notes, at a time of its choosing (including in the absence of an Event of Default or prior to the Maturity


Date) only upon the prior written consent of the Requisite Noteholders (as defined below).

3.2. Interest . The principal balance of the Notes will bear simple interest at a rate of eight percent (8%) per annum. All unpaid and accrued interest and any other amounts payable pursuant to the Notes shall be due and payable on the Maturity Date.

3.3. Payments . Any payments on the Notes (including any permitted pre-payments made in accordance with Section 3.1) will be made in proportion to the outstanding principal amount each such Note represents relative to the aggregate outstanding principal amount of all Notes.

3.4. Automatic Conversion .

(a) Upon a Qualified Financing . Upon the closing of a Qualified Financing (as defined in Section 3.6 below), the principal and all unpaid and accrued interest on each Note shall automatically convert into that number of shares of the equity securities issued in such Qualified Financing (the “ Qualified Financing Securities ”) equal to the quotient of (i) the outstanding principal amount of such Note and all unpaid and accrued interest divided by (ii) the Qualified Financing Price (as defined in Section 3.6 below). In the event such Qualified Financing is consummated more than sixty (60) calendar days from the Closing, the denominator specified in clause (ii) of the immediately preceding shall equal the Discounted Qualified Financing Price (as defined in Section 3.6 below). The Purchasers agree in connection with the conversion of the Notes in accordance with this Section 3.4(a) to execute all necessary documents in connection with such Qualified Financing reasonably requested of the Purchasers and executed by all other participants in such Qualified Financing (such documents, the “ Financing Documents ”), including executing a definitive securities purchase agreement and such other financing agreements as shall be agreed upon by the Company or its ultimate parent, as the case may be, and the other investors participating in such Qualified Financing.

(b) Upon a Sale of the Company . The Company shall notify the holders of the Notes of the closing of a Sale Transaction (as defined in Section 3.6 below) at least ten (10) days prior to the expected date of closing of such Sale Transaction. Such notice shall include any information generally provided by the Company to the holders of the common stock, $0.0001 par value per share, of the Company (“ Common Stock ”) in connection with the Sale Transaction, if any, and such other information as reasonably requested by the Purchasers. Upon the closing of such Sale Transaction, each Purchaser shall be entitled to receive in respect of such Purchaser’s Note and in preference to the holders of Common Stock, an amount equal to any unpaid interest on the Note plus twice (2X) the outstanding principal balance of such Note.

(c) Effect of Conversion . Upon conversion of any Note pursuant to this Section 3, provided in the case of a conversion pursuant to Section 3.4(a) that the securities issued upon such conversion are duly and validly issued, fully-paid and are nonassessable, the Company (and its ultimate parent, if any) will be forever released and discharged from all of its obligations and liabilities under such Note, including without limitation the obligation to pay the principal amount and accrued interest thereon. No fractional shares shall be issuable by the Company or its ultimate parent, as applicable, upon conversion of any Note pursuant to Section 3.4(a). In lieu of any fractional share which would otherwise be

 

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issuable upon conversion of any Note pursuant to Section 3.4(a), the Company or its ultimate parent, as applicable, shall pay the holder of such Note an amount in cash equal to the product of (i) such fraction multiplied by (ii) the Qualified Financing Price (or the Discounted Qualified Financing Price, in the event the Qualified Financing is consummated more than sixty (60) days from the Closing). Upon conversion of each Note, the holder thereof shall surrender such Note, duly endorsed, at the principal offices of the Company; provided, however, that upon the closing of the Qualified Financing, each Note shall be deemed converted and of no further force and effect, whether or not it is delivered for cancellation as set forth in this sentence. Following such surrender, the Company or its ultimate parent, as applicable, will, at its expense, (i) in the case of a conversion pursuant to Section 3.4(a), issue and deliver to such holder a certificate or certificates for the securities to which such holder is entitled as a result of such conversion in accordance with Section 3.4(a) and a check payable to such holder for any cash amounts payable in lieu of any fractional share in accordance with this Section 3.4(c), or (ii) in the case of a conversion pursuant to Section 3.4(b), issue and deliver, or cause to be issued and delivered, to such holder a check payable to such holder for the cash amount payable in respect of such Note in accordance with Section 3.4(b).

3.5. Events of Default . Each of the following shall constitute an “ Event of Default ,” unless waived by the holders of Notes representing at least sixty percent (60%) of the principal amount then outstanding on all of the Notes (the “ Requisite Noteholders ”):

(a) the failure by Company to pay any amount due hereunder within five (5) days of the due date thereof;

(b) the appointment of a receiver of any property, the assignment or trust mortgage for the benefit of creditors, the commencement of any kind of voluntary or involuntary insolvency proceedings under any bankruptcy or other law relating to the relief of debtors, or the entry of an order for relief with respect to the Company in any proceeding pursuant to the United States Bankruptcy Code, as amended;

(c) a final judgment or judicial order for the payment of money in excess of $250,000 (exclusive of amounts covered by insurance) shall be rendered against the Company and the same shall remain undischarged for a period of thirty days during which execution shall not be effectively stayed, or any judgment, writ, assessment, warrant of attachment, or execution or similar process shall be issued or levied against a substantial part of the property of the Company or any of its subsidiaries, if any and such judgment, writ, or similar process shall not be released, stayed, vacated or otherwise dismissed within thirty days after issue or levy; or

(d) the Company shall fail to observe or perform in any material respect any covenant, obligation, condition or agreement contained in this Agreement or any Note (other than those otherwise specified in this Section 3.5) and such failure shall continue for twenty (20) days after the Company’s receipt of written notice to the Company of such failure.

3.6. Definitions . For purposes of this Agreement:

 

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(a) “ Discounted Qualified Financing Price ” shall mean the price that is equal to 85% of the lowest per share price at which the shares of Qualified Financing Securities are to be sold in the Qualified Financing (not including any discounts applicable as a result of the Notes).

(b) “ Qualified Financing ” shall mean an equity financing involving the sale of equity securities of the Company (or equity securities of the ultimate parent of the surviving entity of a merger to which the Company is a party that does not constitute a Sale Transaction) to one or more institutional investors primarily for capital-raising purposes and resulting in aggregate gross proceeds to the Company (or such ultimate parent) of at least $25,000,000 (which threshold may be waived in connection with an equity financing with aggregate gross proceeds less than such amount (but in any case not less than $4,000,000) upon the written consent of the Requisite Noteholders in which case such equity financing shall constitute a Qualified Financing notwithstanding the amount of such equity financing), excluding the outstanding principal amount of the Notes to be converted into Qualified Financing Securities upon the closing of such financing.

(c) “ Qualified Financing Price ” shall mean the price that is equal to the lowest per share price at which the shares of Qualified Financing Securities are to be sold in the Qualified Financing (not including any discounts applicable as a result of the Notes).

(d) “ Sale Transaction ” shall have the meaning given to such term in the Stockholder Rights and Voting Agreement, dated as of April 26, 2012, by and among the Company, the Purchasers and certain other of the Company’s stockholders.

4. Representations and Warranties of the Company . The Company represents and warrants to each Purchaser as of the Closing Date that:

4.1. Corporate Organization and Authority . The Company:

(a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware;

(b) has the corporate power and authority to own and operate its properties and to carry on its business as now conducted and as presently proposed to be conducted; and

(c) is duly qualified, licensed to do business and in good standing as a foreign corporation in each jurisdiction where the failure to be so qualified or licensed could reasonably be expected to have a material adverse effect on the Company.

4.2. Corporate Power . The Company has all requisite legal and corporate power and authority to execute, perform and deliver this Agreement, to sell and issue the Notes hereunder, and to carry out and perform its obligations hereunder.

4.3. Due Authorization and Execution . The execution and delivery of this Agreement and the Notes by the Company and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of

 

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the Company. This Agreement and the Notes to be issued at the Closing have been duly executed and delivered by the Company and constitute the valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except to the extent that such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of general application relating to or affecting enforcement of creditors’ rights and laws concerning equitable remedies.

4.4. Capitalization . The capitalization of the Company as of the date hereof (after giving effect to the Stock Purchases) is set forth in Exhibit D attached hereto. The equity securities (“ Equity Securities ”) of the Company have the respective rights, preferences and privileges set forth in the Company’s certificate of incorporation and bylaws, as amended, in effect on the date hereof. All of the outstanding Equity Securities of the Company have been duly authorized and are validly issued, fully paid and nonassessable. Except as expressly referenced herein or as set forth in Exhibit D , there are as of the date of this Agreement no options, warrants or other convertible securities or rights to purchase Equity Securities of the Company authorized, issued or outstanding, and the Company is not obligated in any other manner to issue shares of its Equity Securities. The offer and sale of all Equity Securities of the Company issued before the Closing Date complied with or were exempt from registration or qualification under all applicable federal and state securities laws.

4.5. No Conflict . The execution and delivery of this Agreement and the Notes by the Company, the performance by the Company of its obligations hereunder and thereunder, and the consummation of the transactions contemplated hereby will not be in conflict with or constitute, with or without the passage of time and giving of notice, either (i) a violation of or a default under any provision of the Company’s certificate of incorporation or bylaws, or instrument, judgment, order, writ, decree, contract, rule, statute, regulation or agreement to which the Company is a party or by which it is bound, or (ii) an event which results in the creation of any lien, charge or encumbrance upon any assets, property or revenue of the Company or the suspension, revocation, forfeiture, or nonrenewal of any material permit or license applicable to the Company.

4.6. Governmental Filings . Assuming the accuracy of the representations made by the Purchasers in Section 5 of this Agreement, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority is required on the part of the Company in connection with the consummation of the transactions contemplated by this Agreement, except for filings pursuant to Regulation D of the Securities Act of 1933, as amended (the “ Securities Act ”), and applicable state securities laws.

5. Representations, Warranties, and Covenants of each Purchaser . Each Purchaser represents and warrants to and covenants with the Company as follows:

5.1. Authorization . When executed and delivered by the Purchaser, and assuming execution and delivery by the Company, this Agreement will constitute a valid and binding obligation of the Purchaser, enforceable against such Purchaser in accordance with its terms, except to the extent that such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of general application relating to or

 

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affecting enforcement of creditors’ rights and laws concerning equitable remedies.

5.2. Brokers and Finders . The Purchaser has not retained any investment banker, broker, or finder in connection with the transactions contemplated by this Agreement.

5.3. Investment . The Purchaser is acquiring the Note as well as any shares of the Qualified Financing Securities (collectively, the “ Securities ”) for investment for the Purchaser’s own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof. The Purchaser has no present intention of selling, granting any participation in, or otherwise distributing any Securities. By executing this Agreement, the Purchaser further represents that it has no contract, undertaking, agreement, or arrangement with any person to sell, transfer, or grant participation to such person or to any third person, with respect to any Securities.

5.4. No Public Market . The Purchaser understands and acknowledges that the offering of the Securities pursuant to this Agreement will not be registered under the Securities Act on the grounds that the offering and sale of securities contemplated by this Agreement are exempt from registration pursuant to one or more exemptions under the Securities Act, including without limitation the exemption provided by Section 4(a)(2) thereof, and that the Company’s reliance upon such exemption is predicated upon the Purchaser’s representations as set forth in this Agreement. The Purchaser further understands that no public market now exists for any of the securities issued by the Company and that the Company has given no assurances that a public market will ever exist for the Company’s securities.

5.5. Experience; Etc . The Purchaser represents that he, she or it: (a) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of a prospective investment in the Note being purchased by the Purchaser; (b) believes that he, she or it has received all the information requested from the Company that might be necessary or appropriate for deciding whether to obtain the Note; (c) has had the opportunity to discuss the Company’s business, management, and financial affairs with the Company’s management; (d) has the ability to bear the economic risks of this investment; and (e) is able, without materially impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss on this investment.

5.6. Accredited Investor . The Purchaser qualifies as an “accredited investor” within the meaning of Regulation D of the rules and regulations promulgated under the Securities Act.

5.7. Investment Representations, Warranties and Covenants by Non-United States Persons . Each Purchaser who is a Non-U.S. person (as defined in Section 5.7(d) below) hereby represents and warrants to the Company as follows:

(a) This Agreement is made by the Company with the Purchaser, who is a Non-U.S. person, in reliance upon such Non-U.S. person’s representations, warranties and covenants made in this Section 5.7.

(b) Such Non-U.S. person has been advised and

 

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acknowledges that:

(i) the Securities have not been, and when issued, will not be registered under the Securities Act, the securities laws of any state of the United States or the securities laws of any other country;

(ii) in issuing and selling the Securities to such Non-U.S. person pursuant hereto, the Company is relying upon the “safe harbor” provided by Regulation S and/or on Section 4(a)(2) under the Securities Act;

(iii) it is a condition to the availability of the Regulation S “safe harbor” that the Securities not be offered or sold in the United States or to a U.S. person until the expiration of a one-year “distribution compliance period” (or a six-month “distribution compliance period,” if the issuer is a “reporting issuer,” as defined in Regulation S) following the date of issuance; and

(iv) notwithstanding the foregoing, prior to the expiration of the one-year “distribution compliance period” (or six-month “distribution compliance period,” if the issuer is a “reporting issuer,” as defined in Regulation S) after the date of issuance (the “ Restricted Period ”), the Securities may be offered and sold by the holder thereof only if such offer and sale is made in compliance with the terms of this Agreement and either: (A) if the offer or sale is within the United States or to or for the account of a U.S. person (as such terms are defined in Regulation S), the securities are offered and sold pursuant to an effective registration statement or pursuant to Rule 144 under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act; or (B) the offer and sale is outside the United States and to other than a U.S. person.

(c) As used herein, the term “United States” means the United States of America, its territories and possessions, any State of the United States, and the District of Columbia, and the term “U.S. person” (as defined in Regulation S) means:

(i) a natural person resident in the United States;

(ii) any partnership or corporation organized or incorporated under the laws of the United States;

(iii) any estate of which any executor or administrator is a U.S. person;

(iv) any trust of which any trustee is a U.S. person;

(v) any agency or branch of a foreign entity located in the United States;

(vi) any nondiscretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person;

(vii) any discretionary account or similar account (other than an

 

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estate or trust) held by a dealer or other fiduciary organized, incorporated and (if an individual) resident in the United States; and

(viii) a corporation or partnership organized under the laws of any foreign jurisdiction and formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a) under the Securities Act) who are not natural persons, estates or trusts.

(d) As used herein, the term “Non-U.S. person” means any person who is not a U.S. person or is deemed not to be a U.S. person under Rule 902(k)(2) of the Securities Act.

(e) Such Non-U.S. person agrees that with respect to the Securities, until the expiration of the Restricted Period:

(i) such Non-U.S. person, its agents or its representatives have not and will not solicit offers to buy, offer for sale or sell any of the Securities, or any beneficial interest therein in the United States or to or for the account of a U.S. person; and

(ii) notwithstanding the foregoing, the Securities may be offered and sold by the holder thereof only if such offer and sale is made in compliance with the terms of this Agreement and either: (A) if the offer or sale is within the United States or to or for the account of a U.S. person (as such terms are defined in Regulation S), the securities are offered and sold pursuant to an effective registration statement or pursuant to Rule 144 under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act; or (B) the offer and sale is outside the United States and to other than a U.S. person; and

(iii) such Non-U.S. person shall not engage in hedging transactions with regard to the Securities unless in compliance with the Securities Act.

The foregoing restrictions are binding upon subsequent transferees of the Securities, except for transferees pursuant to an effective registration statement. Such Non-U.S. person agrees that after the Restricted Period, the Securities may be offered or sold within the United States or to or for the account of a U.S. person only pursuant to applicable securities laws.

(f) Such Non-U.S. person has not engaged, nor is it aware that any party has engaged, and such Non-U.S. person will not engage or cause any third party to engage, in any directed selling efforts (as such term is defined in Regulation S) in the United States with respect to the Securities.

(g) Such Non-U.S. person: (i) is domiciled and has its principal place of business outside the United States; (ii) certifies it is not a U.S. person and is not acquiring the Securities for the account or benefit of any U.S. person; and (iii) at the time of the date of the Closing, the Non-U.S. person or persons acting on Non-U.S. person’s behalf in connection therewith will be located outside the United States.

(h) At the time of offering to such Non-U.S. person and

 

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communication of such Non-U.S. person’s order to purchase the Securities, and at the time of such Non-U.S. Person’s execution of this Agreement, the Non-U.S. person or persons acting on Non-U.S. person’s behalf in connection therewith were located outside the United States.

(i) Such Non-U.S. person is not a “distributor” (as defined in Regulation S) or a “dealer” (as defined in the Securities Act).

(j) Such Non-U.S. person acknowledges that the Company shall make a notation in its stock books regarding the restrictions on transfer set forth in this Section 5.7 and shall transfer such Securities on the books of the Company only to the extent consistent therewith.

In particular, such Non-U.S. person acknowledges that the Company shall refuse to register any transfer of the Note not made in accordance with the provisions of Regulation S, pursuant to registration under the Securities Act or pursuant to an available exemption from registration.

6. Legends and Restrictions on Transfer .

6.1. Securities Act . The Securities shall bear such restrictive legends as required by the Financing Documents, including, without limitation, a legend substantially in the following form:

“THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR “BLUE SKY” LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND THE REGISTRATION, QUALIFICATION AND FILING REQUIREMENTS OF ALL APPLICABLE JURISDICTIONS HAVE BEEN COMPLIED WITH OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF LEGAL COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR THAT THE PROPOSED TRANSACTION WILL BE EXEMPT FROM REGISTRATION, QUALIFICATION AND FILING IN ALL SUCH JURISDICTIONS.”

6.2. No Transfer . No Purchaser may sell or transfer any Note without the prior written consent of the Requisite Noteholders, except to any affiliated fund, investment vehicle, partner or limited partner or equity holder of such Purchaser. A Purchaser that transfers a Note shall promptly notify the Company of such transfer. The Company shall not transfer or assign its obligations under any Note without the prior written consent of the Requisite Noteholders (except as set forth in Section 7.1).

7. Miscellaneous .

7.1. Successors and Assigns . Subject to the restrictions on transfers of the Notes set forth in Section 6.2, this Agreement shall be assignable by any party without the written consent of the other parties hereto; provided, however , that a merger to which the

 

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Company is a party shall not be considered an assignment requiring consent for purposes of Section 6.2; provided, further , that the Company may assign the Notes without the consent of the other parties hereto to any individual or entity that acquires control of the stock, all or substantially all assets or business of the Company, or to the surviving entity of a merger to which the Company is a party or the entity that controls such surviving entity. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.

7.2. Survival of Representations and Warranties . All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Closing.

7.3. Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

7.4. Governing Law . This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without reference to the conflicts of law provisions thereof. The Purchaser consents to service of process in any such action by certified or registered mail, return receipt requested. The Purchaser consents to the jurisdiction of such courts over the Purchaser, stipulates the convenience, efficiency and fairness of proceeding in such courts, and covenants not to allege or assert the inconvenience, inefficiency or unfairness of proceeding in such courts.

7.5. Notices . All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be delivered by hand, sent by overnight courier, facsimile or e-mail, or mailed by first class certified or registered mail, return receipt requested, postage prepaid:

(a) If to the Company:

ZP Holdings, Inc.

34790 Ardentech Court

Fremont, CA 94555

Attn:  President and CEO

Fax:   (510) 952-4632

with a copy to:

Foley Hoag LLP

Seaport West

155 Seaport Boulevard

Boston, MA 02210-2600

Attn:  Jeffrey Quillen, Esq.

Fax:   (617) 832-7000

(b) If to a Purchaser, at the address set forth beneath the Purchaser’s name on Exhibit A attached hereto, or at such other address as may have been

 

10


furnished in writing by such Purchaser to the Company.

Notices provided in accordance with this Section 7.5 shall be deemed delivered (i) upon personal delivery with signature required, (ii) one Business Day after they have been sent to the recipient by reputable overnight courier service (charges prepaid and signature required), (iii) upon confirmation of successful transmission of a facsimile message containing such notice if sent before 5 p.m., local time of the recipient, on any Business Day, and as of 9 a.m. local time of the recipient on the next Business Day if sent thereafter, or (iv) three Business Days after deposit in the United States mail. The term “ Business Day ” as used in this Section 7.5 shall mean any day other than Saturday, Sunday or a day on which banking institutions are not required to be open in the State of California or New York.

7.6. Complete Agreement . This Agreement (including the Exhibits hereto and the issued Notes) constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter.

7.7. Amendments and Waivers . This Agreement and each Note may be amended, modified, or terminated, and the observance of any term of this Agreement may be waived, with respect to all parties to this Agreement (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Requisite Noteholders; provided, however , that no such amendment, modification or waiver shall be effective to the extent such amendment, modification or waiver adversely affects the rights of any holder of a Note in a manner different from those of such consenting holders (other than differences related to the different principal amounts of the Notes) without the consent of each such differently affected holder. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

7.8. Counterparts; Facsimile Signatures; Expenses . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original instrument, and all of which together shall for all purposes constitute one and the same Agreement. A signature of any party to this Agreement transmitted by facsimile, electronic mail (including pdf) or other electronic means shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. The Company shall pay on demand all reasonable fees and expenses, including reasonable attorney’s fees and expenses in connection with the preparation, execution and delivery of this Agreement and the Notes up to a maximum amount of $10,000.

7.9. Pronouns . Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa.

7.10. Section Headings and References . The section headings are for the convenience of the parties and in no way alter, modify, amend, limit, or restrict the contractual obligations of the parties. Any reference in this agreement to a particular section or subsection shall refer to a section or subsection of this Agreement, unless specified otherwise.

 

11


[signature page follows]

 

12


IN WITNESS WHEREOF, the parties have executed this Note Purchase Agreement as of the date first written above.

 

ZP HOLDINGS, INC.        
By:  

/s/ Vikram Lamba

       
  Name:   Vikram Lamba        
  Title:   President and CEO        
PROQUEST MANAGEMENT LLC     PROQUEST INVESTMENTS IV, L.P.
By:  

/s/ Alain Schreiber

    By:  

/s/ Alain Schreiber

  Name:   Alain Schreiber       Name:   Alain Schreiber
  Title:   Managing Member       Title:   Managing Member
NEW ENTERPRISE ASSOCIATES 12, LIMITED PARTNERSHIP        
By:   NEA Partners 12, Limited Partnership,        
  its general partner        
By:  

/s/ Louis S. Citron

       
  Name:   Louis S. Citron        
  Title:   Chief Legal Officer        
BMV DIRECT SO LP     BMV DIRECT SOTRS LP
By:   BioMed Realty, L.P.,     By:   BioMed Realty Holdings, Inc.,
  its general partner   its general partner
By:  

/s/ Kevin M. Simonsen

    By:  

/s/ Kevin M. Simonsen

  Name:   Kevin M. Simonsen       Name:   Kevin M. Simonsen
  Title:   VP, Real Estate Legal       Title:   VP, Real Estate Legal

Signature Page to Note Purchase Agreement


EXHIBIT A

Schedule of Purchasers

 

Name and Address

   Original Principal Amount  

BMV Direct SO LP

17190 Bernardo Center Drive

San Diego, CA 92128

Attn: Corporate Legal

Fax No.: (858) 485-9843

   $ 303,372.00   

BMV Direct SOTRS LP

17190 Bernardo Center Drive

San Diego, CA 92128

Attn: Corporate Legal

Fax No.: (858) 485-9843

   $ 991,047.43   

New Enterprise Associates 12, Limited Partnership

c/o New Enterprise Associates

1954 Greenspring Drive, Suite 600

Timonium, MD 21093

Attn: Louis Citron, General Counsel

Fax No.: (410) 842-4100

   $ 1,159,532.21   

ProQuest Investments IV, L.P.

90 Nassau Street, Fifth Floor

Princeton, NJ 08542

Fax No.: (609) 919-3750

   $ 579,766.10   

ProQuest Management LLC

90 Nassau Street, Fifth Floor

Princeton, NJ 08542

Fax No.: (609) 919-3750

   $ 5.30   
  

 

 

 

Total:

   $ 3,033,723.04   
  

 

 

 


EXHIBIT B

Form of Subordinated Convertible Promissory Note

[see attached]


EXHIBIT C

Stock Purchase Agreement

[see attached]


STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (the “ Agreement ”), dated as of September 9, 2013, is made and entered into by and among BMV Direct SO LP a Delaware limited partnership (“ BMV SO ”), New Enterprise Associates 12, Limited Partnership, a Delaware limited partnship (“ NEA ”), ProQuest Investments IV, L.P., a Delaware limited partnership (“ ProQuest IV ”), ProQuest Management LLC, a Delaware limited liability company (“ ProQuest LLC ,” and, together with BMV SO, NEA and ProQuest IV, the “ Buyers ”) and Nomura Phase4 Ventures L.P., a limited partnership registered in England (the “ Seller ”).

WHEREAS , the Buyers and the Seller (collectively, the “ Major Holders ”) hold significant amounts of shares of the common stock, par value $0.0001 per share (“ Common Stock ”) of ZP Holdings, Inc., a Delaware corporation (the “ Company ”);

WHEREAS , the Company requires additional capital for its operations and has requested that the Major Holders purchase unsecured, subordinated convertible promissory notes of the Company (collectively, “ Bridge Notes ”) pursuant to a Note Purchase Agreement, dated on or about the date hereof, among the Company and certain Major Holders (the “ Note Purchase Agreement ”);

WHEREAS , the Company advised each Major Holder that if it did not purchase Bridge Notes then: (i) such Major Holder could voluntarily decrease its ownership interest in the Company by selling a portion of its shares of Common Stock to other Major Holders that are purchasing Bridge Notes, in exchange for aggregate consideration of approximately US$100.00 (“ Voluntary Dilution ”); or (ii) if such Major Holder decided not to effect Voluntary Dilution, then the Company would increase the other participating Major Holders’ ownership interest by issuing warrants and other securities to such Major Holders in consideration of their purchase of Bridge Notes, which would lead to dilution for any nonparticipating Major Holders (the “ Involuntary Dilution ”);

WHEREAS , the Buyers desire to purchase Bridge Notes and have agreed to enter into the Note Purchase Agreement;

WHEREAS, a representative of Seller regularly attends meetings of the Company’s Board of Directors and has received the same information as the other Major Holders regarding the Company’s prospects of raising additional capital from sales of capital stock to investors other than the Major Holders and revenues from potential collaborations with strategic partners;

WHEREAS , the Seller desires not to purchase Bridge Notes, to forgo the possibility of converting the Bridge Notes into shares of Common Stock, not to suffer Involuntary Dilution in order to, among other reasons, encourage and promote the other Major Investors’ investment of new capital into the Company, and will instead accept Voluntary Dilution by selling to the Buyers 864,000 of the 4,014,092 shares of Common Stock currently held by Seller, upon and subject to the terms and conditions of this Agreement; and


WHEREAS , as a condition to closing the transactions contemplated by this Agreement, it shall be necessary to obtain a waiver of certain provisions of that certain Stockholder Rights and Voting Agreement by and among the Company and the Major Holders, among others, dated as of April 26, 2012 (the “ Stockholder Agreement ”).

NOW, THEREFORE , in consideration of the premises and of the respective representations, warranties, covenants, agreements and conditions contained herein, the Buyers and the Seller agree as follows:

1. Definitions . As used in this Agreement, the following terms shall have the meanings set forth below:

Securities ” means 864,000 shares of Common Stock currently held, beneficially and of record, by Seller.

Purchase Price ” means US$0.00011574 per share of Common Stock, payable by the Buyers to Seller as described in Section 2.1.

Securities Act ” means the United States Securities Act of 1933, as amended, and the rules and regulations in effect from time to time thereunder.

2. Purchase and Sale of the Securities; Closing . The Buyers and the Seller agree as follows:

2.1. Purchase and Sale of the Securities . On the basis of the representations and warranties, and subject to the terms and conditions, set forth herein: (a) each Buyer, severally and not jointly, agrees to purchase from the Seller; and (b) Seller agrees to sell to each Buyer, respectively, all of Seller’s right, title and interest in, to and under the Securities in accordance with the following:

 

  (i) Seller transfers to BMV SO: 368,649 shares of Common Stock, in exchange for US$42.68;

 

  (ii) Seller transfers to NEA: 330,233 shares of Common Stock, in exchange for US$38.23;

 

  (iii) Seller transfers to ProQuest IV: 165,116 shares of Common Stock, in exchange for US$19.12; and

 

  (iv) Seller transfers to ProQuest LLC: 2 shares of Common Stock, in exchange for US$0.01.

2.2. Closing . Subject to the terms and conditions of this Agreement, the closing of the sale and purchase of the Securities under this Agreement (the “ Closing ”) shall take place at Foley Hoag LLP, 155 Seaport Boulevard, Boston, MA 02210-2600 (or remotely via the exchange of documents and signatures) on or after the date hereof on the date that the Buyers and the Seller shall agree (the date of the Closing, the “ Closing Date ”). At the Closing: (a) the Seller shall deliver to the Buyers original

 

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certificates representing the Securities and such other appropriate instruments of transfer and assignment (including duly executed stock powers), as the Buyers shall reasonably request prior to the Closing Date, in order to vest in the Buyers, as of the Closing Date, the Seller’s right, title and interest in, to and under the Securities in accordance with Section 2.1 of this Agreement; (b) the Seller shall deliver such other instruments as may be necessary or appropriate to evidence compliance by Seller with all of its representations, warranties, covenants and undertakings herein contained; and (c) the Buyers shall deliver or cause to be delivered to Seller the Purchase Price specified in Section 2.1 in immediately available funds (in accordance with instructions separately provided from Seller to the Buyers prior to the Closing Date).

3. Conditions to the Buyers’ Obligation . The obligation of the Buyers to purchase and pay for the Securities is subject to the satisfaction (or waiver by the Buyers) of the following conditions as of the Closing Date:

3.1. the representations and warranties of the Seller made in this Agreement shall be true and correct in all respects, as of the date hereof and as of the Closing Date as though then made;

3.2. the Seller shall have delivered to the Buyers the documents and instruments contemplated by Section 2.2 above;

3.3. the Major Holders shall have obtained all consents and waivers necessary to effect the transactions contemplated in this Agreement (including, without limitation, all waivers with respect to Section 5 of the Stockholder Agreement); and

3.4. there shall be no pending or threatened claims, actions, litigation or administrative, regulatory or governmental investigations or proceedings against either Seller or the Buyers with respect to enjoining or preventing the Closing or which might otherwise restrain, prohibit or invalidate any portion of this Agreement.

4. Conditions to the Seller’s Obligation . The obligation of the Seller to sell and deliver the Securities to each of the Buyers is subject to the satisfaction (or waiver by the Seller) of the following conditions as of the Closing Date:

4.1. the Buyers shall have purchased Bridge Notes pursuant to the Note Purchase Agreement;

4.2. the representations and warranties of the Buyers made in this Agreement shall be true and correct in all respects, as of the date hereof and as of the Closing Date as though then made;

4.3. the Buyers shall have delivered the Purchase Price to the Seller as contemplated by Section 2.2 above;

 

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4.4. the Major Holders shall have obtained all consents and waivers necessary to effect the transactions contemplated in this Agreement (including, without limitation, all waivers with respect to Section 5 of the Stockholder Agreement); and

4.5. there shall be no pending or threatened claims, actions, litigation or administrative, regulatory or governmental investigations or proceedings against either Seller or the Buyers with respect to enjoining or preventing the Closing or which might otherwise restrain, prohibit or invalidate any portion of this Agreement.

5. Representations and Warranties of the Buyers . Each Buyer, severally and not jointly with the other Buyers, represents and warrants to the Seller that:

5.1. Each Buyer has all requisite power and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby. Each Buyer has duly and validly authorized, executed and delivered this Agreement.

5.2. This Agreement constitutes a valid and binding agreement of each Buyer, enforceable against each Buyer in accordance with its terms, except as enforceability may be limited by: (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws relating to or affecting creditors’ rights generally; and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

5.3. Each Buyer is an “accredited investor,” as defined in Rule 501 of Regulation D promulgated under the Securities Act, and hereby confirms that any Common Stock to be received by such Buyer pursuant to this Agreement will be acquired for investment for such Buyer’s ’own account, not as a nominee or agent, and not with a view to the resale or distribution of any of the Securities, and that each Buyer has no present intention of selling, granting any participation in, or otherwise distributing the same. Each Buyer further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Securities acquired pursuant to Section 2.1 of this Agreement, except with respect to arrangements and agreements with a Buyer’s limited partners, shareholders and partners, as entered into in the ordinary course of Buyer and not with a view towards the transactions contemplated by this Agreement.

5.4. Each Buyer has such knowledge and experience in financial and business matters that the Buyer is capable of evaluating the merits and risks of its investment in the Securities, and can bear the economic risk of its investment (including the full loss of such investment). Each Buyer has carefully considered and, to the extent such Buyer believes appropriate, has discussed with such Buyer’s professional legal, tax and financial advisors, the suitability of an investment in the Securities with respect to the Buyer’s particular tax and financial situation. Each Buyer has determined that its investment in the Securities is suitable for such Buyer.

6. Representations and Warranties of the Seller . The Seller represents and warrants to the Buyers that:

 

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6.1. The Seller has all requisite corporate power and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby. The Seller has duly and validly authorized, executed and delivered this Agreement.

6.2. This Agreement constitutes a valid and binding agreement of the Seller, enforceable against the Seller in accordance with its terms, except as enforceability may be limited by: (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws relating to or affecting creditors’ rights generally; and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

6.3. No consent, approval, qualification, order or authorization of, or filing with, any local, state or federal governmental authority is required for the consummation by the Seller of the transactions contemplated hereby.

6.4. Neither the Seller nor its affiliates own any direct or indirect interest in any securities of the Company other than 4,014,092 shares of Common Stock. The Seller owns the Securities (and shall transfer the Securities such that they will be held following the Closing) free and clear of all claims, liens, security interests, charges or other encumbrances of any kind, including, but not limited to, any preemptive rights or rights of first refusal or other restrictions on transfer of any kind, except as set forth in the Stockholder Agreement. There are no restrictions on the transfer of the Securities other than restrictions arising under the Securities Act and as may be set forth in the Stockholder Agreement. No person or entity has any right to purchase the Securities or any portion thereof or interest therein.

7. Applicable Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflicts of law thereof.

8. Invalidity of Provisions . The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including that provision, in any other jurisdiction, and this Agreement shall be construed in all other respects as if such invalid and unenforceable provisions were omitted.

9. Survival of Representations and Warranties . The representations, warranties and covenants contained herein shall survive the Closing or any termination of this Agreement.

10. Headings; Execution in Counterparts . The headings and captions contained herein are for convenience of reference only and shall not control or affect the meaning or construction of any provision hereof. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and which together shall constitute but one and the same instrument.

 

- 21 -


11. Notices . All notices and other communications relating to this Agreement shall be dated and in writing and shall be deemed to have been duly given when delivered, if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, and when received if delivered otherwise, to the party to whom it is directed;

 

  (a) If to the Seller, to the Seller at the following address:

Nomura Phase4 Ventures L.P.

c/o Nomura International

One Angel Lane

London

EC4R 3AB

Attn: Stephen Booysen

Fax: (44 20) 7102 9075

 

  (b) If to the Buyers, to each Buyer at the following address:

BMV Direct SO LP

17190 Bernardo Center Drive

San Diego, CA 92128

Attn: Corporate Legal

Fax No.: (858) 485-9843

New Enterprise Associates 12, Limited Partnership

c/o New Enterprise Associates

1954 Greenspring Drive, Suite 600

Timonium, MD 21093

Attn: Louis Citron, General Counsel

Fax: (410) 842-4100

ProQuest Investments IV, L.P.

90 Nassau Street, Fifth Floor

Princeton, NJ 08542

Fax: (609) 919-3750

ProQuest Management LLC

90 Nassau Street, Fifth Floor

Princeton, NJ 08542

Fax No.: (609) 919-3750

with a copy to:

Kunzler Law Group, PC, as counsel to

BMV Direct SO LP

8 East Broadway, Suite 600

Salt Lake City, Utah 84111

 

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Attn:  Curtis Oscarson, Esq.

Fax:   801.693.1612

12. Waivers . No waiver of the provisions hereof shall be valid unless in writing and signed by the party to be bound and then only to the extent therein set forth. No failure or delay by any party in exercising any right or remedy hereunder shall operate as a waiver thereof, and a waiver of a particular right or remedy on one occasion shall not be deemed a waiver of any other right or remedy or a waiver on any subsequent occasion.

13. Amendment . This Agreement shall be binding upon the parties and may not be abandoned, supplemented, changed or modified in any manner, orally or otherwise, except by an instrument in writing of concurrent or subsequent date signed by each of the parties hereto. This Agreement is binding upon and shall inure to the benefit of the parties and their respective agents, assigns, heirs, executors, successors and administrators.

14. Integration . The parties agree that this Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all other prior agreements, representations and understandings, both written and oral, among the parties with respect to the subject matter hereof.

15. Interpretation . Should any provision of this Agreement require interpretation in any legal or other proceeding, it is agreed that the court, legal tribunal or other arbiter interpreting or construing the same shall not imply a presumption that the terms hereof shall be more strictly construed against one party by reason of the rule of construction that a document is to be construed more strictly against the party who itself or through its agent prepared the same, it being agreed that the agents of all parties have participated in the preparation of this Agreement.

16. Third Party Beneficiaries . Nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give to any third party any rights or remedies against any party hereto.

17. Further Assurances . Each of the parties hereto covenants and agrees upon the request of the other, to do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further acts, deeds, documents, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably necessary or desirable to give full effect to this Agreement (including any such as are reasonably necessary or desirable to have certificates or agreements representing the Securities issued or registered in the name of each Buyer or its designated nominee(s)).

[signature page follows]

 

- 23 -


IN WITNESS WHEREOF, the Buyers and the Seller have executed this Stock Purchase Agreement as of the date first above written.

 

BUYERS:

BMV DIRECT SO LP

 

    NEW ENTERPRISE ASSOCIATES 12, LIMITED PARTNERSHIP
By:   BioMed Realty, L.P.,     By:   NEA Partners 12, Limited Partnership,
  its general partner       its general partner
By:  

 

    By:  

 

  Name:       Name:
  Title:       Title:
PROQUEST INVESTMENTS IV, LP     PROQUEST MANAGEMENT LLC
By:  

 

    By:  

 

  Name:       Name:
  Title:       Title:
SELLER:
NOMURA PHASE4 VENTURES L.P.      
By:   Phase4 Ventures Limited, as manager on behalf of Nomura Phase4 Ventures L.P.      
By:  

 

     
  Name:      
  Title:      

 

- 24 -


EXHIBIT D

Capitalization

 

Authorized shares of Common Stock:    30,000,000
Outstanding shares of Common Stock:    20,424,620.078 as follows:

 

Name of Stockholder

   Number of
Shares Owned
     Percent
Ownership
 

ALZA Corporation

     7,052.067         0.035

Mahmoud Ameri

     16.000         0.000

James Barrett

     22.000         0.000

BMV Direct SO LP

     798,829.000         3.911

BMV Direct SOTRS LP

     4,947,076.000         24.221

Joseph Bravo

     2.000         0.000

Peter Daddona

     1,275,151.000         6.243

Werner Frei

     2.455         0.000

Vikram Lamba

     2,525,000.000         12.363

Laurie Liu

     6.000         0.000

Jimmy Lopez

     1.000         0.000

Jim Mellers

     8.000         0.000

NEA Ventures 2006, Limited Partnership

     19.836         0.000

New Enterprise Associates 12, Limited Partnership

     5,147,122.904         25.201

Nomura Phase4 Ventures L.P.

     3,150,091.946         15.423

Gary Otake

     17.000         0.000

Elaine Peters

     11.000         0.000

ProQuest Investments IV, L.P.

     2,573,570.870         12.600

ProQuest Management LLC

     24.000         0.000

John Richard

     30.000         0.000

Samantha Olivia Sadlowski

     1.000         0.000

Gail Schulze

     467.000         0.002

Thorsten von Stein

     44.000         0.000

Cedric Wright

     5.000         0.000

Greg Yedinak

     50.000         0.000


The Company has reserved 2,264,108 shares of Common Stock for issuance pursuant to the terms of its 2012 Stock Incentive Plan. Options to purchase 2,075,600 of such shares have been granted and are outstanding.

Certain former stockholders of Zosano Pharma, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“ Subsidiary ”), have a right to receive an aggregate of 2,630.133 shares of Common Stock subject to their execution of certain documents in connection with the April 2012 reorganization of Subsidiary.

Exhibit 4.3

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR “BLUE SKY” LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND THE REGISTRATION, QUALIFICATION AND FILING REQUIREMENTS OF ALL APPLICABLE JURISDICTIONS HAVE BEEN COMPLIED WITH OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF LEGAL COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR THAT THE PROPOSED TRANSACTION WILL BE EXEMPT FROM REGISTRATION, QUALIFICATION AND FILING IN ALL SUCH JURISDICTIONS.

8% SUBORDINATED CONVERTIBLE PROMISSORY NOTE

 

$[    ]   September 9, 2013

FOR VALUE RECEIVED, ZP HOLDINGS, INC., a Delaware corporation (the “ Company ”), hereby promises to pay to the order of [        ] (the “ Payee ”), the principal amount of [        ] Dollars ($[        ]) upon the earliest to occur of: (i) an Event of Default; (ii) the date that is thirty days following an IPO; or (iii) the Maturity Date, unless earlier converted in accordance with Section 5 below.

This unsecured Note is one of a series of Notes that are being issued pursuant to a Note Purchase Agreement, dated as of September 9, 2013, by and among the Company and the Purchasers named therein, including the Payee (as it may be amended from time to time, the “ Purchase Agreement ”). Capitalized terms used herein but not defined shall have the meaning given to such terms in the Purchase Agreement. Each Note ranks equally and ratably with the other Notes without priority over one another. Any payments on the Notes (including any pre-payments made in accordance with Section 3) will be made in proportion to the outstanding principal amount each such Note represents relative to the aggregate outstanding principal amount of all Notes.

1. Interest . The principal balance of this Note outstanding from time to time shall bear simple interest at a rate of eight percent (8%) per annum. Such interest shall accrue and shall be due and payable in arrears (together with principal) on the Maturity Date, subject to Sections 3, 4 and 5 below.

2. Payments . Payment of principal and interest shall be made in lawful money of the United States of America in immediately available funds at the address of the Payee set forth below, or at such other place as the holder hereof shall have designated to the Company in writing.

3. Prepayment . The Company may accelerate and repay this Note at a time of its choosing, as more fully described in and subject to the obligations set forth in the Purchase Agreement.


4. Events of Default . Upon the occurrence of any Event of Default, the entire unpaid principal balance of this Note and all unpaid accrued interest hereunder shall become immediately due and payable without notice or demand.

5. Conversion .

5.1. Qualified Financing . Upon the closing of a Qualified Financing, the principal balance of this Note and any and all accrued and unpaid interest shall automatically convert into shares of Qualified Financing Securities at the Qualified Financing Price (or the Discounted Qualified Financing Price if such Qualified Financing is consummated more than sixty (60) calendar days from the Closing), and the Payee shall execute all necessary documents in connection with such Qualified Financing, subject to and all as more fully described in the Purchase Agreement.

5.2. Sale Transaction . Upon the closing of a Sale Transaction, the Payee shall be entitled to receive in respect of this Note certain consideration as more fully described in the Purchase Agreement.

6. New Note . Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, the Company will issue a new promissory note, of like tenor and amount and dated the original date of this Note, in lieu of such lost, stolen, destroyed or mutilated Note, and in such event the Holder thereof agrees to indemnify and hold harmless the Company in respect of any such lost, stolen, destroyed or mutilated Note.

7. Miscellaneous .

The undersigned and every endorser or guarantor of this Note, regardless of the time, order or place of signing, waives presentment, demand, protest and notice of every kind and assents to any one or more extensions or postponements of the time of payment or any other indulgences, to any substitutions, exchanges or releases of collateral available to the Payee, if any, and to the additions or releases of any other parties or persons primarily or secondarily liable.

By accepting this Note, the Payee and each subsequent holder of this Note acknowledges and agrees that all payments under this Note shall be expressly subordinate in right of payment and otherwise to any present or future debt obligation of the Company to any bank or other institutional lender, including, but not limited to, the BioMed Indebtedness (as defined below) and to any present or future indebtedness on account of trade payables evidenced by secured promissory notes. Upon request by the Company, the Payee and each subsequent holder of this Note agrees to confirm this subordination relationship to any such bank or institutional lender in a form reasonably acceptable to or required by such bank or other institutional lender. The “ BioMed Indebtedness ” shall mean any and all indebtedness that may exist from time to time pursuant to that certain Secured Promissory Note, dated as of April 26, 2012, between the Company and BioMed Realty Holdings, Inc. or any successor of transferee thereto, including any amendment, modification, continuation or replacement thereof.


The provisions of this Note shall be governed by, and construed and enforced in accordance with, the substantive laws of the State of Delaware, without regard to its principles of conflicts of laws.

Notwithstanding anything herein to the contrary, payment of any interest, expense or other amount shall not be required if such payment would be unlawful. In any such event, this Note shall automatically be deemed amended so that interest charges and all other payments required hereunder, individually and in the aggregate, shall be equal to but not greater than the maximum permitted by law.

This Note may be amended or modified, and any provision of this Note may be waived, only with the written consent of the Company, on the one hand, and either (a) the holder hereof or (b) the Requisite Noteholders (as defined in the Purchase Agreement), on the other hand; provided, however , that in the case of clause (b), no such amendment, modification or waiver shall be effective without the written consent of the holder hereof to the extent such amendment, modification or waiver adversely affects the rights of the holder of this Note in a manner different from those of the holders of the other Notes (other than differences related solely to the different principal amounts of the Notes). Any amendment effected in accordance with the immediately preceding sentence shall be binding upon the Company, the Payee and each transferee of this Note.

In the event any one or more of the provisions of this Note shall for any reason be held to be invalid, illegal or unenforceable, in whole or in part or in any respect, or in the event that any one or more of the provisions of this Note operate or would prospectively operate to invalidate this Note, then and in any such event, such provision(s) only shall be deemed null and void and shall not affect any other provision of this Note and the remaining provisions of this Note shall remain operative and in full force and effect and in no way shall be affected, prejudiced, or disturbed thereby.

[remainder of page intentionally left blank]


IN WITNESS WHEREOF, the undersigned has executed this Note as an instrument under seal as of the date first above written.

 

ZP HOLDINGS, INC.
By:  

 

  Name:   Vikram Lamba
  Title:   President and CEO

Signature Page to Convertible Promissory Note

Exhibit 4.4

Execution Version

NOTE PURCHASE AGREEMENT

This Note Purchase Agreement (this “ Agreement ”) is dated as of February 26, 2014 by and among ZP Holdings, Inc., a Delaware corporation (the “ Company ”), and the entities listed on Exhibit A attached hereto (each, a “ Purchaser ” and collectively, the “ Purchasers ”).

In consideration of the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows:

1. Authorization; Sale of Notes .

1.1. Authorization . The Company has duly authorized the sale and issuance, pursuant to the terms of this Agreement, of unsecured, subordinated Convertible Promissory Notes in the form attached hereto as Exhibit B in the aggregate principal amount of up to $2,500,000 (each, a “ Note ” and collectively, the “ Notes ”).

1.2. Use of Proceeds . The Company will use the proceeds from the sale of the Notes for working capital and other general corporate purposes.

2. Closing .

2.1. Time; Location . Subject to the terms and conditions of this Agreement, the closing of the sale and purchase of Notes under this Agreement (the “ Closing ”) shall take place at the offices of Foley Hoag LLP, Seaport West, 155 Seaport Boulevard, Boston, MA 02210-2600 (or remotely via the exchange of documents and signatures) on or after the date hereof on the date that the Company and all of the Purchasers shall agree (the date of the Closing, the “ Closing Date ”). At the Closing, the Company shall deliver a Note to each Purchaser in the original principal amount set forth next to such Purchaser’s name on Exhibit A attached hereto, and each Purchaser shall pay to the Company the purchase price therefor, which shall be equal to such original principal amount.

2.2. Closing Conditions . The obligations of the Purchasers to consummate the Closing are subject to the consummation of the stock purchases contemplated by that certain Stock Purchase Agreement in the form attached hereto as Exhibit C (the “ Stock Purchases ”).

3. Certain Terms of the Notes .

3.1. Maturity; Prepayment . Each Note shall be due and payable on the earlier of: (a) September 9, 2014 (the “ Maturity Date ”); (b) the occurrence of an Event of Default (as defined in Section 3.5 below); or (c) the date that is thirty days following the closing of the Company’s first firm commitment underwritten initial public offering pursuant to a registration statement filed under the Securities Act (as defined below and such offering, an “ IPO ”) unless such Note is converted into equity securities in connection with such offering. Notwithstanding the immediately preceding sentence, the Company may accelerate and repay any portion of the outstanding principal and/or interest balance of the Notes, at a time of its choosing (including in the absence of an Event of Default or prior to the Maturity Date) only


upon the prior written consent of the Requisite Noteholders (as defined below).

3.2. Interest . The principal balance of the Notes will bear simple interest at a rate of eight percent (8%) per annum. All unpaid and accrued interest and any other amounts payable pursuant to the Notes shall be due and payable on the Maturity Date.

3.3. Payments . Any payments on the Notes (including any permitted pre-payments made in accordance with Section 3.1) will be made in proportion to the outstanding principal amount each such Note represents relative to the aggregate outstanding principal amount of all Notes.

3.4. Automatic Conversion .

(a) Upon a Qualified Financing . Upon the closing of a Qualified Financing (as defined in Section 3.6 below), the principal and all unpaid and accrued interest on each Note shall automatically convert into that number of shares of the equity securities issued in such Qualified Financing (the “ Qualified Financing Securities ”) equal to the quotient of (i) the outstanding principal amount of such Note and all unpaid and accrued interest divided by (ii) the Qualified Financing Price (as defined in Section 3.6 below). In the event such Qualified Financing is consummated more than sixty (60) calendar days from the Closing, the denominator specified in clause (ii) of the immediately preceding shall equal the Discounted Qualified Financing Price (as defined in Section 3.6 below). The Purchasers agree in connection with the conversion of the Notes in accordance with this Section 3.4(a) to execute all necessary documents in connection with such Qualified Financing reasonably requested of the Purchasers and executed by all other participants in such Qualified Financing (such documents, the “ Financing Documents ”), including executing a definitive securities purchase agreement and such other financing agreements as shall be agreed upon by the Company or its ultimate parent, as the case may be, and the other investors participating in such Qualified Financing.

(b) Upon a Sale of the Company . The Company shall notify the holders of the Notes of the closing of a Sale Transaction (as defined in Section 3.6 below) at least ten (10) days prior to the expected date of closing of such Sale Transaction. Such notice shall include any information generally provided by the Company to the holders of the common stock, $0.0001 par value per share, of the Company (“ Common Stock ”) in connection with the Sale Transaction, if any, and such other information as reasonably requested by the Purchasers. Upon the closing of such Sale Transaction, each Purchaser shall be entitled to receive in respect of such Purchaser’s Note and in preference to the holders of Common Stock, an amount equal to any unpaid interest on the Note plus three times (3X) the outstanding principal balance of such Note.

(c) Effect of Conversion . Upon conversion of any Note pursuant to this Section 3, provided in the case of a conversion pursuant to Section 3.4(a) that the securities issued upon such conversion are duly and validly issued, fully-paid and are nonassessable, the Company (and its ultimate parent, if any) will be forever released and discharged from all of its obligations and liabilities under such Note, including without limitation the obligation to pay the principal amount and accrued interest thereon. No fractional shares shall be issuable by the Company or its ultimate parent, as applicable, upon conversion of any

 

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Note pursuant to Section 3.4(a). In lieu of any fractional share which would otherwise be issuable upon conversion of any Note pursuant to Section 3.4(a), the Company or its ultimate parent, as applicable, shall pay the holder of such Note an amount in cash equal to the product of (i) such fraction multiplied by (ii) the Qualified Financing Price (or the Discounted Qualified Financing Price, in the event the Qualified Financing is consummated more than sixty (60) days from the Closing). Upon conversion of each Note, the holder thereof shall surrender such Note, duly endorsed, at the principal offices of the Company; provided, however , that upon the closing of the Qualified Financing, each Note shall be deemed converted and of no further force and effect, whether or not it is delivered for cancellation as set forth in this sentence. Following such surrender, the Company or its ultimate parent, as applicable, will, at its expense, (i) in the case of a conversion pursuant to Section 3.4(a), issue and deliver to such holder a certificate or certificates for the securities to which such holder is entitled as a result of such conversion in accordance with Section 3.4(a) and a check payable to such holder for any cash amounts payable in lieu of any fractional share in accordance with this Section 3.4(c), or (ii) in the case of a conversion pursuant to Section 3.4(b), issue and deliver, or cause to be issued and delivered, to such holder a check payable to such holder for the cash amount payable in respect of such Note in accordance with Section 3.4(b).

3.5. Events of Default . Each of the following shall constitute an “ Event of Default ,” unless waived by the holders of Notes representing at least sixty percent (60%) of the principal amount then outstanding on all of the Notes (the “ Requisite Noteholders ”):

(a) the failure by the Company to pay any amount due hereunder within five (5) days of the due date thereof;

(b) the appointment of a receiver of any property, the assignment or trust mortgage for the benefit of creditors, the commencement of any kind of voluntary or involuntary insolvency proceedings under any bankruptcy or other law relating to the relief of debtors, or the entry of an order for relief with respect to the Company in any proceeding pursuant to the United States Bankruptcy Code, as amended;

(c) a final judgment or judicial order for the payment of money in excess of $250,000 (exclusive of amounts covered by insurance) shall be rendered against the Company and the same shall remain undischarged for a period of thirty days during which execution shall not be effectively stayed, or any judgment, writ, assessment, warrant of attachment, or execution or similar process shall be issued or levied against a substantial part of the property of the Company or any of its subsidiaries, if any and such judgment, writ, or similar process shall not be released, stayed, vacated or otherwise dismissed within thirty days after issue or levy; or

(d) the Company shall fail to observe or perform in any material respect any covenant, obligation, condition or agreement contained in this Agreement or any Note (other than those otherwise specified in this Section 3.5) and such failure shall continue for twenty (20) days after the Company’s receipt of written notice to the Company of such failure.

 

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3.6. Definitions . For purposes of this Agreement:

(a) “ Discounted Qualified Financing Price ” shall mean the price that is equal to 85% of the lowest per share price at which the shares of Qualified Financing Securities are to be sold in the Qualified Financing (not including any discounts applicable as a result of the Notes).

(b) “ Qualified Financing ” shall mean an equity financing involving the sale of equity securities of the Company (or equity securities of the ultimate parent of the surviving entity of a merger to which the Company is a party that does not constitute a Sale Transaction) to one or more institutional investors primarily for capital-raising purposes and resulting in aggregate gross proceeds to the Company (or such ultimate parent) of at least $25,000,000 (which threshold may be waived in connection with an equity financing with aggregate gross proceeds less than such amount (but in any case not less than $4,000,000) upon the written consent of the Requisite Noteholders in which case such equity financing shall constitute a Qualified Financing notwithstanding the amount of such equity financing), excluding the outstanding principal amount of the Notes to be converted into Qualified Financing Securities upon the closing of such financing.

(c) “ Qualified Financing Price ” shall mean the price that is equal to the lowest per share price at which the shares of Qualified Financing Securities are to be sold in the Qualified Financing (not including any discounts applicable as a result of the Notes).

(d) “ Sale Transaction ” shall have the meaning given to such term in the Stockholder Rights and Voting Agreement, dated as of April 26, 2012, by and among the Company, the Purchasers and certain other of the Company’s stockholders.

4. Representations and Warranties of the Company . The Company represents and warrants to each Purchaser as of the Closing Date that:

4.1. Corporate Organization and Authority . The Company:

(a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware;

(b) has the corporate power and authority to own and operate its properties and to carry on its business as now conducted and as presently proposed to be conducted; and

(c) is duly qualified, licensed to do business and in good standing as a foreign corporation in each jurisdiction where the failure to be so qualified or licensed could reasonably be expected to have a material adverse effect on the Company.

4.2. Corporate Power . The Company has all requisite legal and corporate power and authority to execute, perform and deliver this Agreement, to sell and issue the Notes hereunder, and to carry out and perform its obligations hereunder.

4.3. Due Authorization and Execution . The execution and delivery of

 

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this Agreement and the Notes by the Company and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Company. This Agreement and the Notes to be issued at the Closing have been duly executed and delivered by the Company and constitute the valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except to the extent that such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of general application relating to or affecting enforcement of creditors’ rights and laws concerning equitable remedies.

4.4. Capitalization . The capitalization of the Company as of the date hereof (after giving effect to the Stock Purchases) is set forth in Exhibit D attached hereto. The equity securities (“ Equity Securities ”) of the Company have the respective rights, preferences and privileges set forth in the Company’s certificate of incorporation and bylaws, as amended, in effect on the date hereof. All of the outstanding Equity Securities of the Company have been duly authorized and are validly issued, fully paid and nonassessable. Except as expressly referenced herein or as set forth in Exhibit D , there are as of the date of this Agreement no options, warrants or other convertible securities or rights to purchase Equity Securities of the Company authorized, issued or outstanding, and the Company is not obligated in any other manner to issue shares of its Equity Securities. The offer and sale of all Equity Securities of the Company issued before the Closing Date complied with or were exempt from registration or qualification under all applicable federal and state securities laws.

4.5. No Conflict . The execution and delivery of this Agreement and the Notes by the Company, the performance by the Company of its obligations hereunder and thereunder, and the consummation of the transactions contemplated hereby will not be in conflict with or constitute, with or without the passage of time and giving of notice, either (i) a violation of or a default under any provision of the Company’s certificate of incorporation or bylaws, or instrument, judgment, order, writ, decree, contract, rule, statute, regulation or agreement to which the Company is a party or by which it is bound, or (ii) an event which results in the creation of any lien, charge or encumbrance upon any assets, property or revenue of the Company or the suspension, revocation, forfeiture, or nonrenewal of any material permit or license applicable to the Company.

4.6. Governmental Filings . Assuming the accuracy of the representations made by the Purchasers in Section 5 of this Agreement, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority is required on the part of the Company in connection with the consummation of the transactions contemplated by this Agreement, except for filings pursuant to Regulation D of the Securities Act of 1933, as amended (the “ Securities Act ”), and applicable state securities laws.

5. Representations, Warranties, and Covenants of each Purchaser . Each Purchaser represents and warrants to and covenants with the Company as follows:

5.1. Authorization . When executed and delivered by the Purchaser, and assuming execution and delivery by the Company, this Agreement will constitute a valid and binding obligation of the Purchaser, enforceable against such Purchaser in accordance with its

 

5


terms, except to the extent that such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of general application relating to or affecting enforcement of creditors’ rights and laws concerning equitable remedies.

5.2. Brokers and Finders . The Purchaser has not retained any investment banker, broker, or finder in connection with the transactions contemplated by this Agreement.

5.3. Investment . The Purchaser is acquiring the Note as well as any shares of the Qualified Financing Securities (collectively, the “ Securities ”) for investment for the Purchaser’s own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof. The Purchaser has no present intention of selling, granting any participation in, or otherwise distributing any Securities. By executing this Agreement, the Purchaser further represents that it has no contract, undertaking, agreement, or arrangement with any person to sell, transfer, or grant participation to such person or to any third person, with respect to any Securities.

5.4. No Public Market . The Purchaser understands and acknowledges that the offering of the Securities pursuant to this Agreement will not be registered under the Securities Act on the grounds that the offering and sale of securities contemplated by this Agreement are exempt from registration pursuant to one or more exemptions under the Securities Act, including without limitation the exemption provided by Section 4(a)(2) thereof, and that the Company’s reliance upon such exemption is predicated upon the Purchaser’s representations as set forth in this Agreement. The Purchaser further understands that no public market now exists for any of the securities issued by the Company and that the Company has given no assurances that a public market will ever exist for the Company’s securities.

5.5. Experience; Etc . The Purchaser represents that he, she or it: (a) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of a prospective investment in the Note being purchased by the Purchaser; (b) believes that he, she or it has received all the information requested from the Company that might be necessary or appropriate for deciding whether to obtain the Note; (c) has had the opportunity to discuss the Company’s business, management, and financial affairs with the Company’s management; (d) has the ability to bear the economic risks of this investment; and (e) is able, without materially impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss on this investment.

5.6. Accredited Investor . The Purchaser qualifies as an “accredited investor” within the meaning of Regulation D of the rules and regulations promulgated under the Securities Act.

5.7. Investment Representations, Warranties and Covenants by Non-United States Persons . Each Purchaser who is a Non-U.S. person (as defined in Section 5.7(d) below) hereby represents and warrants to the Company as follows:

(a) This Agreement is made by the Company with the Purchaser, who is a Non-U.S. person, in reliance upon such Non-U.S. person’s representations,

 

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warranties and covenants made in this Section 5.7.

(b) Such Non-U.S. person has been advised and acknowledges that:

(i) the Securities have not been, and when issued, will not be registered under the Securities Act, the securities laws of any state of the United States or the securities laws of any other country;

(ii) in issuing and selling the Securities to such Non-U.S. person pursuant hereto, the Company is relying upon the “safe harbor” provided by Regulation S and/or on Section 4(a)(2) under the Securities Act;

(iii) it is a condition to the availability of the Regulation S “safe harbor” that the Securities not be offered or sold in the United States or to a U.S. person until the expiration of a one-year “distribution compliance period” (or a six-month “distribution compliance period,” if the issuer is a “reporting issuer,” as defined in Regulation S) following the date of issuance; and

(iv) notwithstanding the foregoing, prior to the expiration of the one-year “distribution compliance period” (or six-month “distribution compliance period,” if the issuer is a “reporting issuer,” as defined in Regulation S) after the date of issuance (the “ Restricted Period ”), the Securities may be offered and sold by the holder thereof only if such offer and sale is made in compliance with the terms of this Agreement and either: (A) if the offer or sale is within the United States or to or for the account of a U.S. person (as such terms are defined in Regulation S), the securities are offered and sold pursuant to an effective registration statement or pursuant to Rule 144 under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act; or (B) the offer and sale is outside the United States and to other than a U.S. person.

(c) As used herein, the term “United States” means the United States of America, its territories and possessions, any State of the United States, and the District of Columbia, and the term “U.S. person” (as defined in Regulation S) means:

(i) a natural person resident in the United States;

(ii) any partnership or corporation organized or incorporated under the laws of the United States;

(iii) any estate of which any executor or administrator is a U.S. person;

(iv) any trust of which any trustee is a U.S. person;

(v) any agency or branch of a foreign entity located in the United States;

(vi) any nondiscretionary account or similar account (other than

 

7


an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person;

(vii) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated and (if an individual) resident in the United States; and

(viii) a corporation or partnership organized under the laws of any foreign jurisdiction and formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a) under the Securities Act) who are not natural persons, estates or trusts.

(d) As used herein, the term “Non-U.S. person” means any person who is not a U.S. person or is deemed not to be a U.S. person under Rule 902(k)(2) of the Securities Act.

(e) Such Non-U.S. person agrees that with respect to the Securities, until the expiration of the Restricted Period:

(i) such Non-U.S. person, its agents or its representatives have not and will not solicit offers to buy, offer for sale or sell any of the Securities, or any beneficial interest therein in the United States or to or for the account of a U.S. person; and

(ii) notwithstanding the foregoing, the Securities may be offered and sold by the holder thereof only if such offer and sale is made in compliance with the terms of this Agreement and either: (A) if the offer or sale is within the United States or to or for the account of a U.S. person (as such terms are defined in Regulation S), the securities are offered and sold pursuant to an effective registration statement or pursuant to Rule 144 under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act; or (B) the offer and sale is outside the United States and to other than a U.S. person; and

(iii) such Non-U.S. person shall not engage in hedging transactions with regard to the Securities unless in compliance with the Securities Act.

The foregoing restrictions are binding upon subsequent transferees of the Securities, except for transferees pursuant to an effective registration statement. Such Non-U.S. person agrees that after the Restricted Period, the Securities may be offered or sold within the United States or to or for the account of a U.S. person only pursuant to applicable securities laws.

(f) Such Non-U.S. person has not engaged, nor is it aware that any party has engaged, and such Non-U.S. person will not engage or cause any third party to engage, in any directed selling efforts (as such term is defined in Regulation S) in the United States with respect to the Securities.

(g) Such Non-U.S. person: (i) is domiciled and has its principal place of business outside the United States; (ii) certifies it is not a U.S. person and is not acquiring the Securities for the account or benefit of any U.S. person; and (iii) at the time of the date of the Closing, the Non-U.S. person or persons acting on Non-U.S. person’s behalf in

 

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connection therewith will be located outside the United States.

(h) At the time of offering to such Non-U.S. person and communication of such Non-U.S. person’s order to purchase the Securities, and at the time of such Non-U.S. Person’s execution of this Agreement, the Non-U.S. person or persons acting on Non-U.S. person’s behalf in connection therewith were located outside the United States.

(i) Such Non-U.S. person is not a “distributor” (as defined in Regulation S) or a “dealer” (as defined in the Securities Act).

(j) Such Non-U.S. person acknowledges that the Company shall make a notation in its stock books regarding the restrictions on transfer set forth in this Section 5.7 and shall transfer such Securities on the books of the Company only to the extent consistent therewith.

In particular, such Non-U.S. person acknowledges that the Company shall refuse to register any transfer of the Note not made in accordance with the provisions of Regulation S, pursuant to registration under the Securities Act or pursuant to an available exemption from registration.

6. Legends and Restrictions on Transfer .

6.1. Securities Act . The Securities shall bear such restrictive legends as required by the Financing Documents, including, without limitation, a legend substantially in the following form:

“THE SECURITIES REPRESENTED HEREBY AND ANY SECURITIES ISSUED UPON CONVERSION HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR “BLUE SKY” LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND THE REGISTRATION, QUALIFICATION AND FILING REQUIREMENTS OF ALL APPLICABLE JURISDICTIONS HAVE BEEN COMPLIED WITH OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF LEGAL COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR THAT THE PROPOSED TRANSACTION WILL BE EXEMPT FROM REGISTRATION, QUALIFICATION AND FILING IN ALL SUCH JURISDICTIONS.”

6.2. No Transfer . No Purchaser may sell or transfer any Note without the prior written consent of the Requisite Noteholders, except to any affiliated fund, investment vehicle, partner or limited partner or equity holder of such Purchaser. A Purchaser that transfers a Note shall promptly notify the Company of such transfer. The Company shall not transfer or assign its obligations under any Note without the prior written consent of the Requisite Noteholders (except as set forth in Section 8.1).

 

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7. Amendment to 2013 Notes . In accordance with Section 7.5 of each of the unsecured, subordinated Convertible Promissory Notes issued and sold by the Company pursuant to that certain Note Purchase Agreement dated as of September 9, 2013 (the “ 2013 Purchase Agreement ”) by and among the Company, the Purchasers, ProQuest Investments IV, L.P. and ProQuest Management LLC (the “ 2013 Notes ”), the Purchasers, as the Requisite Noteholders (as defined in the 2013 Purchase Agreement), and the Company hereby amend each of the 2013 Notes by deleting in its entirety Section 3 of each of the 2013 Notes, and replacing it with the following (which, for the avoidance of doubt, is consistent with Section 3.1 of the 2013 Purchase Agreement):

“3. Prepayment . The Company may accelerate and repay any portion of the outstanding principal and/or interest balance of this Note at a time of its choosing (including in the absence of an Event of Default or prior to the Maturity Date) only upon the prior written consent of the Requisite Noteholders.”

8. Miscellaneous .

8.1. Successors and Assigns . Subject to the restrictions on transfers of the Notes set forth in Section 6.2, this Agreement shall be assignable by any party without the written consent of the other parties hereto; provided, however , that a merger to which the Company is a party shall not be considered an assignment requiring consent for purposes of Section 6.2; provided, further , that the Company may assign the Notes without the consent of the other parties hereto to any individual or entity that acquires control of the stock, all or substantially all assets or business of the Company, or to the surviving entity of a merger to which the Company is a party or the entity that controls such surviving entity. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.

8.2. Survival of Representations and Warranties . All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Closing.

8.3. Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

8.4. Governing Law . This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without reference to the conflicts of law provisions thereof. The Purchaser consents to service of process in any such action by certified or registered mail, return receipt requested. The Purchaser consents to the jurisdiction of such courts over the Purchaser, stipulates the convenience, efficiency and fairness of proceeding in such courts, and covenants not to allege or assert the inconvenience, inefficiency or unfairness of proceeding in such courts.

8.5. Notices . All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be delivered by hand, sent by overnight courier, facsimile or e-mail, or mailed by first class certified or registered mail, return receipt

 

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requested, postage prepaid:

(a) If to the Company:

ZP Holdings, Inc.

34790 Ardentech Court

Fremont, CA 94555

Attn: President and CEO

Fax: (510) 952-4632

with a copy to:

Foley Hoag LLP

Seaport West

155 Seaport Boulevard

Boston, MA 02210-2600

Attn: Jeffrey Quillen, Esq.

Fax: (617) 832-7000

(b) If to a Purchaser, at the address set forth beneath the Purchaser’s name on Exhibit A attached hereto, or at such other address as may have been furnished in writing by such Purchaser to the Company.

Notices provided in accordance with this Section 8.5 shall be deemed delivered (i) upon personal delivery with signature required, (ii) one Business Day after they have been sent to the recipient by reputable overnight courier service (charges prepaid and signature required), (iii) upon confirmation of successful transmission of a facsimile message containing such notice if sent before 5 p.m., local time of the recipient, on any Business Day, and as of 9 a.m. local time of the recipient on the next Business Day if sent thereafter, or (iv) three Business Days after deposit in the United States mail. The term “ Business Day ” as used in this Section 8.5 shall mean any day other than Saturday, Sunday or a day on which banking institutions are not required to be open in the State of California or New York.

8.6. Complete Agreement . This Agreement (including the Exhibits hereto and the issued Notes) constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter.

8.7. Amendments and Waivers . This Agreement and each Note may be amended, modified, or terminated, and the observance of any term of this Agreement may be waived, with respect to all parties to this Agreement (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Requisite Noteholders; provided, however , that no such amendment, modification or waiver shall be effective to the extent such amendment, modification or waiver adversely affects the rights of any holder of a Note in a manner different from those of such consenting holders (other than differences related to the different principal amounts of the Notes) without the consent of each such differently affected holder. No waivers of or exceptions to any term, condition or provision

 

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of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

8.8. Counterparts; Facsimile Signatures; Expenses . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original instrument, and all of which together shall for all purposes constitute one and the same Agreement. A signature of any party to this Agreement transmitted by facsimile, electronic mail (including pdf) or other electronic means shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. The Company shall pay on demand all reasonable fees and expenses, including reasonable attorney’s fees and expenses, in connection with the preparation, execution and delivery of this Agreement and the Notes up to a maximum amount of $10,000.

8.9. Pronouns . Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa.

8.10. Section Headings and References . The section headings are for the convenience of the parties and in no way alter, modify, amend, limit, or restrict the contractual obligations of the parties. Any reference in this agreement to a particular section or subsection shall refer to a section or subsection of this Agreement, unless specified otherwise.

[signature page follows]

 

12


IN WITNESS WHEREOF, the parties have executed this Note Purchase Agreement as of the date first written above.

 

ZP HOLDINGS, INC.
By:  

/s/ Vikram Lamba

  Name:   Vikram Lamba
  Title:   President and CEO
NEW ENTERPRISE ASSOCIATES 12, LIMITED PARTNERSHIP
By:  

NEA Partners 12, Limited Partnership,

its general partner

By:  

/s/ Louis S. Citron

  Name:   Louis S. Citron
  Title:   Chief Legal Officer

 

BMV DIRECT SO LP     BMV DIRECT SOTRS LP
By:   BioMed Realty, L.P.,     By:   BioMed Realty Holdings, Inc.,
  its general partner       its general partner
By:  

/s/ Jonathan P. Klassen

    By:  

/s/ Jonathan P. Klassen

  Name:   Jonathan P. Klassen       Name:   Jonathan P. Klassen
  Title:   Senior Vice President       Title:   Senior Vice President

Signature Page to Note Purchase Agreement


EXHIBIT A

Schedule of Purchasers

 

Name and Address

   Original Principal Amount  

BMV Direct SO LP

17190 Bernardo Center Drive

San Diego, CA 92128

Attn: Corporate Legal

Fax No.: (858) 485-9843

   $ 249,000.00   

BMV Direct SOTRS LP

17190 Bernardo Center Drive

San Diego, CA 92128

Attn: Corporate Legal

Fax No.: (858) 485-9843

   $ 1,069,709.23   

New Enterprise Associates 12, Limited Partnership

c/o New Enterprise Associates

1954 Greenspring Drive, Suite 600

Timonium, MD 21093

Attn: Louis Citron, General Counsel

Fax No.: (410) 842-4100

   $ 1,181,290.77   
  

 

 

 

Total:

   $ 2,500,000.00   
  

 

 

 


EXHIBIT B

Form of Subordinated Convertible Promissory Note

[see attached]


Execution Version

EXHIBIT C

Stock Purchase Agreement

[see attached]


STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “ Agreement ”), dated as of February 26, 2014, is made and entered into by and among BMV Direct SO LP, a Delaware limited partnership (“ BMV SO ”), BMV Direct SOTRS LP, a Delaware limited partnership (“ BMV SOTRS ”), New Enterprise Associates 12, Limited Partnership, a Delaware limited partnership (“ NEA ,” and together with BMV SO and BMV SOTRS, the “ Buyers ”), ProQuest Investments IV, L.P., a Delaware limited partnership (“ ProQuest IV ”), ProQuest Management LLC, a Delaware limited liability company (“ ProQuest LLC ”), Nomura Phase4 Ventures L.P., a limited partnership registered in England (“ Nomura Phase4 ,” and together with ProQuest IV and ProQuest LLC, the “ Sellers ”), for the limited purpose of Section 7.1 hereof, ZP Holdings, Inc., a Delaware corporation (the “ Company ”), and, for the limited purpose of Section 7.3 hereof, each of Vikram Lamba and Peter Daddona (together, the “ Founders ”) .

WHEREAS, the Buyers and the Sellers (collectively, the “ Major Holders ”) hold significant amounts of shares of the common stock, par value $0.0001 per share (“ Common Stock ”) of the Company;

WHEREAS, the Company requires additional capital for its operations and has requested that the Major Holders purchase unsecured, subordinated convertible promissory notes of the Company (collectively, “ Bridge Notes ”) pursuant to a Note Purchase Agreement, dated on or about the date hereof, among the Company and certain of the Major Holders (the “ Note Purchase Agreement ”);

WHEREAS, the Company advised each Major Holder that if it did not purchase Bridge Notes then: (i) such Major Holder could voluntarily decrease its ownership interest in the Company by selling a portion of its shares of Common Stock to other Major Holders that are purchasing Bridge Notes, in exchange for consideration of US$0.00011574 per share of Common Stock (“ Voluntary Dilution ”); or (ii) if such Major Holder decided not to effect Voluntary Dilution, then the Company would increase the other participating Major Holders’ ownership interest by issuing shares of Common Stock and/or other securities to such Major Holders in consideration of their purchase of Bridge Notes, which would lead to dilution for any nonparticipating Major Holders (the “ Involuntary Dilution ”);

WHEREAS, the Buyers desire to purchase Bridge Notes and have agreed to enter into the Note Purchase Agreement;

WHEREAS, a representative of each Seller regularly attends meetings of the Company’s Board of Directors and has received the same information as the other Major Holders regarding the Company’s prospects of raising additional capital from sales of capital stock to investors other than the Major Holders and revenues from potential collaborations with strategic partners;

WHEREAS, each of the Sellers desires not to purchase Bridge Notes, to forgo the possibility of converting the Bridge Notes into shares of Common Stock, not to suffer Involuntary Dilution in order to, among other reasons, encourage and promote the other Major Investors’ investment of new capital into the Company, and will instead accept Voluntary Dilution by selling to the Buyers, in the case of ProQuest IV, 1,930,178 of the 2,573,570.870

 

- 17 -


shares of Common Stock currently held by ProQuest IV, in the case of ProQuest LLC, 18 of the 24 shares of Common Stock currently held by ProQuest LLC, and in the case of Nomura Phase4, 2,362,569 of the 3,150,091.946 shares of Common Stock currently held by Nomura Phase4, in each case upon and subject to the terms and conditions of this Agreement; and

WHEREAS, as a condition to closing the transactions contemplated by this Agreement, it shall be necessary to obtain a waiver of certain provisions of that certain Stockholder Rights and Voting Agreement by and among the Company and the Major Holders, among others, dated as of April 26, 2012 (the “ Stockholder Agreement ”).

NOW, THEREFORE, in consideration of the premises and of the respective representations, warranties, covenants, agreements and conditions contained herein, the Buyers and the Seller agree as follows:

1. Definitions . As used in this Agreement, the following terms shall have the meanings set forth below:

Nomura Phase4 Shares ” means 2,362,569 shares of Common Stock currently held, beneficially and of record, by Nomura Phase4.

ProQuest IV Shares ” means 1,930,178 shares of Common Stock currently held, beneficially and of record, by ProQuest IV.

ProQuest LLC Shares ” means 18 shares of Common Stock currently held, beneficially and of record, by ProQuest LLC.

Purchase Price ” means US$0.00011574 per share of Common Stock, payable by the Buyers to the Sellers as described in Section 2.1.

Securities ” means the Nomura Phase4 Shares, the ProQuest IV Shares and the ProQuest LLC Shares.

Securities Act ” means the United States Securities Act of 1933, as amended, and the rules and regulations in effect from time to time thereunder.

2. Purchase and Sale of the Securities; Closing . The Buyers and the Sellers agree as follows:

2.1. Purchase and Sale of the Securities . On the basis of the representations and warranties, and subject to the terms and conditions, set forth herein: (a) each Buyer, severally and not jointly, agrees to purchase from each Seller; and (b) each Seller, severally and not jointly, agrees to sell to each Buyer, respectively, all of such Seller’s right, title and interest in, to and under the Securities owned, beneficially and of record, by such Seller, in accordance with the following:

 

  (i) ProQuest IV transfers to BMV SO: 1,018,137 shares of Common Stock, in exchange for US$117.84;

 

- 18 -


  (ii) ProQuest IV transfers to NEA: 912,041 shares of Common Stock, in exchange for US$105.56;

 

  (iii) ProQuest LLC transfers to BMV SO: nine (9) shares of Common Stock, in exchange for US$0.01;

 

  (iv) ProQuest LLC transfers to NEA: nine (9) shares of Common Stock, in exchange for US$0.01;

 

  (v) Nomura Phase4 transfers to BMV SOTRS: 1,246,217 shares of Common Stock, in exchange for US$144.24; and

 

  (vi) Nomura Phase4 transfers to NEA: 1,116,352 shares of Common Stock, in exchange for US$129.21.

2.2. Closing . Subject to the terms and conditions of this Agreement, the closing of the sale and purchase of the Securities under this Agreement (the “ Closing ”) shall take place at Foley Hoag LLP, Seaport West, 155 Seaport Boulevard, Boston, MA 02210-2600 (or remotely via the exchange of documents and signatures) on or after the date hereof on the date that the Buyers and the Sellers shall agree (the date of the Closing, the “ Closing Date ”). At the Closing: (a) each Seller shall deliver to the Buyers original certificates representing the Securities being sold by such Seller hereunder and such other appropriate instruments of transfer and assignment (including duly executed stock powers), as the Buyers shall reasonably request prior to the Closing Date, in order to vest in the Buyers, as of the Closing Date, such Seller’s right, title and interest in, to and under such Securities in accordance with Section 2.1 of this Agreement; (b) each Seller shall deliver such other instruments as may be necessary or appropriate to evidence compliance by such Seller with all of its representations, warranties, covenants and undertakings herein contained; and (c) the Buyers shall deliver or cause to be delivered to each Seller the Purchase Price specified in Section 2.1 in immediately available funds (in accordance with instructions separately provided from such Seller to the Buyers prior to the Closing Date).

3. Conditions to the Buyers’ Obligation . The obligation of the Buyers to purchase and pay for the Securities is subject to the satisfaction (or waiver by the Buyers) of the following conditions as of the Closing Date:

3.1. the representations and warranties of each Seller made in this Agreement shall be true and correct in all respects, as of the date hereof and as of the Closing Date as though then made;

3.2. each Seller shall have delivered to the Buyers the documents and instruments contemplated by Section 2.2 above;

3.3. the Major Holders shall have obtained all consents and waivers necessary to effect the transactions contemplated in this Agreement (including, without limitation, all waivers with respect to Section 5 of the Stockholder Agreement); and

 

- 19 -


3.4. there shall be no pending or threatened claims, actions, litigation or administrative, regulatory or governmental investigations or proceedings against either the Sellers or the Buyers with respect to enjoining or preventing the Closing or which might otherwise restrain, prohibit or invalidate any portion of this Agreement.

4. Conditions to the Seller’s Obligation . The obligation of each Seller to sell and deliver the Securities to be sold by such Seller to each of the Buyers is subject to the satisfaction (or waiver by such Seller) of the following conditions as of the Closing Date:

4.1. the Buyers shall have purchased Bridge Notes pursuant to the Note Purchase Agreement;

4.2. the representations and warranties of the Buyers made in this Agreement shall be true and correct in all respects, as of the date hereof and as of the Closing Date as though then made;

4.3. the Buyers shall have delivered the Purchase Price to such Seller as contemplated by Section 2.2 above;

4.4. the Major Holders shall have obtained all consents and waivers necessary to effect the transactions contemplated in this Agreement (including, without limitation, all waivers with respect to Section 5 of the Stockholder Agreement); and

4.5. there shall be no pending or threatened claims, actions, litigation or administrative, regulatory or governmental investigations or proceedings against either such Seller or the Buyers with respect to enjoining or preventing the Closing or which might otherwise restrain, prohibit or invalidate any portion of this Agreement.

5. Representations and Warranties of the Buyers . Each Buyer, severally and not jointly with the other Buyers, represents and warrants to the Sellers that:

5.1. Such Buyer has all requisite power and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby. Such Buyer has duly and validly authorized, executed and delivered this Agreement.

5.2. This Agreement constitutes a valid and binding agreement of such Buyer, enforceable against such Buyer in accordance with its terms, except as enforceability may be limited by: (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws relating to or affecting creditors’ rights generally; and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

5.3. Such Buyer is an “accredited investor,” as defined in Rule 501 of Regulation D promulgated under the Securities Act, and hereby confirms that any Common Stock to be received by such Buyer pursuant to this Agreement will be acquired for investment for such Buyer’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any of the Securities, and that such Buyer has no

 

- 20 -


present intention of selling, granting any participation in, or otherwise distributing the same. Such Buyer further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Securities acquired pursuant to Section 2.1 of this Agreement, except with respect to arrangements and agreements with such Buyer’s limited partners, shareholders and partners, as entered into in the ordinary course of Buyer and not with a view towards the transactions contemplated by this Agreement.

5.4. Such Buyer has such knowledge and experience in financial and business matters that the Buyer is capable of evaluating the merits and risks of its investment in the Securities, and can bear the economic risk of its investment (including the full loss of such investment). Such Buyer has carefully considered and, to the extent such Buyer believes appropriate, has discussed with such Buyer’s professional legal, tax and financial advisors, the suitability of an investment in the Securities with respect to the Buyer’s particular tax and financial situation. Such Buyer has determined that its investment in the Securities is suitable for such Buyer.

6. Representations and Warranties of the Sellers . Each Seller, severally and not jointly with the other Sellers, represents and warrants to the Buyers that:

6.1. Such Seller has all requisite corporate power and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby. Such Seller has duly and validly authorized, executed and delivered this Agreement.

6.2. This Agreement constitutes a valid and binding agreement of such Seller, enforceable against such Seller in accordance with its terms, except as enforceability may be limited by: (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws relating to or affecting creditors’ rights generally; and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

6.3. No consent, approval, qualification, order or authorization of, or filing with, any local, state or federal governmental authority is required for the consummation by such Seller of the transactions contemplated hereby.

6.4. Neither such Seller nor its affiliates own any direct or indirect interest in any securities of the Company other than, in the case of ProQuest IV and ProQuest LLC, an aggregate of 2,573,594.870 shares of Common Stock and $579,771.40 in aggregate original principal amount of unsecured, subordinated Convertible Promissory Notes dated September 9, 2013, and in the case of Nomura Phase4, 3,150,091.946 shares of Common Stock. Such Seller owns, in the case of ProQuest IV, the ProQuest IV Shares, in the case of ProQuest LLC, the ProQuest LLC Shares, and in the case of Nomura Phase4, the Nomura Phase4 Shares, (and shall transfer such Securities such that they will be held following the Closing) free and clear of all claims, liens, security interests, charges or other encumbrances of any kind, including, but not limited to, any preemptive rights or rights of first refusal or other restrictions on transfer

 

- 21 -


of any kind, except as set forth in the Stockholder Agreement. There are no restrictions on the transfer of such Securities other than restrictions arising under the Securities Act and as may be set forth in the Stockholder Agreement. No person or entity has any right to purchase such Securities or any portion thereof or interest therein.

7. Releases .

7.1. The Company acknowledges that the Buyers would not enter into this Agreement and the Note Purchase Agreement without the Company’s assurance under this Section 7.1. The Company, on behalf of itself and on behalf of its successors and assigns, hereby releases and forever discharges each of the Buyers, each of the Sellers and their respective partners, members, managers, officers, directors and agents, and each of their successors, heirs and assigns (collectively, the “ Buyer and Seller Released Parties ”), from any and all claims, demands, obligations, losses, causes of action, costs, expenses, attorneys’ fees and liabilities of any nature whatsoever, whether based on contract, tort, statutory or other legal or equitable theory of recovery, whether known or unknown (collectively, “ Claims ”), which the Company has, claims or will claim to have against any or all of the Buyer and Seller Released Parties arising out of the purchase and sale of the Securities pursuant to this Agreement. In connection with the foregoing, the Company represents and warrants to the Buyers and the Sellers that (i) the Company has all requisite corporate power and authority to enter into this Agreement, and has duly and validly authorized, executed and delivered this Agreement; and (ii) this Section 7.1 constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws relating to or affecting creditors’ rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

7.2. The Sellers acknowledge that the Buyers would not enter into this Agreement and the Note Purchase Agreement without the Sellers’ assurances under this Section 7.2. Each of the Sellers, on behalf of itself and on behalf of its successors and assigns, hereby releases and forever discharges each of the Buyers and their respective partners, members, managers, officers, directors and agents, and each of their successors, heirs and assigns (collectively, the “ Buyer Released Parties ”), from any and all Claims which such Seller has, claims or will claim to have against any or all of the Buyer Released Parties arising out of the purchase and sale of the Securities pursuant to this Agreement.

7.3. The Founders acknowledge that the Buyers would not enter into this Agreement and the Note Purchase Agreement without the Founders’ assurances under this Section 7.3. Each of the Founders, on behalf of itself and on behalf of its heirs and assigns, hereby releases and forever discharges the Buyer and Seller Released Parties from any and all Claims which such Founder has, claims or will claim to have against any or all of the Buyer and Seller Released Parties arising out of the purchase and sale of the Securities pursuant to this Agreement. In connection with the foregoing, each of the Founders represents and warrants to the Buyers and the Sellers that (i) he has the legal

 

- 22 -


power to enter into this Agreement, and has validly executed and delivered this Agreement; and (ii) this Section 7.3 constitutes a valid and binding agreement of such Founder, enforceable against such Founder in accordance with its terms, except as enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws relating to or affecting creditors’ rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

8. Applicable Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflicts of law thereof.

9. Invalidity of Provisions . The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including that provision, in any other jurisdiction, and this Agreement shall be construed in all other respects as if such invalid and unenforceable provisions were omitted.

10. Survival of Representations and Warranties . The representations, warranties and covenants contained herein shall survive the Closing or any termination of this Agreement.

11. Headings; Execution in Counterparts . The headings and captions contained herein are for convenience of reference only and shall not control or affect the meaning or construction of any provision hereof. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and which together shall constitute but one and the same instrument.

12. Notices . All notices and other communications relating to this Agreement shall be dated and in writing and shall be deemed to have been duly given when delivered, if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, and when received if delivered otherwise, to the party to whom it is directed;

 

  (a) If to the Sellers, to each Seller at the following address:

Nomura Phase4 Ventures L.P.

c/o Nomura International

One Angel Lane

London

EC4R 3AB

Attn: Stephen Booysen

Fax: (44 20) 7102 9075

ProQuest Investments IV, L.P.

2430 Vanderbilt Beach Road

108-190

Naples, FL 34109

Fax No.: (609) 375-1047

 

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ProQuest Management LLC

2430 Vanderbilt Beach Road

108-190

Naples, FL 34109

Fax No.: (609) 375-1047

 

  (b) If to the Buyers, to each Buyer at the following address:

BMV Direct SO LP

17190 Bernardo Center Drive

San Diego, CA 92128

Attn: Corporate Legal

Fax No.: (858) 485-9843

BMV Direct SOTRS LP

17190 Bernardo Center Drive

San Diego, CA 92128

Attn: Corporate Legal

Fax No.: (858) 485-9843

New Enterprise Associates 12, Limited Partnership

c/o New Enterprise Associates

1954 Greenspring Drive, Suite 600

Timonium, MD 21093

Attn: Louis Citron, General Counsel

Fax: (410) 842-4100

with a copy to:

Kunzler Law Group, PC, as counsel to

BMV Direct SO LP and BMV Direct SOTRS LP

8 East Broadway, Suite 600

Salt Lake City, Utah 84111

Attn: Curtis Oscarson, Esq.

Fax: 801.693.1612

 

  (c) If to the Company, to the Company at the following address:

ZP Holdings, Inc.

34790 Ardentech Court

Fremont, CA 94555

Attn: President and CEO

Fax: (510) 952-4632

with a copy to:

 

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Foley Hoag LLP

Seaport West

155 Seaport Boulevard

Boston, MA 02210-2600

Attn: Jeffrey Quillen, Esq.

Fax: (617) 832-7000

13. Waivers . No waiver of the provisions hereof shall be valid unless in writing and signed by the party to be bound and then only to the extent therein set forth. No failure or delay by any party in exercising any right or remedy hereunder shall operate as a waiver thereof, and a waiver of a particular right or remedy on one occasion shall not be deemed a waiver of any other right or remedy or a waiver on any subsequent occasion.

14. Amendment . This Agreement shall be binding upon the parties and may not be abandoned, supplemented, changed or modified in any manner, orally or otherwise, except by an instrument in writing of concurrent or subsequent date signed by each of the parties hereto. This Agreement is binding upon and shall inure to the benefit of the parties and their respective agents, assigns, heirs, executors, successors and administrators.

15. Integration . The parties agree that this Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all other prior agreements, representations and understandings, both written and oral, among the parties with respect to the subject matter hereof.

16. Interpretation . Should any provision of this Agreement require interpretation in any legal or other proceeding, it is agreed that the court, legal tribunal or other arbiter interpreting or construing the same shall not imply a presumption that the terms hereof shall be more strictly construed against one party by reason of the rule of construction that a document is to be construed more strictly against the party who itself or through its agent prepared the same, it being agreed that the agents of all parties have participated in the preparation of this Agreement.

17. Third Party Beneficiaries . Nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give to any third party any rights or remedies against any party hereto.

18. Further Assurances . Each of the parties hereto covenants and agrees upon the request of the other, to do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further acts, deeds, documents, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably necessary or desirable to give full effect to this Agreement (including any such as are reasonably necessary or desirable to have certificates or agreements representing the Securities issued or registered in the name of each Buyer or its designated nominee(s)).

[signature pages follow]

 

- 25 -


Execution Version

IN WITNESS WHEREOF, the Buyers, the Sellers, the Company and the Founders have executed this Stock Purchase Agreement as of the date first above written.

 

BUYERS:
BMV DIRECT SO LP     BMV DIRECT SOTRS LP
By:   BioMed Realty, L.P.,     By:   BioMed Realty Holdings, Inc.,
  its general partner       its general partner
By:  

 

    By:  

 

  Name:       Name:
  Title:       Title:
NEW ENTERPRISE ASSOCIATES 12, LIMITED PARTNERSHIP      
By:   NEA Partners 12, Limited Partnership,      
  its general partner      
By:  

 

     
  Name:      
  Title:      
SELLERS:
NOMURA PHASE4 VENTURES L.P.     PROQUEST INVESTMENTS IV, L.P.
By:   Phase4 Partners Limited,     By:   ProQuest Associates IV LLC,
  its manager       its general partner
By:  

 

    By:  

 

  Name:       Name:
  Title:       Title:
PROQUEST MANAGEMENT LLC      
By:  

 

     
  Name:      
  Title:      


COMPANY:
ZP HOLDINGS, INC.    
By:  

 

   
  Name:   Vikram Lamba    
  Title:   President and CEO    
FOUNDERS:

 

   

 

Vikram Lamba     Peter Daddona

 

- 27 -


Execution Version

EXHIBIT D

Capitalization

 

Authorized shares of Common Stock:    30,000,000
Outstanding shares of Common Stock:    20,427,250.579 as follows:

 

Name of Stockholder

   Number of
Shares Owned
 

ALZA Corporation

     7,052.067   

Mahmoud Ameri

     16.000   

Christina Anaya

     0.491   

James Barrett

     22.000   

BMV Direct SO LP

     1,816,975.000   

BMV Direct SOTRS LP

     6,193,293.000   

Joseph Bravo

     2.000   

Peter Daddona

     1,275,151.000   

Werner Frei

     2.455   

HMB BioCapital (EUR) L.P.

     391.253   

HMB BioCapital (US) L.P.

     132.442   

HBM BioVentures (Cayman) Ltd.

     2,094.779   

Ederlita C. Kwan

     0.931   

Vikram Lamba

     2,525,000.000   

Laurie Liu

     6.000   

Jimmy Lopez

     1.000   

Jim Mellers

     8.000   

NEA Ventures 2006, Limited Partnership

     19.836   

New Enterprise Associates 12, Limited Partnership

     7,175,524.904   

Nomura Phase4 Ventures L.P.

     787,522.946   

Gary Otake

     17.000   

Elaine Peters

     11.000   

ProQuest Investments IV, L.P.

     643,392.870   

ProQuest Management LLC

     6.000   

Asha Ramdas

     10.605   

John Richard

     30.000   


Samantha Olivia Sadlowski

     1.000   

Gail Schulze

     467.000   

Thorsten von Stein

     44.000   

Cedric Wright

     5.000   

Greg Yedinak

     50.000   

The Company has reserved 2,264,108 shares of Common Stock for issuance pursuant to the terms of its 2012 Stock Incentive Plan. Options to purchase [2,075,600] of such shares have been granted and are outstanding.

Pursuant to that certain Note Purchase Agreement dated as of September 9, 2013 by and among the Company and the purchasers named therein, the Company issued (and there are currently outstanding) Convertible Promissory Notes in an aggregate original principal amount of $3,033,723.04, which Convertible Promissory Notes automatically convert into equity securities of the Company upon the closing of a Qualified Financing (as defined therein) as more fully described in such Note Purchase Agreement.

Exhibit 4.5

THE SECURITIES REPRESENTED HEREBY AND ANY SECURITIES ISSUED UPON CONVERSION HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR “BLUE SKY” LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND THE REGISTRATION, QUALIFICATION AND FILING REQUIREMENTS OF ALL APPLICABLE JURISDICTIONS HAVE BEEN COMPLIED WITH OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF LEGAL COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR THAT THE PROPOSED TRANSACTION WILL BE EXEMPT FROM REGISTRATION, QUALIFICATION AND FILING IN ALL SUCH JURISDICTIONS.

8% SUBORDINATED CONVERTIBLE PROMISSORY NOTE

 

$[    ]   February 26, 2014

FOR VALUE RECEIVED, ZP HOLDINGS, INC., a Delaware corporation (the “ Company ”), hereby promises to pay to the order of [    ] (the “ Payee ”), the principal amount of [    ] Dollars ($[    ]) upon the earliest to occur of: (i) an Event of Default; (ii) the date that is thirty days following an IPO; or (iii) the Maturity Date, unless earlier converted in accordance with Section 5 below.

This unsecured Note is one of a series of Notes that are being issued pursuant to a Note Purchase Agreement, dated as of February 26, 2014, by and among the Company and the Purchasers named therein, including the Payee (as it may be amended from time to time, the “ Purchase Agreement ”). Capitalized terms used but not otherwise defined herein shall have the meanings given to such terms in the Purchase Agreement. Each Note ranks equally and ratably with the other Notes without priority over one another. Any payments on the Notes (including any pre-payments made in accordance with Section 3) will be made in proportion to the outstanding principal amount each such Note represents relative to the aggregate outstanding principal amount of all Notes.

1. Interest . The principal balance of this Note outstanding from time to time shall bear simple interest at a rate of eight percent (8%) per annum. Such interest shall accrue and shall be due and payable in arrears (together with principal) on the Maturity Date, subject to Sections 3, 4 and 5 below.

2. Payments . Payment of principal and interest shall be made in lawful money of the United States of America in immediately available funds at the address of the Payee set forth below, or at such other place as the holder hereof shall have designated to the Company in writing.

3. Prepayment . The Company may accelerate and repay any portion of the outstanding principal and/or interest balance of this Note at a time of its choosing (including in the absence of an Event of Default or prior to the Maturity Date) only upon the prior written consent of the Requisite Noteholders.


4. Events of Default . Upon the occurrence of any Event of Default, the entire unpaid principal balance of this Note and all unpaid accrued interest hereunder shall become immediately due and payable without notice or demand.

5. Conversion .

5.1. Qualified Financing . Upon the closing of a Qualified Financing, the principal balance of this Note and any and all accrued and unpaid interest shall automatically convert into shares of Qualified Financing Securities at the Qualified Financing Price (or the Discounted Qualified Financing Price if such Qualified Financing is consummated more than sixty (60) calendar days from the Closing), and the Payee shall execute all necessary documents in connection with such Qualified Financing, subject to and all as more fully described in the Purchase Agreement.

5.2. Sale Transaction . Upon the closing of a Sale Transaction, the Payee shall be entitled to receive in respect of this Note certain consideration as more fully described in the Purchase Agreement.

6. New Note . Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, the Company will issue a new promissory note, of like tenor and amount and dated the original date of this Note, in lieu of such lost, stolen, destroyed or mutilated Note, and in such event the holder thereof agrees to indemnify and hold harmless the Company in respect of any such lost, stolen, destroyed or mutilated Note.

7. Officers and Directors Not Liable . In no event shall any officer or director of the Company be liable for any amounts due and payable pursuant to this Note.

8. Miscellaneous .

8.1. The undersigned and every endorser or guarantor of this Note, regardless of the time, order or place of signing, waives presentment, demand, protest and notice of every kind and assents to any one or more extensions or postponements of the time of payment or any other indulgences, to any substitutions, exchanges or releases of collateral available to the Payee, if any, and to the additions or releases of any other parties or persons primarily or secondarily liable.

8.2. By accepting this Note, the Payee and each subsequent holder of this Note acknowledges and agrees that all payments under this Note shall be expressly subordinate in right of payment and otherwise to any present or future debt obligation of the Company to any bank or other institutional lender, including, but not limited to, the BioMed Indebtedness (as defined below) and to any present or future indebtedness on account of trade payables evidenced by secured promissory notes. Upon request by the Company, the Payee and each subsequent holder of this Note agrees to confirm this subordination relationship to any such bank or institutional lender in a form reasonably acceptable to or required by such bank or other institutional lender. The “ BioMed Indebtedness ” shall mean any and all indebtedness that may exist from time to time pursuant to that certain Secured Promissory Note, dated as of April 26, 2012, between the Company and BioMed Realty Holdings, Inc. or any successor of transferee thereto, including any amendment, modification, continuation or replacement thereof.


8.3. The provisions of this Note shall be governed by, and construed and enforced in accordance with, the substantive laws of the State of Delaware, without regard to its principles of conflicts of laws.

8.4. Notwithstanding anything herein to the contrary, payment of any interest, expense or other amount shall not be required if such payment would be unlawful. In any such event, this Note shall automatically be deemed amended so that interest charges and all other payments required hereunder, individually and in the aggregate, shall be equal to but not greater than the maximum permitted by law.

8.5. This Note may be amended or modified, and any provision of this Note may be waived, only with the written consent of the Company, on the one hand, and either (a) the holder hereof or (b) the Requisite Noteholders, on the other hand; provided, however , that in the case of clause (b), no such amendment, modification or waiver shall be effective without the written consent of the holder hereof to the extent such amendment, modification or waiver adversely affects the rights of the holder of this Note in a manner different from those of the holders of the other Notes (other than differences related solely to the different principal amounts of the Notes). Any amendment effected in accordance with the immediately preceding sentence shall be binding upon the Company, the Payee and each transferee of this Note.

8.6. In the event any one or more of the provisions of this Note shall for any reason be held to be invalid, illegal or unenforceable, in whole or in part or in any respect, or in the event that any one or more of the provisions of this Note operate or would prospectively operate to invalidate this Note, then and in any such event, such provision(s) only shall be deemed null and void and shall not affect any other provision of this Note and the remaining provisions of this Note shall remain operative and in full force and effect and in no way shall be affected, prejudiced, or disturbed thereby.

[remainder of page intentionally left blank]


IN WITNESS WHEREOF, the undersigned has executed this Note as an instrument under seal as of the date first above written.

 

ZP HOLDINGS, INC.
By:  

 

  Name:   Vikram Lamba
  Title:   President and CEO

Signature Page to Convertible Promissory Note (February 2014)

Exhibit 4.6

ZP HOLDINGS, INC.

STOCK REPURCHASE OPTION AGREEMENT

(Peter Daddona)

This Stock Repurchase Option Agreement (this “ Agreement ”) dated as of May 15, 2012, is made by and between ZP Holdings, Inc., a Delaware corporation (the “ Company ”), and Peter Daddona (“ Holder ”).

WHEREAS, the Company and Holder have entered into that certain Restricted Stock Purchase Agreement dated as of January 26, 2012 (the “ Purchase Agreement ”), pursuant to which the Company sold to Holder, and Holder purchased from the Company, 1,250,000 shares of common stock, $0.0001 par value per share, of the Company (“ Common Stock ”);

WHEREAS, on April 25, 2012, the Company acquired Zosano Pharma, Inc., a Delaware corporation (“ Zosano ”), pursuant to the merger of ZP Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company, with and into Zosano (the “ Merger ”);

WHEREAS, in connection with the Merger, the Company and Holder desire to enter into this Agreement, which will provide the Company an option to repurchase certain of the shares of Common Stock issued to Holder under the Purchase Agreement;

NOW, THEREFORE, in consideration of the premises and the covenants set forth herein, and for other good and valuable consideration, the parties hereby agree as follows:

1. Definitions . As used in this Agreement, the following terms shall have the following meanings:

Qualified Sale : The sale of all or substantially all of the assets or issued and outstanding capital stock of the Company or Zosano, or merger or consolidation involving the Company or Zosano in which stockholders of the Company or Zosano, respectively, immediately before such merger or consolidation do not own immediately after such merger or consolidation capital stock or other equity interests of the surviving corporation or entity representing more than fifty percent in voting power of capital stock or other equity interests of such surviving corporation or entity outstanding immediately after such merger or consolidation.

Service : Service as a consultant, employee, officer or director.

Shares : The shares of Common Stock issued to Holder under the Purchase Agreement and any other securities of the Company which may be issued in exchange for or in respect of such shares of Common Stock, whether by way of stock split, stock dividend, combination of shares, reclassification, recapitalization, reorganization or any other means.

Restricted Shares : Any Shares that are not Released Shares.

Released : Released from the Company’s Repurchase Option (as defined in Section 2(a)).

Released Shares : Any Shares that have Released in accordance with Section 2(b).


2. Repurchase of Restricted Shares .

(a) Repurchase Option .

(i) In the event of the voluntary termination by Holder of Holder’s Service with the Company and Zosano, or in the event of the termination by the Company or Zosano for Cause (as defined in that certain employment letter agreement dated May 11, 2012 by and among Holder, Zosano and the Company) of Holder’s Service with the Company and Zosano, the Company shall upon the effective date of such termination (the “ Termination Date ”) have an irrevocable, exclusive option (the “ Repurchase Option ”) for a period of 90 days from such date to repurchase all or any portion of the Restricted Shares at a repurchase price of $0.0001 per share, appropriately adjusted in the event of a stock dividend, stock split, recapitalization, combination of shares or similar event occurring subsequent to the date of this Agreement.

(ii) Unless the Company notifies Holder within 90 days after the Termination Date that it does not intend to exercise its Repurchase Option with respect to some or all of the Restricted Shares, the Repurchase Option shall be deemed automatically exercised by the Company as of the 90th day following the Termination Date, provided, however , that the Company may notify Holder that it is exercising its Repurchase Option as of a date prior to such 90th day. Unless Holder is otherwise notified by the Company pursuant to the preceding sentence that the Company does not intend to exercise its Repurchase Option as to some or all of the Restricted Shares to which it applies on the Termination Date, execution of this Agreement by Holder constitutes written notice to Holder of the Company’s intention to exercise its Repurchase Option with respect to all Restricted Shares to which such Repurchase Option applies. The Company, at its choice, may satisfy its payment obligation to Holder with respect to exercise of the Repurchase Option by any of (1) delivering a check to Holder in the amount of the purchase price for the Restricted Shares being repurchased, (2) in the event Holder is indebted to the Company, canceling an amount of such indebtedness equal to the purchase price for the Restricted Shares being repurchased and (3) by a combination of (1) and (2) so that the combined payment and cancellation of indebtedness equals such purchase price. The Company shall use good faith efforts to satisfy its payment obligation to Holder within 15 days after Company’s notice of exercise of the Repurchase Option (or deemed exercise), and that if such payment is not effective within such 15 days from such date, the amount of the Company’s unsatisfied payment obligation shall bear interest at a rate of nine percent (9%) per annum until the Company has satisfied its payment obligation under this Section 2(a)(ii). In the event of any exercise (or deemed automatic exercise) of the Repurchase Option pursuant to this Section 2(a)(ii) at such time as Holder is indebted to the Company, the portion of such indebtedness equal to the purchase price of the Restricted Shares being repurchased shall be deemed automatically canceled as of the date of Company’s notice of exercise of the Repurchase Option (or deemed exercise). As a result of any repurchase of Restricted Shares pursuant to this Section 2(a), the Company shall become the legal and beneficial owner of the Restricted Shares being repurchased and shall have all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of Restricted Shares being repurchased by the Company, without further action by Holder.

(b) Release from Repurchase Option .

 

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(i) The Shares are or will become Released as follows: 1/3 rd of the Shares shall be deemed Released on the date hereof; and an additional 2/9 th of the total Shares shall Release on each anniversary of the effective date of the Purchase Agreement, so that the Shares shall be fully Released on the third anniversary of such date.

(ii) Notwithstanding Section 2(b)(i), all Shares shall be deemed to have Released immediately prior to the consummation of a Qualified Sale.

(iii) Notwithstanding Section 2(b)(i), if the Company notifies the Holder within 90 days after the Termination Date that it does not intend to exercise its Repurchase Option with respect to some or all of the Restricted Shares, all Restricted Shares with respect to which the Company is not exercising its Repurchase Option shall be deemed to have Released on the date of such notice.

(iv) All Release of Shares pursuant to this Agreement shall be conditioned upon Holder’s continuing Service with the Company and/or Zosano from the date hereof through such Release date.

3. Restrictions on Transfer . Except for purchases of Restricted Shares by the Company as contemplated by Section 2, no Restricted Shares nor any interest therein may be Transferred (as defined in the Purchase Agreement).

4. Custody of Certificates; Legend . In order to facilitate the exercise of the Repurchase Option, the Company or its counsel shall hold all certificates representing Restricted Shares, together with an adequate number of undated and otherwise blank stock powers executed by Holder. The Company shall have the right to cause transfers of Restricted Shares to be effected pursuant to Section 4 of the Purchase Agreement. After any Shares become Released Shares, the Company shall, upon request of Holder, deliver to Holder a certificate or certificates representing such Released Shares. Each certificate representing Restricted Shares shall prominently bear a legend in substantially the following form:

“The securities represented by this certificate are subject to restrictions on transfer and repurchase rights pursuant to the terms of a Stock Repurchase Option Agreement, as amended from time to time, between the owner of this certificate and the Corporation. The Corporation will furnish a copy of this agreement to the holder hereof without charge upon written request.”

5. Miscellaneous.

(a) Entire Agreement . This Agreement and the Purchase Agreement constitute the entire agreement between the parties with respect to the subject matter hereof, and supersede all prior agreements, negotiations, representations and proposals, written or oral, relating to such subject matter.

(b) Amendments . Neither this Agreement nor any provision hereof may be changed or modified except by an agreement in writing executed by Holder and on behalf of the Company.

 

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(c) Binding Effect of the Agreement . This Agreement shall inure to the benefit of, and be binding upon, the Company, Holder and their respective estates, heirs, executors, transferees, successors, assigns and legal representatives.

(d) Provisions Severable . In the event that any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and all other provisions shall remain in full force and effect. If any of the provisions of this Agreement is held to be excessively broad, it shall be reformed and construed by limiting and reducing it so as to be enforceable to the maximum extent permitted by law.

(e) Notices . All notices under this Agreement shall be effective (i) upon personal or facsimile delivery, (ii) two business days after deposit in the United States mail as registered or certified mail postage fully prepaid, or (iii) one business day after pickup by any overnight commercial courier service, in each case sent or addressed to the Company at its principal office or to Holder at his record address as carried in the stock records of the Company, as the case may be, or at such other address as either may from time to time designate in writing to the other.

(f) Construction . A reference to a Section shall mean a Section of this Agreement unless otherwise expressly stated. The titles and headings herein are for reference purposes only and shall not in any manner limit the construction of this Agreement which shall be considered as a whole. The words “ include ,” “ includes ” and “ including ” when used herein shall be deemed in each case to be followed by the words “without limitation.” Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of names and pronouns shall include the plural and vice-versa.

(g) No Employment or Service Agreement . This Agreement shall not be construed as an agreement by the Company to employ or engage Holder, nor is the Company obligated to employ or engage Holder by reason of this Agreement or the issuance of the Shares to Holder.

(h) Section 83(b) Election . Holder will furnish to the Company a copy of any election made by Holder under Section 83(b) of the Internal Revenue Code of 1986, as amended, with respect to the Shares.

(i) Applicable Law . This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, without regard to its principles of conflicts of laws. Holder consents to jurisdiction and venue in any state or federal court in the State of Delaware for the purposes of any action relating to or arising out of this Agreement or any breach or alleged breach hereof, and to service of process in any such action by certified or registered mail, return receipt requested.

(j) Disposition of Shares; Purchase by Nominee or Designee . Any Shares that the Company elects to purchase hereunder may be disposed of by it in such manner as it deems appropriate with or without restrictions on the transfer thereof, and the Company may require their transfer to a nominee or designee as part of any purchase of Shares from Holder.

 

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(k) Counterparts . This Agreement may be executed in one or more counterparts, all of which together shall constitute one and the same Agreement.

[signature page follows]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Stock Repurchase Option Agreement as of the date first above written.

 

ZP HOLDINGS, INC.
By:  

/s/ Vikram Lamba

  Name:   Vikram Lamba
  Title:   President and Chief Executive Officer
HOLDER:

/s/ Peter Daddona

Peter Daddona

— Signature Page to ZP Holdings, Inc. Stock Repurchase Option Agreement —

Exhibit 4.7

ZP HOLDINGS, INC.

STOCK REPURCHASE OPTION AGREEMENT

(Vikram Lamba)

This Stock Repurchase Option Agreement (this “ Agreement ”) dated as of May 15, 2012, is made by and between ZP Holdings, Inc., a Delaware corporation (the “ Company ”), and Vikram Lamba (“ Holder ”).

WHEREAS, the Company and Holder have entered into that certain Restricted Stock Purchase Agreement dated as of January 26, 2012 (the “ Purchase Agreement ”), pursuant to which the Company sold to Holder, and Holder purchased from the Company, 2,500,000 shares of common stock, $0.0001 par value per share, of the Company (“ Common Stock ”);

WHEREAS, on April 25, 2012, the Company acquired Zosano Pharma, Inc., a Delaware corporation (“ Zosano ”), pursuant to the merger of ZP Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company, with and into Zosano (the “ Merger ”);

WHEREAS, in connection with the Merger, the Company and Holder desire to enter into this Agreement, which will provide the Company an option to repurchase certain of the shares of Common Stock issued to Holder under the Purchase Agreement;

NOW, THEREFORE, in consideration of the premises and the covenants set forth herein, and for other good and valuable consideration, the parties hereby agree as follows:

1. Definitions . As used in this Agreement, the following terms shall have the following meanings:

Qualified Sale : The sale of all or substantially all of the assets or issued and outstanding capital stock of the Company or Zosano, or merger or consolidation involving the Company or Zosano in which stockholders of the Company or Zosano, respectively, immediately before such merger or consolidation do not own immediately after such merger or consolidation capital stock or other equity interests of the surviving corporation or entity representing more than fifty percent in voting power of capital stock or other equity interests of such surviving corporation or entity outstanding immediately after such merger or consolidation.

Service : Service as a consultant, employee, officer or director.

Shares : The shares of Common Stock issued to Holder under the Purchase Agreement and any other securities of the Company which may be issued in exchange for or in respect of such shares of Common Stock, whether by way of stock split, stock dividend, combination of shares, reclassification, recapitalization, reorganization or any other means.

Restricted Shares : Any Shares that are not Released Shares.

Released : Released from the Company’s Repurchase Option (as defined in Section 2(a)).

Released Shares : Any Shares that have Released in accordance with Section 2(b).


2. Repurchase of Restricted Shares .

(a) Repurchase Option .

(i) In the event of (x) the voluntary termination by Holder of Holder’s Service with the Company and Zosano, (y) the termination by the Company or Zosano of Holder’s Service with the Company and Zosano for Cause (as defined in that certain employment letter agreement dated May 11, 2012 by and among Holder, Zosano and the Company (the “ Employment Agreement ”)) or due to disability (in accordance with the terms of the Employment Agreement) or (z) the termination of Holder’s Service with the Company and Zosano due to Holder’s death, then the Company shall upon the effective date of such termination (the “ Termination Date ”) have an irrevocable, exclusive option (the “ Repurchase Option ”) for a period of 90 days from such date to repurchase all or any portion of the Restricted Shares at a repurchase price of $0.0001 per share, appropriately adjusted in the event of a stock dividend, stock split, recapitalization, combination of shares or similar event occurring subsequent to the date of this Agreement.

(ii) Unless the Company notifies Holder within 90 days after the Termination Date that it does not intend to exercise its Repurchase Option with respect to some or all of the Restricted Shares, the Repurchase Option shall be deemed automatically exercised by the Company as of the 90th day following the Termination Date, provided, however , that the Company may notify Holder that it is exercising its Repurchase Option as of a date prior to such 90th day. Unless Holder is otherwise notified by the Company pursuant to the preceding sentence that the Company does not intend to exercise its Repurchase Option as to some or all of the Restricted Shares to which it applies on the Termination Date, execution of this Agreement by Holder constitutes written notice to Holder of the Company’s intention to exercise its Repurchase Option with respect to all Restricted Shares to which such Repurchase Option applies. The Company, at its choice, may satisfy its payment obligation to Holder with respect to exercise of the Repurchase Option by any of (1) delivering a check to Holder in the amount of the purchase price for the Restricted Shares being repurchased, (2) in the event Holder is indebted to the Company, canceling an amount of such indebtedness equal to the purchase price for the Restricted Shares being repurchased and (3) by a combination of (1) and (2) so that the combined payment and cancellation of indebtedness equals such purchase price. The Company shall use good faith efforts to satisfy its payment obligation to Holder within 15 days after Company’s notice of exercise of the Repurchase Option (or deemed exercise), and that if such payment is not effective within such 15 days from such date, the amount of the Company’s unsatisfied payment obligation shall bear interest at a rate of nine percent (9%) per annum until the Company has satisfied its payment obligation under this Section 2(a)(ii). In the event of any exercise (or deemed automatic exercise) of the Repurchase Option pursuant to this Section 2(a)(ii) at such time as Holder is indebted to the Company, the portion of such indebtedness equal to the purchase price of the Restricted Shares being repurchased shall be deemed automatically canceled as of the date of Company’s notice of exercise of the Repurchase Option (or deemed exercise). As a result of any repurchase of Restricted Shares pursuant to this Section 2(a), the Company shall become the legal and beneficial owner of the Restricted Shares being repurchased and shall have all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of Restricted Shares being repurchased by the Company, without further action by Holder.

 

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(b) Release from Repurchase Option .

(i) The Shares are or will become Released as follows: 1/3 rd of the Shares shall be deemed Released on the date hereof; and an additional 1/54 th of the total Shares shall Release on each monthly anniversary of the effective date of the Purchase Agreement, so that the Shares shall be fully Released on the third annual anniversary of such date; provided, however , that an additional 2/9 th of the total Shares shall be deemed to have Released immediately prior to (A) the death of the Holder or (B) the termination by the Company or Zosano of Holder’s Service with the Company and Zosano due to disability.

(ii) Notwithstanding Section 2(b)(i), all Shares shall be deemed to have Released immediately prior to the consummation of a Qualified Sale.

(iii) Notwithstanding Section 2(b)(i), if the Company notifies the Holder within 90 days after the Termination Date that it does not intend to exercise its Repurchase Option with respect to some or all of the Restricted Shares, all Restricted Shares with respect to which the Company is not exercising its Repurchase Option shall be deemed to have Released on the date of such notice.

(iv) All Release of Shares pursuant to this Agreement shall be conditioned upon Holder’s continuing Service with the Company and/or Zosano from the date hereof through such Release date.

3. Restrictions on Transfer . Except for purchases of Restricted Shares by the Company as contemplated by Section 2, no Restricted Shares nor any interest therein may be Transferred (as defined in the Purchase Agreement).

4. Custody of Certificates; Legend . In order to facilitate the exercise of the Repurchase Option, the Company or its counsel shall hold all certificates representing Restricted Shares, together with an adequate number of undated and otherwise blank stock powers executed by Holder. The Company shall have the right to cause transfers of Restricted Shares to be effected pursuant to Section 4 of the Purchase Agreement. After any Shares become Released Shares, the Company shall, upon request of Holder, deliver to Holder a certificate or certificates representing such Released Shares. Each certificate representing Restricted Shares shall prominently bear a legend in substantially the following form:

“The securities represented by this certificate are subject to restrictions on transfer and repurchase rights pursuant to the terms of a Stock Repurchase Option Agreement, as amended from time to time, between the owner of this certificate and the Corporation. The Corporation will furnish a copy of this agreement to the holder hereof without charge upon written request.”

5. Miscellaneous.

(a) Entire Agreement . This Agreement and the Purchase Agreement constitute the entire agreement between the parties with respect to the subject matter hereof, and supersede all prior agreements, negotiations, representations and proposals, written or oral, relating to such subject matter.

 

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(b) Amendments . Neither this Agreement nor any provision hereof may be changed or modified except by an agreement in writing executed by Holder and on behalf of the Company.

(c) Binding Effect of the Agreement . This Agreement shall inure to the benefit of, and be binding upon, the Company, Holder and their respective estates, heirs, executors, transferees, successors, assigns and legal representatives.

(d) Provisions Severable . In the event that any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and all other provisions shall remain in full force and effect. If any of the provisions of this Agreement is held to be excessively broad, it shall be reformed and construed by limiting and reducing it so as to be enforceable to the maximum extent permitted by law.

(e) Notices . All notices under this Agreement shall be effective (i) upon personal or facsimile delivery, (ii) two business days after deposit in the United States mail as registered or certified mail postage fully prepaid, or (iii) one business day after pickup by any overnight commercial courier service, in each case sent or addressed to the Company at its principal office or to Holder at his record address as carried in the stock records of the Company, as the case may be, or at such other address as either may from time to time designate in writing to the other.

(f) Construction . A reference to a Section shall mean a Section of this Agreement unless otherwise expressly stated. The titles and headings herein are for reference purposes only and shall not in any manner limit the construction of this Agreement which shall be considered as a whole. The words “ include ,” “ includes ” and “ including ” when used herein shall be deemed in each case to be followed by the words “without limitation.” Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of names and pronouns shall include the plural and vice-versa.

(g) No Employment or Service Agreement . This Agreement shall not be construed as an agreement by the Company to employ or engage Holder, nor is the Company obligated to employ or engage Holder by reason of this Agreement or the issuance of the Shares to Holder.

(h) Section 83(b) Election . Holder will furnish to the Company a copy of any election made by Holder under Section 83(b) of the Internal Revenue Code of 1986, as amended, with respect to the Shares.

(i) Applicable Law . This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, without regard to its principles of conflicts of laws. Holder consents to jurisdiction and venue in any state or federal court in the State of Delaware for the purposes of any action relating to or arising out of this Agreement or any breach or alleged breach hereof, and to service of process in any such action by certified or registered mail, return receipt requested.

 

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(j) Disposition of Shares; Purchase by Nominee or Designee . Any Shares that the Company elects to purchase hereunder may be disposed of by it in such manner as it deems appropriate with or without restrictions on the transfer thereof, and the Company may require their transfer to a nominee or designee as part of any purchase of Shares from Holder.

(k) Counterparts . This Agreement may be executed in one or more counterparts, all of which together shall constitute one and the same Agreement.

[signature page follows]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Stock Repurchase Option Agreement as of the date first above written.

 

ZP HOLDINGS, INC.
By:  

/s/ Peter Daddona

  Name:   Peter Daddona
  Title:   Chief Scientific Officer
HOLDER:

/s/ Vikram Lamba

Vikram Lamba

— Signature Page to ZP Holdings, Inc. Stock Repurchase Option Agreement —

Exhibit 4.8

THE SECURITIES REPRESENTED BY THE NOTES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR “BLUE SKY” LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND THE REGISTRATION, QUALIFICATION AND FILING REQUIREMENTS OF ALL APPLICABLE JURISDICTIONS HAVE BEEN COMPLIED WITH OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF LEGAL COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR THAT THE PROPOSED TRANSACTION WILL BE EXEMPT FROM REGISTRATION, QUALIFICATION AND FILING IN ALL SUCH JURISDICTIONS.

THE HOLDERS OF THE NOTES ACKNOWLEDGE AND UNDERSTAND THAT THAT THE NOTES ARE SUBJECT TO THE SUBORDINATION AGREEMENT (AS DEFINED BELOW).

FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT AND

8% SUBORDINATED CONVERTIBLE PROMISSORY NOTES

This First Amendment to Note Purchase Agreement and 8% Subordinated Convertible Promissory Notes (this “ Amendment ”) is executed as of June 3, 2014 by and among ZP Holdings, Inc., a Delaware corporation (the “ Company ”), and the Requisite Noteholders whose signatures appear on the signature page hereto, and amends that certain Note Purchase Agreement dated as of September 9, 2013 among the Company and the Purchasers named therein (the “ Purchase Agreement ”) and each of the 8% Subordinated Convertible Promissory Notes dated September 9, 2013 issued pursuant to the Purchase Agreement (the “ Existing Notes ”). Capitalized terms used but not otherwise defined herein shall have the meaning given to such terms in the Purchase Agreement. The Existing Notes, as amended by this Amendment, shall be referred to herein as the “ Notes.

The Notes are subject to that certain Subordination Agreement of even date herewith (the “ Subordination Agreement ”) among Hercules Technology Growth Capital, Inc., a Maryland corporation ( “Hercules ”), the Company, Zosano Pharma, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“ Zosano ”), and the Purchasers, a copy of which is on file at the principal office of the Company and which is being entered into pursuant to that certain Loan and Security Agreement of even date herewith between Hercules and Zosano (the “ Loan Agreement ”).

NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree to amend the Existing Notes as follows:


1. Maturity . The Existing Notes and Section 3.1 of the Purchase Agreement are hereby amended by adding the following at the end of the first paragraph of the Existing Notes and at the end of the first sentence of Section 3.1 of the Purchase Agreement, respectively:

“; provided, however , that if any portion of the Senior Debt (as defined in the Subordination Agreement) remains outstanding on the date the Note is due and payable, then the Company’s failure to pay any amount under the Note or the Purchase Agreement during the time period from such date through the date that the Senior Debt is paid in full shall not constitute an “Event of Default” thereunder or a violation or breach thereof, and shall not cause additional interest to accrue thereon at any higher default rate that may be provided for therein.”

2. Qualified Financing . The Purchase Agreement is hereby amended by deleting Section 3.6(b) thereof in its entirety and replacing it with the following:

“(b) “ Qualified Financing ” shall mean an equity financing consummated on or prior to September 9, 2014 involving the sale of equity securities of the Company (or equity securities of the ultimate parent of the surviving entity of a merger to which the Company is a party that does not constitute a Sale Transaction) to one or more institutional investors primarily for capital-raising purposes and resulting in aggregate gross proceeds to the Company (or such ultimate parent) of at least $25,000,000 (which threshold may be waived in connection with an equity financing with aggregate gross proceeds less than such amount (but in any case not less than $4,000,000) upon the written consent of the Requisite Noteholders in which case such equity financing shall constitute a Qualified Financing notwithstanding the amount of such equity financing), excluding the outstanding principal amount of the Notes to be converted into Qualified Financing Securities upon the closing of such financing.”

3. Assignment . No Purchaser may assign any of the Notes without first having the assignee thereof become a party to the Subordination Agreement.

4. Termination of Amendment . This Amendment shall remain in effect so long as the Senior Debt remains outstanding. Upon the repayment in full of the Senior Debt, this Amendment shall terminate and be of no further force or effect, and the terms and conditions of the Notes shall revert to those terms and conditions set forth in the Existing Notes.

5. Effect of Amendment . Except as expressly modified by this Amendment, the Existing Notes shall remain unmodified and in full force and effect.

6. Counterparts . This Amendment may be executed in two or more counterparts (including by facsimile or PDF copy), each of which shall be deemed an original and all of which together shall constitute one instrument.

(Signature Page Follows)

 

2


The parties have executed this First Amendment to Note Purchase Agreement and 8% Subordinated Convertible Promissory Notes as of the date first written above.

 

ZP HOLDINGS, INC.     
By:  

/s/ Vikram Lamba

        
  Name:   Vikram Lamba         
  Title:   President and CEO         
PROQUEST INVESTMENTS IV, L.P.         
By:  

ProQuest Associates IV, LLC,

its general partner

    PROQUEST MANAGEMENT LLC
By:  

/s/ Pasquale DeAngelis

    By:   

/s/ Pasquale DeAngelis

  Name:   Pasquale DeAngelis        Name:   Pasquale DeAngelis
  Title:   Managing Member        Title:   Administrative Partner

NEW ENTERPRISE ASSOCIATES 12,

LIMITED PARTNERSHIP

        
By:   NEA Partners 12, Limited Partnership,         
  its general partner         
By:  

/s/ Louis S. Citron

        
  Name:   Louis S. Citron         
  Title:   Chief Legal Officer         
BMV DIRECT SO LP     BMV DIRECT SOTRS LP
By:   BioMed Realty, L.P.,     By:    BioMed Realty Holdings, Inc.,
  its general partner        its general partner
By:  

/s/ Kevin M. Simonsen

    By:   

/s/ Kevin M. Simonsen

  Name:   Kevin M. Simonsen        Name:   Kevin M. Simonsen
  Title:   VP, Real Estate Legal        Title:   VP, Real Estate Legal

Exhibit 4.9

THE SECURITIES REPRESENTED BY THE NOTES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR “BLUE SKY” LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND THE REGISTRATION, QUALIFICATION AND FILING REQUIREMENTS OF ALL APPLICABLE JURISDICTIONS HAVE BEEN COMPLIED WITH OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF LEGAL COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR THAT THE PROPOSED TRANSACTION WILL BE EXEMPT FROM REGISTRATION, QUALIFICATION AND FILING IN ALL SUCH JURISDICTIONS.

THE HOLDERS OF THE NOTES ACKNOWLEDGE AND UNDERSTAND THAT THAT THE NOTES ARE SUBJECT TO THE SUBORDINATION AGREEMENT (AS DEFINED BELOW).

FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT AND

8% SUBORDINATED CONVERTIBLE PROMISSORY NOTES

This First Amendment to Note Purchase Agreement and 8% Subordinated Convertible Promissory Notes (this “ Amendment ”) is executed as of June 3, 2014 by and among ZP Holdings, Inc., a Delaware corporation (the “ Company ”), and the Requisite Noteholders whose signatures appear on the signature page hereto, and amends that certain Note Purchase Agreement dated as of February 26, 2014 among the Company and the Purchasers named therein (the “ Purchase Agreement ”) and each of the 8% Subordinated Convertible Promissory Notes dated February 26, 2014 issued pursuant to the Purchase Agreement (the “ Existing Notes ”). Capitalized terms used but not otherwise defined herein shall have the meaning given to such terms in the Purchase Agreement. The Existing Notes, as amended by this Amendment, shall be referred to herein as the “ Notes.

The Notes are subject to that certain Subordination Agreement of even date herewith (the “ Subordination Agreement ”) among Hercules Technology Growth Capital, Inc., a Maryland corporation ( “Hercules ”), the Company, Zosano Pharma, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“ Zosano ”), and the Purchasers, a copy of which is on file at the principal office of the Company and which is being entered into pursuant to that certain Loan and Security Agreement of even date herewith between Hercules and Zosano (the “ Loan Agreement ”).

NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree to amend the Existing Notes as follows:


1. Maturity . The Existing Notes and Section 3.1 of the Purchase Agreement are hereby amended by adding the following at the end of the first paragraph of the Existing Notes and at the end of the first sentence of Section 3.1 of the Purchase Agreement, respectively:

“; provided, however , that if any portion of the Senior Debt (as defined in the Subordination Agreement) remains outstanding on the date the Note is due and payable, then the Company’s failure to pay any amount under the Note or the Purchase Agreement during the time period from such date through the date that the Senior Debt is paid in full shall not constitute an “Event of Default” thereunder or a violation or breach thereof, and shall not cause additional interest to accrue thereon at any higher default rate that may be provided for therein.”

2. Qualified Financing . The Purchase Agreement is hereby amended by deleting Section 3.6(b) thereof in its entirety and replacing it with the following:

“(b) “ Qualified Financing ” shall mean an equity financing consummated on or prior to September 9, 2014 involving the sale of equity securities of the Company (or equity securities of the ultimate parent of the surviving entity of a merger to which the Company is a party that does not constitute a Sale Transaction) to one or more institutional investors primarily for capital-raising purposes and resulting in aggregate gross proceeds to the Company (or such ultimate parent) of at least $25,000,000 (which threshold may be waived in connection with an equity financing with aggregate gross proceeds less than such amount (but in any case not less than $4,000,000) upon the written consent of the Requisite Noteholders in which case such equity financing shall constitute a Qualified Financing notwithstanding the amount of such equity financing), excluding the outstanding principal amount of the Notes to be converted into Qualified Financing Securities upon the closing of such financing.”

3. Assignment . No Purchaser may assign any of the Notes without first having the assignee thereof become a party to the Subordination Agreement.

4. Termination of Amendment . This Amendment shall remain in effect so long as the Senior Debt remains outstanding. Upon the repayment in full of the Senior Debt, this Amendment shall terminate and be of no further force or effect, and the terms and conditions of the Notes shall revert to those terms and conditions set forth in the Existing Notes.

5. Effect of Amendment . Except as expressly modified by this Amendment, the Existing Notes shall remain unmodified and in full force and effect.

6. Counterparts . This Amendment may be executed in two or more counterparts (including by facsimile or PDF copy), each of which shall be deemed an original and all of which together shall constitute one instrument.

(Signature Page Follows)

 

2


The parties have executed this First Amendment to Note Purchase Agreement and 8% Subordinated Convertible Promissory Notes as of the date first written above.

 

ZP HOLDINGS, INC.     
By:  

/s/ Vikram Lamba

        
  Name:   Vikram Lamba         
  Title:   President and CEO         

NEW ENTERPRISE ASSOCIATES 12,

LIMITED PARTNERSHIP

        
By:   NEA Partners 12, Limited Partnership,         
  its general partner         
By:  

/s/ Louis S. Citron

        
  Name:   Louis S. Citron         
  Title:   Chief Legal Officer         
BMV DIRECT SO LP     BMV DIRECT SOTRS LP
By:   BioMed Realty, L.P.,     By:    BioMed Realty Holdings, Inc.,
  its general partner        its general partner
By:  

/s/ Kevin M. Simonsen

    By:   

/s/ Kevin M. Simonsen

  Name:   Kevin M. Simonsen        Name:   Kevin M. Simonsen
  Title:   VP, Real Estate Legal        Title:   VP, Real Estate Legal

Exhibit 10.1

Confidential

COLLABORATION, DEVELOPMENT AND LICENSE AGREEMENT

THIS COLLABORATION, DEVELOPMENT AND LICENSE AGREEMENT (the “Agreement” ) is entered into 31 January 2014 (the “Effective Date” ) by and between ZOSANO PHARMA, INC., a Delaware corporation having a place of business at 34790 Ardentech Court, Fremont, California 94555, USA ( “Zosano” ) and NOVO NORDISK AS, a Danish corporation having an address at Novo Allé, 2880 Bagsvaerd, Denmark ( “Novo Nordisk” ).

RECITALS

WHEREAS, Zosano is a corporation organized and operated for the purpose of research, development and commercialization of products based on its proprietary transdermal drug delivery technology;

WHEREAS, Novo Nordisk is a leading global health care company engaged in the research, development and commercialization of pharmaceutical products;

WHEREAS, Zosano and Novo Nordisk previously entered into a Feasibility Agreement (as defined below) which is being replaced and superseded by this Agreement; and

WHEREAS, Novo Nordisk desires to obtain, and Zosano is willing to grant to Novo Nordisk, an exclusive, worldwide license to Zosano’s transdermal microprojection patch technology for use with GLP-1 Receptor Agonist(s) in accordance with the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

1. Definitions and Interpretation

 

1.1 The following words have the following meaning when used in this Agreement.

“Affiliate” means, with respect to a Party, any corporation, company, partnership, joint venture or other entity, which Controls, is Controlled by, or is under common Control with such Party. For the purpose of this definition, “Control” of an entity means the ownership, directly or indirectly, of more than fifty percent (50%) of the outstanding voting securities or capital stock of such entity, or the legal power to direct or cause the direction of the general management and policies of the entity in question. For purposes of this definition, Novo A/S and the Novo Nordisk Foundation and their respective affiliates (other than Novo Nordisk and its subsidiaries) are not considered Affiliates of Novo Nordisk.

ALZA Agreement ” means the Intellectual Property License Agreement dated as of October 5, 2006 by and between ALZA Corporation and The Macroflux Corporation

 

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(predecessor in interest to Zosano) and the letter agreement dated February 22, 2011 between ALZA Corporation and Zosano, as amended and from time to time in effect.

“Auditor” shall have the meaning provided in Section 8.5.

“BLA” means a Biological License Application as described in the United States Public Health Services Act and the regulations promulgated thereunder as filed with the FDA and any corresponding or equivalent foreign application or registration filed with a Regulatory Authority of a country, group of countries or territory other than the United States to obtain approval to market a Licensed Product in such country, group of countries or territory.

“Combined Intellectual Property” means all (a) Know-How arising from activities performed under this Agreement and/or the Device Development Agreement relating primarily to formulations of GLP-1 Receptor Agonist(s) to be used with Zosano Patch Technology and/or methods or processes for making or using such formulations, whether conceived, discovered, reduced to practice or writing, generated or developed by the employees, agents or consultants of Zosano and/or its Affiliates and/or by the employees, agents or consultants of Novo Nordisk and/or its Affiliates, and (b) Patent Rights that claim or are directed to the foregoing Know-How. For clarity, Combined Intellectual Property does not include Zosano Intellectual Property or Novo Nordisk Intellectual Property or any pre-clinical and clinical data and other results arising out of the development activities undertaken by Zosano or Novo Nordisk under this Agreement, which data and results (except for data that is solely Zosano Know-How) shall be Novo Nordisk Intellectual Property and Confidential Information. For clarity, Combined Intellectual Property does not include Know-How or Patent Rights relating primarily to any microprojection array having a plurality of microprojections, which pierce at least the outmost layer (i.e., the stratum corneum layer) of the skin.

“Commercially Reasonable Efforts” means such application of effort and resources by a reasonably prudent and diligent biopharmaceutical company similar in size and stage of operations as the relevant Party as would be consistent with its actions in respect of a product or compound of similar market potential and at a similar stage in its development or product life, taking into account, without limitation, with respect to a product, issues of safety and efficacy, product profile, the proprietary position of the product, the then current competitive environment for the product (other than products the relevant Party may be introducing) and the likely timing of the product’s entry into the market, the regulatory environment of the product, and other relevant scientific, technical and commercial factors (including pricing), but explicitly not taking into account any financial obligations that would be owed to Zosano under this Agreement. Notwithstanding the foregoing, to the extent that the performance of a Party’s responsibilities hereunder is adversely affected by the other Party’s failure to perform its responsibilities hereunder, such Party will not be deemed to have failed to use its

 

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Commercially Reasonable Efforts in performing such responsibilities to the extent of such adverse effect.

“Confidential Information” of a Party means trade secrets or confidential or proprietary information, whether written, oral or in any other form, designated as such in writing by such Party, including by e-mail, letter or by the use of an appropriate proprietary stamp or legend, prior to or at the time any such trade secret or confidential or proprietary information is disclosed by such Party to the other Party; provided, however, that Confidential Information disclosed in oral form shall be deemed Confidential Information only to the extent that it is confirmed in writing to the other Party within twenty (20) days after the date of oral disclosure. Notwithstanding the foregoing, for purposes of this Agreement, the Parties acknowledge and agree that (i) Novo Nordisk Confidential Information shall include all information specifically regarding GLP-1 Receptor Agonist(s), including Novo Nordisk Intellectual Property, whether or not marked or otherwise identified as trade secrets or confidential or proprietary information and (ii) Zosano Confidential Information shall include all information specifically regarding the Zosano Patch Technology, including Zosano Intellectual Property and information received by Zosano pursuant to the ALZA Agreement, whether or not marked or otherwise identified as trade secrets or confidential or proprietary information. “Confidential Information” shall also include information exchanged prior to the date hereof in connection with the transactions set forth in this Agreement, including any Proprietary Information (as defined in the Confidentiality Agreement) disclosed by either Party pursuant to the Confidentiality Agreement and any Confidential Information (as defined in the Feasibility Agreement) disclosed by either Party pursuant to the Feasibility Agreement. Each Party’s “Confidential Information” (included in Novo Nordisk’s Confidential Information if related solely to GLP-1 Receptor Agonists and in Zosano’s Confidential Information if related solely to Zosano Patch Technology) includes:

(a) confidential and proprietary technical and commercial information, Know-How, drawings, specifications, models and/or designs relating to the development, manufacture, production, registration, promotion, distribution, marketing, performance or sale of the Licensed Product;

(b) confidentiality and proprietary information concerning business transactions or associations, including other technical or commercial co-operation and collaborative arrangements or financial arrangements with other persons or bodies or customers or licensors or licensees;

(c) all experimental, manufacturing, process, analytical, packaging, product, warehousing, quality control and quality assurance and marketing specifications, standards, procedures, processes, methods, instructions and techniques, samples, prototypes, formulae, writings of any kind, opinions or otherwise unwritten data or in the form of computer software or computer programs or any part thereof in any code or language relating to Licensed Products;

 

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Page 3 of 52


(d) all non-public data and proprietary Know-How relating to Licensed Products;

(e) any biological, chemical or physical materials provided under this Agreement in relation to Licensed Products;

(f) any reports provided under this Agreement;

(g) that portion of any notes, analyses, compilations, studies, interpretations, memoranda or other documents prepared by the receiving Party or its Representatives (as defined in Section 12.1) which contain, reflect or are based upon, in whole or in part, any Confidential Information furnished to the receiving Party or its Representatives pursuant to this Agreement; and

(h) the terms of this Agreement.

“Confidentiality Agreement” means the Confidentiality Agreement between the Parties dated 25 October 2011.

“Control” or “Controlled” means with respect to a particular item, material, information or Intellectual Property, the possession of the right (whether through ownership or license (other than by operation of this Agreement or the Feasibility Agreement) or control over an Affiliate with such right) to grant licenses or sublicenses as provided herein to the other Party without violating the terms of any agreement with any Third Party.

“Cover” or “Covered by” means, with respect to Licensed Product, in the absence of ownership of, or a license granted under, an Issued Patent Claim or Valid Patent Claim, that the manufacture, use, offer for sale, sale or importation of such Licensed Product would infringe such Issued Patent Claim.

Covered Sales ” shall have the meaning provided in Section 3.4(a)(i).

“Device Development Agreement” means the agreement for the development of Licensed Products to be entered between the Parties after the completion of the Feasibility Study.

“Work Plan” shall have the meaning provided in Section 4.6.

“EMA” means the European Medicines Agency or any successor agency thereto.

Feasibility Agreement ” means the Feasibility Agreement dated as of [**] entered into between the Parties, as amended to date.

 

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“Feasibility Study” means the initial feasibility study as set forth in Section 4.2 and as further described in Exhibit C .

“FDA” means the United States Food and Drug Administration, or any successor agency thereto having the administrative authority to regulate the marketing of human pharmaceutical products or biological therapeutic products, delivery systems and devices in the United States of America.

“First Commercial Sale” means, in a country, the first commercial sale in that country by Novo Nordisk or its Affiliates or a sublicensee of a Licensed Product to a Third Party following receipt of marketing approval to sell such Licensed Product in such country. Sales for clinical studies, compassionate use, named patient programs, sales under a treatment IND, any non-registrational studies, or any similar instance where the Licensed Product is sold at cost or supplied without charge, such as clinical supplies, free samples (promotional or otherwise) or as donations (for example to non-profit institutions or government agencies for a non-commercial purpose), shall not constitute a First Commercial Sale.

“FTE Costs” shall have the meaning provided in Section 4.5(b).

GLP-1 Receptor Agonist(s) ” means any substance that binds to the GLP-1 receptor in vitro and activates it, as measured by initiation of an increase in cAMP, with at least 10 fold higher potency than native glucagon. For the avoidance of doubt, native glucagon is not a GLP-1 receptor agonist according to this definition.

“Intellectual Property” means Know-How and Patent Rights.

“Issued Patent Claim” means, on a country-by-country basis, a claim of an issued patent within the Licensed Patents or Combined Intellectual Property that has not:

(i) lapsed, expired, been formally disclaimed by written submission to any US or foreign patent office, withdrawn, cancelled or abandoned;

(ii) been held permanently revoked, invalid or unenforceable in an unappealable or unappealed within the time allowed for appeal decision of a court or other governmental body of competent jurisdiction; or

(iii) been admitted to be invalid or unenforceable.

If there should be two or more decisions within the same country, which are conflicting with respect to the invalidity or unenforceability of the same claim, the unappealed or unappealable decision of the highest tribunal shall thereafter control.

 

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JCC ” means the Joint Coordination Committee as defined in Section 5.1(a) and as further described in Section 5.

“Know-How” means ideas, concepts, discoveries, inventions, developments, trade secrets, know-how, techniques, methodologies, modifications, innovations, improvements, designs and design concepts, technical information, expertise, processes, specifications, formulas, procedures, protocols, and data, results and other information proprietary to the relevant Party.

License Continuation Notice ” means a written notice to be provided by Novo Nordisk to Zosano in accordance with Section 4.4 within [**] following the completion of the Feasibility Study if Novo Nordisk elects to continue the development of Licensed Product in accordance with the terms of this Agreement.

“Licensed Know-How” means Know-How included within Zosano Background Intellectual Property or Zosano Foreground Intellectual Property.

“Licensed Product” means a therapeutic drug product combining Zosano Patch Technology with any Novo Nordisk Proprietary Molecule.

“Licensed Patents” means any Patent Rights included within the Zosano Background Intellectual Property or Zosano Foreground Intellectual Property, including the Patents listed in Exhibit A .

“Manufacturing Cost” means fully burdened internal and external costs of developing and manufacturing a Licensed Product, excluding the Active Pharmaceutical Ingredient in a Licensed Product (as this will be supplied by Novo Nordisk to Zosano free-of-charge), consisting of the following: [**] and shall exclude (i) costs and charges related to or occasioned by unused manufacturing capacity not otherwise committed to Licensed Product; (ii) the manufacture of other products at Zosano’s facilities; (iii) amortization of property, plant or equipment not specifically related to the development or manufacturing of Licensed Product, and (iv) allocation of general corporate overhead; and (b) with regard to external costs and charges these shall include the actual invoiced costs and charges of suppliers of goods and services directly related to the manufacture and shipment of Licensed Product. Manufacturing Cost shall be determined on an accrual basis in accordance with GAAP, applied on a basis consistent in the annual audited financial statements.

NDA ” means a New Drug Application as defined in the United States Food, Drug and Cosmetic Act and the regulations promulgated thereunder as filed with the FDA and any corresponding or equivalent foreign application or registration filed with a Regulatory Authority of a country, group of countries or territory other than the United States to obtain approval to market a Licensed Product in such country, group of countries or territory.

 

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Net Sales ” shall be calculated in the same manner as Novo Nordisk calculates Net Sales reported to its shareholders and shall mean all revenues, recognized in accordance with the International Financial Reporting Standards applied on a consistent basis, from the sale of Licensed Product by Novo Nordisk or its Affiliates or its sublicensees to Third Parties, less the following deductions, which are actually incurred, allowed, paid, accrued or specifically allocated:

[**]

Monetary conversion from the currency of a country outside the U.S. in which a Licensed Product is sold into U.S. dollars shall be calculated at the rates of exchange used by Novo Nordisk in producing its quarterly and annual reports to its shareholders, as confirmed by Novo Nordisk’s independent registered public accountants.

“New Dosing Duration” shall be determined by reference to the duration of the Licensed Product in the NDA or BLA or the Regulatory Approval, in which case the new Licensed Product shall have a different dosing duration. For example, if Licensed Product has an administration once weekly, then a once monthly administration would be a New Dosing Duration.

Novo Nordisk Competitor ” means an entity listed in Exhibit B , and their respective Affiliates. Novo Nordisk may update this list (by adding or deleting entities) every six (6) month(s) (if at all), subject to the approval of Zosano, which approval shall not be unreasonably withheld, conditioned or delayed.

“Novo Nordisk Background Intellectual Property” means (a) Know-How that relates to GLP-1 Receptor Agonist(s) and is Controlled by Novo Nordisk as of the Effective Date or during the Term, which is either (i) conceived of or reduced to practice by Novo Nordisk independent of this Agreement during the Term or (ii) that is licensed or acquired from a Third Party by Novo Nordisk during the Term and in the case of either (i) or (ii), that is necessary or useful for or used in connection with the activities performed under this Agreement during the Term , and (b) Patent Rights Controlled by Novo Nordisk that claim or are directed to the foregoing Know-How.

“Novo Nordisk Foreground Intellectual Property” means (a) all Know-How arising from activities performed under this Agreement and/or the Device Development Agreement, relating primarily to Novo Nordisk Proprietary Molecule(s), its method(s) of production and/or its method(s) of use, whether conceived, discovered, reduced to practice or writing, generated or developed by the employees, agents or consultants of Zosano and/or its Affiliates and/or by the employees, agents or consultants of Novo Nordisk and its Affiliates and (b) Patent Rights that claim or are directed to the Know-How described in the foregoing clause (a).

 

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“Novo Nordisk Intellectual Property” means Novo Nordisk Background Intellectual Property and Novo Nordisk Foreground Intellectual Property. For the avoidance of doubt, Novo Nordisk Intellectual Property does not include Zosano Intellectual Property.

“Novo Nordisk Proprietary Molecule ” means any GLP-1 Receptor Agonist(s) as claimed in Patent Rights or covered by Know-How, in each case developed or Controlled by Novo Nordisk as of the Effective Date or thereafter.

“Out-of-Pocket Costs ” shall have the meaning provided in Section 4.5(b).

“Party” means Zosano or Novo Nordisk. If either Party assigns this Agreement to any of its Affiliates in accordance with and subject to Section 14.7, “Party” shall include such Affiliate of such Party.

Patent Authority ” means a governmental, intergovernmental, or government-authorized body responsible for receiving, examining, issuing, extending or maintaining patents.

“Patent Rights” means all patents and patent applications, and any and all continuations, continuations-in-part, divisionals, utility models, extensions (including extensions under the U.S Patent Term Restoration Act, extensions of patents under the Japanese Patent Law and Supplementary Protection Certificates), renewals, substitutions and additions thereof and all reissues, revalidations and re-examinations thereof, including any and all patents issuing there from and any and all foreign counter-parts thereof.

“Phase 1 Clinical Trial” means a human clinical trial that satisfies the requirements for a Phase 1 study as defined in 21 C.F.R. Part 312.21(a) (or its successor regulation) or the equivalent human clinical trial outside the U.S.

“Phase 2 Clinical Trial” means a human clinical trial that satisfies the requirements for a Phase 2 study as defined in 21 C.F.R. Part 312.21(b) (or its successor regulation) or the equivalent human clinical trial outside the U.S.

Phase 3 Clinical Trials ” means a human clinical trial that satisfies the requirements for a Phase 3 study as defined in 21 C.F.R. Part 312.21(c) (or its successor regulation) or the equivalent human clinical trial outside the U.S. For purposes of Section 3.2, a Phase 3 Clinical Trial shall include any pivotal trial that is officially designated as a phase 3 trial with the Regulatory Authority having jurisdiction, or that is intended to serve to gather any of the pivotal data that (if favorable) would support Regulatory Approval (regardless of whether such trial is denominated “Phase 2”, “Phase 3”, “Phase 2/3” or otherwise denominated).

Quality Agreement ” means the agreement to be entered into between the Parties after the date hereof as further described in Section 4.8.

 

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“Regulatory Approval” means any approvals (including price and reimbursement approvals), licenses, registrations, or authorizations of a Regulatory Authority.

“Regulatory Authority” means any national, supra-national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity, whose approval or authorization is necessary for, or to whom notice must be given prior to, the manufacture, distribution, use, import, transport and/or sale of a Licensed Product in such jurisdiction.

“Royalty Term” shall have the meaning provided in Section 3.4(b).

“Study Plan” shall have the meaning provided in Section 4.2.

“Technology Transfer” shall have the meaning provided in Section 4.9.

“Term” shall have the meaning provided in Section 13.1.

Territory means the world.

Third Party means any party other than the Parties and their Affiliates.

Uncovered Sales shall have the meaning set forth in Section 3.4(a)(ii).

“Valid Patent Claim” means, on a country-by-country basis,

(A) any claim of an issued patent within the Combined Intellectual Property that has not:

(i) lapsed, expired, been formally disclaimed by written submission to any US or foreign patent office, withdrawn, cancelled or abandoned;

(ii) been held permanently revoked, invalid or unenforceable in an unappealable or unappealed within the time allowed for appeal decision of a court or other governmental body of competent jurisdiction; or

(iii) been admitted to be invalid or unenforceable; or

(B) any bona fide claim of a pending patent application within the Combined Intellectual Property that

 

  (i) has been pending for no more than seven (7) years following the earliest priority filing date for such application, and

 

  (ii) has not been abandoned, finally rejected or expired without the possibility of appeal or refilling.

 

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If there should be two or more decisions within the same country, which are conflicting with respect to the invalidity or unenforceability of the same claim, the unappealed or unappealable decision of the highest tribunal shall thereafter control.

“Work Plan” means a work plan as defined in Section 4.5 to be included as part of the Device Development Agreement.

“Zosano Change of Control” means (a) the acquisition (through a merger, consolidation or similar transaction(s)) by a Novo Nordisk Competitor of beneficial ownership of any capital stock of Zosano if, immediately after such acquisition, such Novo Nordisk Competitor beneficially owns more than 50% of the voting securities of Zosano or the surviving entity (excluding any acquisition by any employee benefit plan or related trust sponsored or maintained by Zosano); or (b) the sale, transfer, assignment or other disposition of all or substantially all of the assets of Zosano, including Zosano Intellectual Property, to a Novo Nordisk Competitor.

Zosano Background Intellectual Property ” means (a) Know-How that relates to Zosano Patch Technology, its method(s) of production and/or use, and in each case is Controlled by Zosano as of the Effective Date or during the Term, which is or was either (i) conceived of or reduced to practice by Zosano pursuant to the Feasibility Agreement or independent of this Agreement during the Term or (ii) that is licensed or acquired from a Third Party by Zosano during the Term, and in the case of either (i) or (ii), that is necessary or useful for or used in connection with the activities performed under this Agreement during the Term, and (b) Patent Rights Controlled by Zosano that claim or are directed to the foregoing Know-How.

“Zosano Foreground Intellectual Property” means (a) Know-How arising from activities performed under this Agreement and/or the Device Development Agreement relating primarily to Zosano Patch Technology, its method(s) of production and/or use, whether conceived, discovered, reduced to practice or writing, generated or developed by the employees, agents or consultants of Zosano and its Affiliates and/or by the employees, agents or consultants of Novo Nordisk and its Affiliates, and (b) Patent Rights that claim or are directed to the foregoing Know-How.

“Zosano Intellectual Property” means Zosano Background Intellectual Property and Zosano Foreground Intellectual Property. For the avoidance of doubt, Zosano Intellectual Property does not include Novo Nordisk Intellectual Property.

“Zosano Patch Technology” means, collectively, all compositions, methods, processes, uses, technology, data and information, owned or Controlled by Zosano and existing as of the Effective Date, or developed or acquired by Zosano pursuant to the Feasibility Agreement or after the Effective Date and that relates to (a) the transdermal drug delivery system and all components thereof, including the patch and applicator, (b) methods of manufacture, characterization, testing or production, and uses of the transdermal drug delivery system, and (c) methods and processes for designing and optimizing the drug

 

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delivery qualities of such transdermal drug delivery system and as described in Article 2 of Exhibit C.

 

1.2 Interpretation

In this Agreement headings are for convenience only and do not affect interpretation, and unless the context indicates a contrary intention:

 

  (a) a Section, schedule, attachment or Exhibit to this Agreement forms a part of this Agreement, but if there is inconsistency between this Agreement and any schedule, attachment or Exhibit to it, this Agreement shall prevail unless the Parties have agreed otherwise in writing;

 

  (b) a reference to “includes” in any form is not a word of limitation;

 

  (c) the captions and headings of Sections contained in this Agreement preceding the text of the Sections, sections, subsections and paragraphs hereof are inserted solely for convenience and ease of reference only and shall not constitute any part of this Agreement, or have any effect on its interpretation or construction;

 

  (d) references to days shall mean calendar days, unless otherwise specified;

 

  (e) the words “shall” and “will” have the same meaning and are used interchangeably; and

 

  (f) “USD” is a reference to U.S. dollars.

 

2. The License and Grant of Rights

 

2.1 Zosano License to Novo Nordisk . Subject to the terms and conditions of this Agreement, Zosano hereby grants to Novo Nordisk and its Affiliates a worldwide, royalty-bearing exclusive (even as to Zosano) license, with the right to grant sublicenses solely in accordance with Section 2.6, under the Zosano Intellectual Property, to research, develop, make, have made, use, import, export, sell, offer for sale, and otherwise transfer the Licensed Product(s) in the Territory.

 

2.2

Third Party Intellectual Property . In the event that a Third Party Controls Intellectual Property which is necessary for the exploitation of Zosano Patch Technology, Zosano shall have the first right (but not the obligation) to obtain a license, at Zosano’s cost, to such Intellectual Property on terms that allow Zosano to include such Intellectual Property in the license granted herein to Novo Nordisk under the Licensed Patents and/or Licensed Know-How to research, develop, make, have made, use, import, export, sell, offer for sale, and otherwise transfer the Licensed Product. If Zosano does not obtain such license to such Third Party

 

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  Intellectual Property, then Novo Nordisk, after consultation with Zosano, shall have the right (but not the obligation) to obtain a license to such Third Party Intellectual Property.

 

2.3 Novo Nordisk License to Zosano .

(a) Subject to the terms and conditions of this Agreement, Novo Nordisk hereby grants to Zosano and its Affiliates a worldwide, royalty-free, non-exclusive license, with no right to grant sublicenses (except to Third Party contractors in accordance with Section 2.4), under the Novo Nordisk Intellectual Property solely to perform its obligations set forth in this Agreement.

(b) Subject to the terms and conditions of this Agreement, Novo Nordisk hereby grants to Zosano a worldwide, royalty-free, exclusive license, with the right to grant sublicenses, under Combined Intellectual Property to research, develop, make, have made, use, import, export, sell, offer for sale, and otherwise transfer any pharmaceutical formulation suitable for administration to humans, except, in each case, pharmaceutical formulations which incorporate GLP-1 Receptor Agonist(s). Zosano will inform Novo Nordisk of the grant of any sublicense and any further sublicenses of which Zosano becomes aware hereunder within [**] following execution of such sublicense. In any sublicense granted by Zosano under this Section 2.3(b), Zosano shall specify that, in the case this Agreement is terminated by Novo Nordisk for material breach pursuant to Section 13.3, such sublicense under Combined Intellectual Property, as applicable, shall become a direct license between the applicable sublicensee and Novo Nordisk with respect to the applicable licensed field or licensed product, and thereafter Novo Nordisk shall have the right to terminate such direct license if the applicable licensee breaches such license and does not cure such breach within sixty (60) calendar days following Novo Nordisk’s written notice thereof.

 

2.4

Sublicensing by Zosano . In the case of any sublicense by Zosano under Section 2.3 to any Third Party contractor, then (a) such sublicensing shall require Novo Nordisk’s prior written consent, which consent shall not be unreasonably withheld, and (b) Zosano shall obtain a confidential nondisclosure and invention assignment agreement with the prospective sublicensee in a form acceptable to Novo Nordisk (such acceptance not to be unreasonably withheld) that contains terms at least as stringent as those terms included in Section 12 of this Agreement and that requires such prospective sublicensee to assign to Zosano all right, title and interest in and to any Intellectual Property which, if developed, licensed or acquired by Zosano, would constitute Novo Nordisk Foreground Intellectual Property. The sublicense to the Third Party subcontractor will exclude the right of the sublicensee to further sublicense any of the rights granted by Zosano to such sublicensee under the sublicense and Zosano will be responsible for performance of this Agreement notwithstanding the appointment of such sublicensee to perform any part of this Agreement, and for any failure by its

 

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  sublicensee to comply with all relevant restrictions, limitations and obligations in this Agreement.

 

2.5 No Implied Rights . No right or license under any Intellectual Property is granted or shall be granted by implication, estoppel or otherwise under this Agreement. All such rights or licenses are or shall be granted only as expressly provided in the terms of this Agreement. All rights not expressly granted by a Party under this Agreement are reserved by such Party and may be used by such Party for any purpose.

 

2.6 Sublicensing by Novo Nordisk . Novo Nordisk shall be entitled, without the prior consent of Zosano, to grant one or more sublicenses to Third Parties of its rights to the Zosano Intellectual Property granted pursuant to Section 2.1 with respect to Licensed Products, provided that such sublicense is limited to a grant of rights (i) to import, export, sell, offer for sale and otherwise transfer or promote the Licensed Product by Novo Nordisk’s commercialization partners/distributors, and/or (ii) to research, develop, make, use and transfer Licensed Product by Novo Nordisk’s Affiliates, CROs, or other entities working on behalf of or in collaboration with Novo Nordisk or its Affiliates; provided, however, that if Novo Nordisk wishes to grant sublicenses for Zosano Intellectual Property to Third Parties, then Novo Nordisk (or its Affiliate) shall obtain a confidential nondisclosure and invention assignment agreement with the prospective sublicensee and containing terms at least as stringent as those terms included in Section 12. In the case of any sublicense, such sublicense will exclude the right of the sublicensee to further sublicense any of the rights granted by Novo Nordisk to such sublicensee under the sublicense and Novo Nordisk will be responsible for performance of this Agreement notwithstanding the appointment of such sublicensee to perform any part of this Agreement, and for any failure by its sublicensee to comply with all relevant restrictions, limitations and obligations in this Agreement, including the payment of all payments due, and making reports and keeping books and records. Each such sublicense shall refer to this Agreement and shall be subordinate to and consistent with the terms and conditions of this Agreement, and shall not limit the ability of Novo Nordisk to fully perform all of its material obligations under this Agreement or Zosano’s rights under this Agreement. Novo Nordisk will provide to Zosano, within [**] after its execution a copy of each such sublicense for provision to ALZA, provided that such copy may be redacted by Novo Nordisk to exclude any information not necessary for assessing Zosano’s compliance with the ALZA Agreement.

 

2.7 Retained Rights .

(a) Novo Nordisk shall at all times retain the unrestricted right, under Intellectual Property Controlled by Novo Nordisk, to develop or commercialize GLP-1 Receptor Agonist(s).

 

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(b) Zosano shall at all times retain the unrestricted right, under Intellectual Property Controlled by Zosano, to develop or commercialize Zosano Patch Technology by itself or with Third Parties, other than for use with GLP-1 Receptor Agonists.

 

3. Fees and Payments

 

3.1 Signing Fee. Novo Nordisk shall pay to Zosano a non-refundable, non-creditable license fee of USD one million (USD 1,000,000) within ten (10) business days after the Effective Date.

 

3.2 License Continuation Fee. Within ten (10) days of delivery by Novo Nordisk of the License Continuation Notice to Zosano, Novo Nordisk shall pay to Zosano a non-refundable, non-creditable fee of [**].

 

3.3 Development Milestones . Novo Nordisk shall provide Zosano with written notice of the actual first occurrence of each development milestone set forth below with respect to each Licensed Product within thirty (30) days after such occurrence. Within thirty (30) days of the first occurrence of each of the events set forth below with respect to each Licensed Product whether by Zosano, Novo Nordisk, its Affiliates or any of their respective sublicensees, Novo Nordisk shall pay to Zosano the applicable payment set forth below:

[**]

For purposes of clarity, other than with respect to FDA or EMA approval, which are independent milestones, if for any reason a milestone event set forth above does not occur prior to the occurrence of the subsequent milestone event set forth in the table above for a Licensed Product, then the skipped milestone event shall be deemed to occur upon the occurrence of the subsequent milestone event.

The payments set forth above in this Section 3.2 shall be payable only once for each such Licensed Product regardless of the number of indications for which such Licensed Product is developed or approved or the potential repeated achievement of the milestone event by the first formulation of the Licensed Product to achieve the above milestones or by further formulations of Licensed Product that do not have a New Dosing Duration relative to the first formulation of the Licensed Product to achieve the above milestones. If Novo Nordisk develops a formulation of Licensed Product with a New Dosing Duration relative to the first formulation of the Licensed Product, then Novo Nordisk shall pay to Zosano an amount equal to each of the above development milestone payments as they occur for such formulation of Licensed Product.

However, if development of the first formulation of the Licensed Product to achieve any of the milestones set forth above is discontinued or terminated by

 

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Novo Nordisk prior to either FDA approval or EMA approval, and development of a formulation of the Licensed Product with a New Dosing Duration subsequently commences or continues, then [**] of each of the development milestone payments set forth above shall be payable upon the repeated achievement of any development milestone event by a formulation of Licensed Product with a New Dosing Duration, and [**] of each of the development milestone payments set forth above shall be payable upon the first occurrence of any development milestone event set forth above by a formulation of Licensed Product with a New Dosing Duration.

All payments made to Zosano pursuant to this Section 3.2 are non-refundable and may not be credited against any other payments payable by Novo Nordisk to Zosano under this Agreement.

 

3.3 Sales Milestones . Novo Nordisk shall provide Zosano with written notice of the actual first occurrence of each sales milestone set forth below with respect to each Licensed Product within thirty (30) days after such occurrence. Within thirty (30) days of the first occurrence of each of the events set forth below with respect to each Licensed Product whether by Novo Nordisk, its Affiliates or any of their respective sublicensees, Novo Nordisk shall pay to Zosano the applicable payment set forth below:

[**]

For purposes of clarity, if for any reason a milestone event set forth above does not occur prior to the occurrence of the subsequent milestone event set forth in the table above for a Licensed Product, then the skipped milestone event shall be deemed to occur upon the occurrence of the subsequent milestone event.

The payments set forth above in this Section 3.3 shall be triggered by the achievement of the specified sales for each Licensed Product (including, for purposes of this calculation, aggregate worldwide Net Sales of such Licensed Product for any and all indications, and all formulations, generations and/or refinements thereof, but excluding any formulation of Licensed Product with a New Dosing Duration) in any annual period, and shall be payable only once despite potential repeated achievement of the specified sales by Licensed Product. Conversely, the payments set forth above shall be payable for each subsequent Licensed Product with a New Dosing Duration.

All payments made to Zosano pursuant to this Section 3.3 are non-refundable and may not be credited against any other payments payable by Novo Nordisk to Zosano under this Agreement.

 

3.4 Royalties.

 

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(a) During the Royalty Term, Novo Nordisk shall pay to Zosano royalties on worldwide annual (calendar year) Net Sales of Licensed Products, as follows:

(i) For all sales of each Licensed Product in all countries where such Licensed Product is Covered by either an Issued Patent Claim of the Zosano Intellectual Property or a Valid Patent Claim of the Combined Intellectual Property (such sales in either case being “ Covered Sales ”) , Novo Nordisk shall pay to Zosano the royalty rates set forth below (“ Patent Royalties ”) based on the annual Net Sales of such Licensed Products:

[**]

(ii) For all sales of each Licensed Product in all countries where such Licensed Product is not Covered by either an Issued Patent Claim of the Zosano Intellectual Property or a Valid Patent Claim of the Combined Intellectual Property (such sales in either case being “ Uncovered Sales ”), Novo Nordisk shall pay Zosano royalty rates (“ Know How Royalties ”) at [**]. If Annual Net Sales [**] and include both Covered Sales and Uncovered Sales of Licensed Products, the royalty reduction attributable to Uncovered Sales shall be applied to each Patent Royalty Rate based on the proportion of Uncovered Sales to total Annual Net Sales.

(iii) The following is a hypothetical example of royalty calculation:

[**]

(b) Novo Nordisk’s royalty obligations under Section 3.4(a) with respect to each Licensed Product shall commence on a country-by-country basis on the date of First Commercial Sale of such Licensed Product by Novo Nordisk, its Affiliates or sublicensees in the relevant country, and shall expire on a country-by-country basis upon the later of (i) expiration of the last to expire Issued Patent Claim of the Zosano Intellectual Property or the Combined Intellectual Property Covering such Licensed Product in such country, or (ii) [**] following First Commercial Sale of such Licensed Product in such country (the “Royalty Term” ).

(c) In the event Novo Nordisk is required to obtain one or more licenses under Intellectual Property Controlled by a Third Party in order to exercise Novo Nordisk’s rights to the Licensed Patents or Licensed Know-How in any country in the Territory as contemplated under this Agreement (a “ Third Party License Payment ”), then the royalties payable under Section 3.4(a) with respect to any Licensed Product in such country in the Territory, shall be decreased by an amount equal to [**] of the amount of such Third Party License Payment attributed to sales of the applicable Licensed Product; provided, however, that in

 

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no event shall the total royalty paid to Zosano for any Licensed Product be less than [**] of the royalty otherwise applicable for such Licensed Product under Section 3.4(a).

(d) Royalty payments shall be calculated, reported and paid for each calendar quarter after the First Commercial Sale of the first Licensed Product. All royalty payments due to Zosano under this Agreement shall be paid within [**] of the end of each calendar quarter. Each payment shall be accompanied by a report of Net Sales of Licensed Product by Novo Nordisk, its Affiliates and their respective sublicensees setting forth, on a country-by-country basis, in sufficient detail such information concerning sales to permit confirmation of the accuracy of the payment made, including the gross sales of Licensed Product in the Territory and country by country, total deductions or adjustments made, and the royalty and any sales milestone payments payable to Zosano. Novo Nordisk shall keep, and shall cause its Affiliates and their respective sublicensees to keep, complete and accurate records pertaining to the sale or other disposition of Licensed Products in sufficient detail to permit Zosano to confirm the accuracy of all payments due hereunder as set forth in Section 8.4.

 

3.5 Withholding Tax . Novo Nordisk may withhold taxes from the payments which are payable to Zosano in accordance with this Agreement if Novo Nordisk is either required to do so under applicable law or directed to do so by a governmental authority. Novo Nordisk shall send proof of payment to Zosano and provide Zosano with information about and necessary for any documentation needed to reduce withholding to a legal minimum. With respect to the laws of Denmark, Novo Nordisk will reasonably cooperate with Zosano to obtain the benefit of any tax law or treaty, including the pursuit or any refund or credit of such tax to Zosano.

 

3.6 Interest Due . Without limiting any other rights or remedies available to Zosano, Novo Nordisk agrees to pay interest at a rate equal to [**] per annum calculated based on number of days overdue using 360 days per year basis on all good faith undisputed late payments due under this Section 3.

 

3.7 Wire Transfer Instructions . All payments to be made by Novo Nordisk to Zosano under this Agreement shall be made by wire transfer from Novo Nordisk to the following account of Zosano:

[**]

 

4. Feasibility Study; Product Development and Technology Transfer

 

4.1

Novo Nordisk Responsibilities . Novo Nordisk shall have the sole responsibility for the commercialization of Licensed Products and for all of the costs of the

 

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  development and commercialization of Licensed Products. Novo Nordisk shall use Commercially Reasonable Efforts to commercialize at least one Licensed Product in each of the United States, Japan and at least three of the following countries: France, Germany, Italy, Spain and the United Kingdom, which shall include, without limitation, obtaining Regulatory Approval of a Licensed Product and, once Regulatory Approval is obtained, achieving each milestone event set forth in Section 3.

 

4.2 Initial Feasibility Study . Promptly after the Effective Date, the Parties will initiate a Feasibility Study in accordance with the study plan set forth in Exhibit C (the “ Study Plan ”). The Study Plan may be modified only by written agreement between the Parties. Novo Nordisk and Zosano shall use Commercially Reasonable Efforts to perform the activities described in the Study Plan in accordance with the timetable set forth therein.

 

4.3 License Continuation Notice. If within [**] after completion of the Feasibility Study, Novo Nordisk, in its sole discretion, determines that it shall continue with the license granted under Section 2.1 of this Agreement, it shall provide Zosano with the License Continuation Notice.

 

4.4 Device Development Agreement . Subject to Novo Nordisk’s written request, the Parties shall commence negotiations in good faith with a view to enter into a Device Development Agreement within one hundred twenty (120) days after Zosano receiving such request from Novo Nordisk.

 

4.5 Work Plan; Budget

(a) The Device Development Agreement, to be entered into by the Parties subject to Section 4.4, shall contain a work plan mutually agreed upon by the Parties to govern all activities to be conducted by the Parties leading up to initiation of Technology Transfer and through completion of Technology Transfer (the “Work Plan” ), including agreed upon objectives, target timelines and a budget of estimated FTE Costs and Out-of-Pocket Costs (each as defined below) for the work needed to be done, supply forecast, pre-clinical and clinical development activities anticipated to be conducted by Novo Nordisk, and planned tasks and resource allocations (including establishing a joint core project team) by each Party with the goal of conducting the Licensed Product scale up and other mutually-agreed Technology Transfer activities until completion of Technology Transfer.

(b) Subject to a budget approved, in writing, by both Parties, Novo Nordisk will pay Zosano for all of Zosano’s out of pocket costs and expenses ( “Out-of-Pocket Costs” ) and internal costs for personnel at the FTE rate set forth below ( “FTE Costs” ), incurred after the Effective Date associated with device development, formulation, scale up, manufacture, supply and Technology

 

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Transfer activities under this Agreement or the Device Development Agreement until completion of the Technology Transfer. Zosano shall conduct development and transfer activities not covered under the Work Plan (or after the completion of Technology Transfer) reasonably requested by Novo Nordisk, to the extent that the conduct of such activities does not conflict with Zosano’s internal operations and provided that Novo Nordisk reimburses Zosano for Zosano’s FTE Costs and Out-of-Pocket Costs associated with the conduct of such activities, including technical support, manufacturing support, regulatory support and support of scale-up (and, for purposes of clarity, any reference to “at Novo Nordisk’s cost” in this Agreement shall mean Zosano’s FTE Costs and Out-of-Pocket Costs). The initial FTE rate shall be at [**] (to be adjusted by Zosano on an annual basis based on changes in the Consumer Price Index ( “CPI” ), as quoted by the U.S. Department of Labor, Bureau of Labor Statistics, where the index as of January 1, 2014 shall be 100.) The FTE rate will not be adjusted until January 1, 2015. Zosano shall invoice Novo Nordisk for such services no more than once per month according to Novo Nordisk invoicing template attached hereto as Exhibit D .

(c) All payments by Novo Nordisk to Zosano shall be made within thirty (30) days of receiving an invoice from Zosano in accordance with the Study Plan or Work Plan and, in each case, Novo Nordisk Invoicing Instructions.

 

4.6 Manufacturing Costs . Zosano shall be responsible for development and scale up of the manufacturing process and for the manufacturing of clinical supply of the Licensed Product for Novo Nordisk until completion of the Technology Transfer (i.e., for the preclinical studies, Phase 1 Clinical Trial(s), Phase 2 Clinical Trial(s) and, at Novo Nordisk’s option, Phase 3 Clinical Trial(s), including any necessary validation studies). The Licensed Product will be supplied by Zosano to Novo Nordisk at [**]. Zosano shall own and shall be responsible for filing for and maintaining all necessary manufacturing approvals and permits to enable Zosano to manufacture, supply, test and store clinical supplies of Licensed Product as may be required or reasonably requested by Novo Nordisk. All reasonable documented costs associated with any modifications to Zosano’s facilities or other capital expenditures or committed resources required to manufacture, supply, test or store clinical supply of Licensed Product, in each case requested or approved in writing by Novo Nordisk, shall be borne by Novo Nordisk.

 

4.7 Novo Nordisk Supply Obligations . Novo Nordisk shall, free of charge to Zosano, use Commercially Reasonable Efforts to supply to Zosano in accordance with the Study Plan and/or Work Plan, whichever is applicable, sufficient quantities of GLP-1 Receptor Agonist(s) and all reasonably required technical information on GLP-1 Receptor Agonist(s), to enable Zosano to timely conduct its manufacturing, development and clinical supply activities under this Agreement.

 

4.8

Zosano Supply Obligations; Quality Agreement . Novo Nordisk and Zosano shall within three (3) months after the effective date of the Device Development

 

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  Agreement enter into negotiations in good faith of a Quality Agreement concerning quality assurance, monitoring and other quality matters in connection with the manufacture and supply by Zosano of Licensed Product to Novo Nordisk to be used by Novo Nordisk in Clinical Trial(s). Zosano shall use Commercially Reasonable Efforts to manufacture and supply Licensed Product in accordance with the supply forecast set forth in the Work Plan, with the goal of supplying an amount sufficient for Novo Nordisk to satisfy its responsibility for product supply of Licensed Product. Zosano shall comply with U.S. cGMP for clinical supplies and all other governmental laws and regulations applicable in the U.S. in manufacturing and supplying Licensed Product for Phase 1 Clinical Trial(s) and Phase 2 Clinical Trial(s), as may be further set forth in the Quality Agreement. If Zosano is requested by Novo Nordisk to manufacture clinical supplies of Licensed Product for Phase 2 Clinical Trial(s) in the EU, Zosano shall use Commercially Reasonable Efforts to comply with cGMP applicable in the EU in manufacturing and supplying Licensed Product for Phase 2 Clinical Trial(s); provided , however , that all costs associated with any modifications to Zosano’s facilities or other capital expenditures to meet EU cGMPs shall be borne by Novo Nordisk.

 

4.9 Technology Transfer .

(a) At the appropriate time set forth in the Work Plan, Zosano shall transfer to Novo Nordisk the Licensed Know-How necessary for the development and manufacturing of the Licensed Product by Novo Nordisk (the “ Technology Transfer ”). The Technology Transfer shall proceed in accordance with the Work Plan and shall be subject to JCC oversight. Zosano shall also assist Novo Nordisk in the final scale-up of the manufacturing process, if reasonably requested by Novo Nordisk and at Novo Nordisk’s cost.

(b) Zosano shall use Commercially Reasonable Efforts to perform all activities assigned to Zosano under the Work Plan to develop the Licensed Product and to complete the Technology Transfer in accordance with the Work Plan. Novo Nordisk shall have reasonable access to designated personnel at Zosano who possess Know-How and/or other knowledge or information regarding Zosano Patch Technology within the Licensed Know-How, which is necessary or useful for the scale-up of manufacturing during the Technology Transfer process. After completion of the Technology Transfer, Zosano shall provide reasonable assistance to Novo Nordisk, if reasonably requested by Novo Nordisk and at Novo Nordisk’s cost, in connection with Novo Nordisk’s development and/or manufacturing of Licensed Product.

 

4.10

Access to Licensed Know-How After Completion of Technology Transfer . During the Technology Transfer process, Zosano shall use Commercially Reasonable Efforts to provide documentation to be specified by Zosano and Novo Nordisk in the Work Plan concerning the Licensed Know-How. Following

 

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completion of Technology Transfer, Zosano shall continue to provide available Licensed Know-How to Novo Nordisk during the Term as follows:

 

  (i) upon Novo Nordisk’s reasonable request for specific additional Licensed Know-How;

 

  (ii) in connection with Novo Nordisk’s reasonable request for assistance in manufacture of the Licensed Product under this Agreement; or

 

  (iii) as otherwise agreed by the Parties during the Term;

in each of the foregoing cases, at Novo Nordisk’s cost.

 

5. Joint Coordination Committee

 

5.1 JCC Formation; Responsibilities .

(a) As soon as practicable after the Effective Date, the Parties will form a Joint Coordination Committee (the “JCC” ). The JCC will meet regularly, but not less than every three (3) months, until the completion of Technology Transfer (at which time the JCC shall disband). The first meeting of the JCC shall be held as soon as practicable after the Effective Date (but not later than approximately thirty (30) days following the Effective Date). The JCC may also meet more frequently on an ad hoc basis as and to the extent reasonably requested by either Party or if required to perform its role for initial discussion of any disputes in accordance with Section 5.2 and Section 5.3 below. The meetings shall be by telephonic or videoconference, or at a mutually agreed location, at mutually agreed times. The JCC shall have the authority to establish subcommittees or project teams from time to time. The JCC will not have the power to amend or waive compliance with, or the terms of, this Agreement. For the avoidance of doubt, the JCC shall have no authority to determine whether a development milestone under Section 3 has been met.

(b) Subject to the Quality Agreement, the JCC shall have the responsibility of managing, directing and overseeing formulation and clinical supply activities and the conduct of the Technology Transfer process, including, without limitation, the following responsibilities in this regard:

(i) establishing the initial Work Plan and any proposed amendments or updates thereto;

(ii) managing and monitoring the progress and results of the Technology Transfer activities and the Parties’ diligence in carrying out their responsibilities under the Work Plan;

 

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(iii) determining Licensed Product needs, supply forecasts and timing to allow Novo Nordisk to conduct its toxicological and clinical development program as contemplated under the Work Plan;

(iv) managing and monitoring the scale-up of the manufacturing process (if needed and if desired by Novo Nordisk at its sole discretion) in connection with Technology Transfer activities; and

(v) serving as a forum for informal dispute resolution of issues that may arise in relation to purely operational or technical activities pursuant to this Agreement, including any disputes arising at project teams or subcommittees and submitted to the JCC for resolution.

 

5.2 JCC Governance . The JCC shall be comprised of no more than two (2) persons from each Party, with each Party collectively having one vote on the JCC. A Party may replace any or all of its representatives on the JCC at any time upon written notice to the other Party. Any member of the JCC may designate a substitute to attend and perform the functions of that member at any meeting of the JCC; provided that each JCC representative shall have sufficient experience and expertise in development and/or manufacturing matters in the pharmaceuticals and/or biotechnology industries to serve on the JCC. The JCC shall appoint a chairperson from among the Novo Nordisk members.

 

5.3

Escalation to Executive Officers . If the JCC cannot come to consensus on an issue within its purview within thirty (30) days of its submission to the JCC for resolution, such issue will then be referred to the Chief Executive Officer of Zosano, or such other officer designated by the Chief Executive Officer of Zosano from time to time, and the Executive Vice President, CSO of Novo Nordisk, or such other officer designated by the Executive Vice President, CSO of Novo Nordisk from time to time, for resolution. The executive/senior officers will use reasonable efforts to resolve the matter referred to them. If the executive/senior officers cannot reach a mutually acceptable decision within thirty (30) days after the issue was referred to them, then the Executive Vice President, CSO of Novo Nordisk will have the final authority to make decisions. Regardless of the aforementioned, the Executive Vice President, CSO of Novo Nordisk shall have no authority to make decisions (a) which will obligate Zosano to undertake any activity that is beyond its reasonable capabilities given its resources and capabilities at the time such activity is to occur; (b) impose new obligations on Zosano which will either (i) require additional personnel resources by Zosano or (ii) which impose additional costs implications for Zosano, unless, in the case of each of the foregoing clauses (i) and (ii), Novo Nordisk agrees to pay Zosano for its FTE Costs and Out-of-Pocket Costs to be incurred for undertaking such obligations; (c) to determine whether any milestone event required for the payment of any milestone payment has been achieved; or (d) to determine that

 

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  Novo Nordisk has fulfilled or breached any obligations under this Agreement or that Zosano has fulfilled or breached any obligation under this Agreement.

 

5.4 JCC Updates. At each meeting of the JCC, each Party will provide the other Party with updates on the progress of (i) any remaining formulation activities, (ii) scale-up activities, (iii) other Technology Transfer activities for the Licensed Product, (iv) with respect to Novo Nordisk, any pre-clinical or clinical development activities with respect to the Licensed Product, and (v) any related issues with respect to any of the foregoing.

 

6. Regulatory Matters

 

6.1 Regulatory Filings; Regulatory Approvals .

(a) Novo Nordisk shall, at its own cost and discretion, develop and obtain Regulatory Approval for the Licensed Product. Except as otherwise set forth below, Novo Nordisk shall be solely responsible for all regulatory and filing activities, and shall solely own all regulatory documents and registrations, related to Licensed Product, including all clinical trial applications and marketing applications filed with any Regulatory Authority in any jurisdiction.

(b) Notwithstanding the foregoing, in consultation with Novo Nordisk, Zosano shall provide to Novo Nordisk, at Novo Nordisk’s cost, necessary CMC and other manufacturing information for any regulatory filings for Licensed Product, which Novo Nordisk may submit to Regulatory Authorities prior to completion of Technology Transfer. Upon the reasonable request of Novo Nordisk, Zosano shall, at Novo Nordisk’s cost, provide Novo Nordisk with information that is Controlled by Zosano and reasonable assistance for any Novo Nordisk submission to a Regulatory Authority, including providing Novo Nordisk with access to any supporting preclinical data for Zosano Patch Technology component of the Licensed Product. Zosano shall promptly inform Novo Nordisk of any material change in information provided by Zosano under this Section 6.1 to the extent related to the Licensed Product. Novo Nordisk will reimburse Zosano for its FTE Costs and Out-of-Pocket Costs associated with any assistance and cooperation provided under this Section 6.1.

 

6.2 Interactions with Regulatory Authorities .

(a) Novo Nordisk shall provide to Zosano in a timely fashion copies of any subsection of any material regulatory communication or submission in the United States, Europe or Japan to the extent concerning the Zosano Patch Technology.

(b) Novo Nordisk shall inform Zosano of scheduled meetings, teleconferences and other interactions with regulators with respect to Licensed Product. If any such meetings, teleconferences or other interactions with regulators concern

 

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solely Zosano Patch Technology, Novo Nordisk shall inform Zosano thereof sufficiently in advance to permit Zosano to participate in the scheduling, communicate with Novo Nordisk in advance, and attend. For the avoidance of doubt, any attendance by Zosano of any such meetings, teleconferences, and other interactions with regulators shall be at Zosano’s cost, unless Novo Nordisk requests Zosano’s attendance in writing.

 

6.3 Notice Concerning Safety or Efficacy Issues . Each Party shall provide the other Party with notice, within one (1) business day after notification or other information (directly or indirectly) that it receives (and providing, as soon as reasonably possible, copies of any associated written requests) that (a) raises any material concerns regarding the safety or efficacy of Licensed Product, (b) indicates or suggests a Third Party claim arising in connection with Licensed Product, or (c) is reasonably likely to lead to a recall of Licensed Product. Information that shall be disclosed (to the extent it relates to the subject matter of the foregoing clauses (a) through (c), inclusive) shall include without limitation:

 

  (i) inspections by a Regulatory Authority of manufacturing, distribution or other related facilities concerning Licensed Product;

 

  (ii) inquiries by a Regulatory Authority concerning clinical investigation activities (including inquiries of investigators, clinical monitoring organizations and other related parties) with respect to Licensed Product;

 

  (iii) any material communication (in any form, including written, oral or electronic form) from a Regulatory Authority involving the manufacture or commercialization of Licensed Product or any other Regulatory Authority reviews or inquiries relating to any event set forth in this Section 6.3;

 

  (iv) an initiation of any Regulatory Authority investigation, detention, seizure or injunction concerning Licensed Product; and

 

  (v) any other regulatory action (e.g., proposed labeling or other registrational dossier changes and recalls) that would affect Licensed Product.

 

6.4

Orange Book Listing . The Parties acknowledge that Novo Nordisk, may at its sole discretion during the Term decide to submit applicable Licensed Patents and Patent Rights in the Combined Intellectual Property for listing in the Orange Book for the applicable Licensed Product but with Zosano’s prior written consent, which shall not unreasonably withheld, delayed or conditioned. Novo Nordisk shall indemnify Zosano and its Affiliates for any claim that might be made against Zosano and its Affiliates with regard to the listing of such Patent Rights in the Orange Book, including proceedings connected with an alleged wrongful listing

 

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of the applicable Patent Right in the Orange Book. If Novo Nordisk decides, at Novo Nordisk’s sole discretion but with Zosano’s prior written consent, to list an applicable Patent Right in the Orange Book, then at Novo Nordisk’s request, Zosano and/or its Affiliates, as applicable, shall provide all reasonable support necessary for Novo Nordisk to list the applicable Patent Rights, such support not to be unreasonably withheld, conditioned or delayed. In the event that such Patent Rights are listed in the Orange Book, Novo Nordisk shall use Commercially Reasonable Efforts to ensure, as permitted by applicable laws and/or Regulatory Authority, that Zosano and/or its Affiliates, as applicable, shall be listed as the owner, co-owner, assignee or licensee as appropriate of such Patent Rights and both Novo Nordisk and Zosano and/or its Affiliates as applicable shall be identified as the point of contact for any Paragraph IV Certifications (as defined in C.F.R. Title 21).

 

7. Commercialization of Licensed Product

 

7.1 Commercial Supply . Following completion of Technology Transfer, Novo Nordisk shall, at its own cost and discretion, be responsible for supply of Licensed Product in the Territory.

 

7.2 Commercialization Activities . Novo Nordisk shall, at its own cost and discretion, be responsible for the marketing and sales activities for Licensed Product in the Territory and shall comply with applicable governmental laws and regulations applicable in any such jurisdiction for the marketing and selling of Licensed Product. Upon the reasonable request of Novo Nordisk, Zosano shall, at Novo Nordisk’s costs, provide Novo Nordisk with information and reasonable assistance for Novo Nordisk to comply with any regulations applicable to Licensed Product, including, without limitation, Novo Nordisk’s meeting its reporting and other obligations to maintain and update any marketing authorization for Licensed Product. Zosano shall promptly inform Novo Nordisk of any material change in information, including changes that would impact any Novo Nordisk filings or notice requirements, provided by Zosano under this Section 7.2.

 

8. Records and Audit Rights

 

8.1

Compliance with Laws; Development and Manufacturing Records . To the extent applicable, each Party shall comply (and shall ensure that their respective Affiliates and sublicensees comply), in the conduct of activities hereunder, with current Good Laboratory Practices, Good Clinical Practices and Good Manufacturing Practices regulations promulgated by the FDA and as required by applicable laws and regulations and Regulatory Authorities other than the FDA, and shall make (and shall ensure that their respective Affiliates and sublicensees make), all facilities and records related to the Licensed Product available for audit

 

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  by any Regulatory Authority and by the other Party as set forth in this Agreement where work is performed by either Party at the request of the other Party.

 

8.2 Data Retention and Documentation . Each Party, at its own costs, shall be responsible for archiving all relevant and required original documentation and raw data in relation to the research, development, manufacturing and control of Licensed Product. The Parties shall keep all original notebooks for twenty (20) years and the Parties shall archive development documentation in accordance with their documentation control policies, which shall comply with all applicable laws. All original documentation related to manufacturing shall be kept for the retention period required by applicable laws. As part of the Technology Transfer or following completion of Technology Transfer, if requested by Novo Nordisk and at Novo Nordisk’s cost, Zosano shall provide Novo Nordisk with copies of all original documentation that it has with respect to research, development, manufacture and control of Licensed Product, including copies of appropriate portions of original lab notebooks. If, following the retention period required by applicable laws, Zosano desires to discard the data and documentation relating to manufacture and control of Licensed Product or the original lab notebooks Zosano shall notify Novo Nordisk of such decision and Novo Nordisk may assume responsibility for the archiving thereof at Novo Nordisk’s cost, or, if requested by Novo Nordisk and at Novo Nordisk’s cost, Zosano shall retain such data and documentation.

 

8.3 Regulatory Inspections. To the extent that Zosano is aware of, or notified by Novo Nordisk pursuant to Section 6.2 or Section 6.3, of regulatory inspections concerning the Licensed Product, upon reasonable advance notice and during normal business hours, Zosano shall allow any applicable Regulatory Authority to inspect Zosano facilities and to conduct reviews of any original documents or reports or any facilities that are deemed by such Regulatory Authority to be related to Licensed Product. Zosano shall reply promptly to the requests of such Regulatory Authority and will follow up promptly on actions required by such Regulatory Authority at Novo Nordisk’s cost to the extent solely related to an issue with respect to a Licensed Product. Zosano shall inform Novo Nordisk promptly in writing if any Regulatory Authority contacts Zosano with respect to such matters to the extent concerning the Licensed Product. Zosano shall in all cases provide to Novo Nordisk copies of all correspondence concerning the Licensed Product with such Regulatory Authority. Each Party shall provide assistance when reasonably requested by the other Party for inspections by a Regulatory Authority relating to Licensed Product. If a regulatory inspection is taking place at Novo Nordisk, Zosano shall, upon Novo Nordisk’s request and at Novo Nordisk’s cost, provide Novo Nordisk with copies of original records kept by Zosano required for such inspection within the time frame required for such inspections.

 

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8.4 Records Pertaining to Sales or Other Disposition of Licensed Product . Each Party shall keep complete, true and accurate books and records relating to development or manufacturing activities conducted by such Party under this Agreement for the period required by applicable laws. In addition, during the Term and three (3) years thereafter, Novo Nordisk shall keep (and cause its Affiliates and sublicensees to keep) complete and accurate records pertaining to the sale or other disposition of Licensed Products, in sufficient detail to permit Zosano to confirm the accuracy of royalties and sales milestones due hereunder, for at least five (5) years following the calendar quarter to which information relates. Novo Nordisk shall grant access during normal business hours to the books and records described in this Section 8.4 to Auditor (as defined below) selected by ALZA Corporation and reasonably acceptable to Zosano and Novo Nordisk for the sole purpose of verifying the accuracy of the written reports regarding, and calculations of, product payments due to ALZA Corporation under the ALZA Agreement.

 

8.5 Audit Rights Pertaining to Sales or Other Disposition of Licensed Product . During the Term and for [**] thereafter, Zosano shall have the right to appoint a certified public accountant from one of PricewaterhouseCoopers, Deloitte, Ernst & Young or KPMG, or another certified public accountant agreed to by the Parties ( “Auditor” ) to audit the relevant Net Sales records of Novo Nordisk and its Affiliates and sublicensees (as applicable) to verify the accuracy of the relevant Net Sales report and royalties and sales milestones payable, by inspection of relevant books of accounts and records, subject to the following terms:

(a) prior to inspecting any accounts and records, the Auditor must enter into a confidentiality agreement with Novo Nordisk (or its Affiliate or sublicensee, as applicable) that is reasonably satisfactory to Novo Nordisk (or its Affiliate or sublicensee, as applicable).

(b) Novo Nordisk and its Affiliates shall (and shall cause its sublicensees to) make their books and records available for inspection by the Auditor solely to verify the accuracy of its Net Sales report and royalties and sales milestones payable.

(c) Zosano shall give at least thirty (30) days prior notice to Novo Nordisk of when its Auditor shall visit Novo Nordisk and its Affiliates or sublicensees.

(d) Novo Nordisk and its Affiliates shall (and shall cause its sublicensees to) give access to the Auditor to the relevant books and records during regular business hours at the place or places where the books and records are usually kept. While inspecting such accounts and records, the Auditor must abide by all of Novo Nordisk’s (or its Affiliate’s or sublicensee’s) standard rules and regulations and the Auditor will not be entitled to take copies of any such accounts and records.

 

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(e) The Auditor shall prepare and deliver to each Party a report setting out its findings no later than thirty (30) days after the audit has been completed.

(f) Any report by an Auditor under this Section 8.5 shall be deemed Confidential Information of Novo Nordisk and Zosano shall keep confidential, in accordance with Section 12, the report received from the Auditor and any other information received or learned in connection with the audit.

(g) Zosano’s audit right under this Section 8.5 may not be exercised more than once in any calendar year and once a particular calendar year is audited, it may not be reaudited (unless the original audit reflected any underpayment by Novo Nordisk of more than [**], in which event such records may be reaudited).

(h) Zosano shall bear the audit costs, except where the audit shows that Novo Nordisk has underpaid Zosano by more than [**] of the total amount due for a calendar year, in which case Novo Nordisk shall pay for Zosano’s reasonable and documentable audit costs. Zosano shall indemnify and hold Novo Nordisk harmless from any losses resulting from any negligence or any other act or omission on the part of the Auditor’s inspecting and auditing records and accounts under this Section 8.5.

(i) Where there has been an underpayment, Novo Nordisk shall pay to Zosano the underpayment with interest calculated pursuant to Section 3.6 (together with reasonable and documentable audit costs if applicable) within thirty (30) days of its receipt of the Auditor’s report. In the case of overpayment by Novo Nordisk, Novo Nordisk may, at its option, offset any future royalty payments payable to Zosano by the amount of overpayment, or it may request reimbursement from Zosano within thirty (30) days of its receipt of the Auditor’s report.

(j) Upon the expiration of [**] following the end of any calendar quarter, the report or calculation of any royalties or sales milestone sums payable under this Agreement by Novo Nordisk with respect to such calendar quarter will be binding and conclusive upon Zosano, and Novo Nordisk will be released from any liability or accountability with respect to such report or calculation and any payments made thereto.

 

8.6

Zosano Change of Control. Upon the occurrence of a Zosano Change of Control following the completion of the Technology Transfer, Novo Nordisk may, in its sole discretion, terminate or suspend all reporting obligations of Novo Nordisk to Zosano other than those in respect of (a) Net Sales, royalty and the milestone payments (including information related to anticipated and actual achievement of such milestones), (b) information that is reasonably

 

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  necessary for Zosano to comply with applicable laws or regulatory requirements, including information which Novo Nordisk is required to disclose to Zosano under Sections , 6.3, 6.4, and 9.4, and (c) information about sublicensees, in accordance with Section 2.6.

 

9. Intellectual Property

 

9.1 Ownership of Intellectual Property.

(a) Novo Nordisk Background Intellectual Property shall remain the property of Novo Nordisk. Zosano Background Intellectual Property shall remain the property of Zosano. Novo Nordisk shall own exclusively Novo Nordisk Foreground Intellectual Property and Combined Intellectual Property. Zosano shall own exclusively Zosano Foreground Intellectual Property.

(b) Each Party hereby assigns Novo Nordisk Intellectual Property and Combined Intellectual Property to Novo Nordisk and hereby assigns Zosano Intellectual Property to Zosano, and shall cause any employees, agents or consultants of that Party and its Affiliates to, execute formal assignments and any such instruments prepared by the other Party, which such other Party deems necessary to vest its ownership of its Foreground Intellectual Property (i.e., Zosano Foreground Intellectual Property if such other Party is Zosano, or Novo Nordisk Foreground Intellectual Property if such other Party is Novo Nordisk).

 

9.2 Prosecution of Licensed Patents. Subject to the provisions of this Section 9.2, Zosano, at its sole discretion and expense, will prosecute and determine the strategy of prosecution of the Licensed Patents.

(a) Zosano shall, at least twice in each calendar year and at minimum intervals of six (6) months, during the Term provide Novo Nordisk with any changes to the list of Licensed Patents, including relevant filing, priority, and status information, beginning on the date that is six (6) calendar months following the Effective Date.

(b) Zosano shall provide Novo Nordisk with timely notification regarding any information, excluding the correspondence covered by clause (c) below, it discovers during the Term that may be reasonably considered to adversely impact the validity, enforceability, scope or term of any Licensed Patent.

(c) If requested by Novo Nordisk, Zosano shall timely provide Novo Nordisk with copies of all material correspondence from any Patent Authority regarding Licensed Patents, provided such material correspondence cannot be obtained from a Patent Authority website.

 

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(d) If requested by Novo Nordisk, Zosano shall provide Novo Nordisk with a copy of any proposed filing with any Patent Authority in connection with proceedings before any Patent Authority with Licensed Patents and shall provide to Novo Nordisk a reasonable opportunity (at least 10 calendar days) to comment on any such proposed filing with respect to such Licensed Patents, which comments Zosano shall consider in good faith.

(e) If Zosano elects to discontinue prosecution or maintenance of any Licensed Patent, Zosano shall so advise Novo Nordisk in writing at least sixty (60) calendar days in advance of such discontinuance and, if requested by Novo Nordisk, shall discuss with Novo Nordisk Zosano’s reasons for such discontinuance. If requested by Novo Nordisk and at Novo Nordisk’s cost, Zosano will or authorize Novo Nordisk to take action to prevent such abandonment of such Licensed Patent, unless Zosano has a material business or legal reason for not taking such action.

(f) In connection with Section 6.4, for Licensed Patents, which Novo Nordisk lists in the Orange Book for the Licensed Product, Zosano shall timely provide Novo Nordisk with any updated patent, reexamination or reissue numbers within fifteen (15) days of issuance by the Patent Authority.

 

9.3 Prosecution of Combined Intellectual Property .

Subject to the provisions of this Section 9.3, Novo Nordisk will have the sole right to, at its sole discretion and expense, file, prosecute and determine the strategy of prosecution of the Combined Intellectual Property and, with respect to patent applications Novo Nordisk elects to file on Combined Intellectual Property, Novo Nordisk will prosecute and determine the strategy of prosecution of such patent applications. If Zosano reasonably believes, based on written invention disclosures, that an invention may be patentable and would be considered Combined Intellectual Property under this Agreement and/or the Device Development Agreement, then Zosano shall promptly notify Novo Nordisk in writing within thirty (30) days. Novo Nordisk shall, at its discretion, determine whether to file a patent application on such Combined Intellectual Property. If Novo Nordisk elects to file a patent application on such Combined Intellectual Property, Novo Nordisk shall have the right to decide when to file the priority application on such Combined Intellectual Property.

(a) Novo Nordisk shall, at least twice in each calendar year and at minimum intervals of six (6) months, during the Term provide Zosano with any changes to the list of Patent Rights included in the Combined Intellectual Property, including relevant filing, priority, and status information, beginning on the date that is six (6) calendar months following the Effective Date.

 

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(b) Novo Nordisk shall provide Zosano with timely notification regarding any information, excluding the correspondence covered by clause (c) below, it discovers during the Term that may be reasonably considered to adversely impact the validity, enforceability, scope or term of any Patent Right included in the Combined Intellectual Property.

(c) If requested by Zosano, Novo Nordisk shall timely provide Zosano with copies of all material correspondence from any Patent Authority regarding such Patent Rights, provided such material correspondence cannot be obtained from a Patent Authority website.

(d) If requested by Zosano, Novo Nordisk shall provide Zosano with a copy of any proposed filing with any Patent Authority in connection with proceedings before any Patent Authority with such Patent Rights and shall provide to Zosano a reasonable opportunity (at least 10 calendar days) to comment on any such proposed filing with respect to such Patent Rights, which comments Novo Nordisk shall consider in good faith.

(e) If Novo Nordisk elects to discontinue prosecution or maintenance of any such Patent Right, Novo Nordisk shall so advise Zosano in writing at least sixty (60) calendar days in advance of such discontinuance and, if requested by Zosano, shall discuss with Zosano Novo Nordisk’s reasons for such discontinuance. If requested by Zosano and at Zosano’s cost, Novo Nordisk will or authorize Zosano to take action to prevent such abandonment of such Patent Right, unless Novo Nordisk has a material business or legal reason for not taking such action.

(f) In connection with Section 6.4, for such Patents Rights included in the Combined Intellectual Property, which Novo Nordisk lists in the Orange Book for the Licensed Product, Novo Nordisk shall timely provide Zosano with any updated patent, reexamination or reissue numbers within fifteen (15) days of issuance by the Patent Authority.

 

9.4 Notice of Infringement; Enforcement of Intellectual Property .

(a) Each Party shall promptly (and in any event within five (5) business days in the case of clause (ii) or (iii)) report in writing to the other Party during the Term (i) any known or suspected infringement of, or unauthorized use of, or challenge to, any of the Zosano Intellectual Property, Combined Intellectual Property or Novo Nordisk Intellectual Property, (ii) any certification filed pursuant to 21 U.S.C. § 355(b)(2)(A)(vii) or 21 U.S.C. § 355(j)(2)(A)(vii) (or any amendment or successor statute thereto) claiming that any Patent Rights within the Zosano Intellectual Property, Combined Intellectual Property or the Novo Nordisk Intellectual Property are invalid or otherwise unenforceable, or that infringement will not arise from the manufacture, use, import, offer for sale, or sale of a product by a Third Party, (iii) any notice of an abbreviated BLA or other

 

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regulatory filing relying in whole or in part upon the data in any regulatory filing for the Licensed Product (other than for Zosano Patch Technology being used by Third Parties) and all information received from the filer of the abbreviated BLA, including, without limitation, a copy of the abbreviated BLA, or (iv) without limiting the generality of Section 10, any claim by a Third Party that the development, manufacture or commercialization of the Licensed Product or the practice by either Party of the Zosano Intellectual Property, Combined Intellectual Property or the Novo Nordisk Intellectual Property in such activities infringes or misappropriates the intellectual property rights of such Third Party, and shall provide the other Party with all available evidence supporting such known or suspected infringement or unauthorized use. For any of the disclosure or notification obligations of the Parties under this Section 9.4(a), it is understood that all information disclosed under such obligations is covered by the provisions of Section 12, and further that neither Party shall be required, by such obligations, to disclose legally privileged information or information with respect to which such Party is subject to confidentiality or other contractual obligations to Third Parties, unless required to do so by operation of law.

(b) After consultation by Zosano with Novo Nordisk, as between Zosano and Novo Nordisk, Zosano shall have the first right, but not the obligation, to enforce and/or defend Licensed Patents. If requested to do so by Zosano, Novo Nordisk shall reasonably cooperate with Zosano, at Zosano’s cost in the enforcement or defense of Licensed Patents. Novo Nordisk shall be kept reasonably advised at all times of such suit or proceedings brought by Zosano with respect to the Licensed Patents. Within thirty (30) days after receiving notice of an infringement or a lawsuit on the validity of a patent (or, in the case of a certification received pursuant to either 21 U.S.C. §§ 355(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) or its successor provisions, or any similar provision in a country in the Territory other than the United States, within ten (10) business days), Zosano shall decide if it shall institute legal action to enforce and/or defend Licensed Patents and shall notify Novo Nordisk of its decision. If Zosano fails to institute legal action to enforce and/or defend the Licensed Patent(s) within the aforementioned period, then Novo Nordisk shall have the right, but not the obligation, initiate and conduct such legal action. If Zosano does institute such legal action, but desires at any point in such legal action to cease to continue with such action, then Zosano will provide a reasonable written notice to Novo Nordisk prior to discontinuing such action and Novo Nordisk shall then have the right, but not the obligation, to continue such legal action. The foregoing will be subject to ALZA Corporation’s rights under Sections 7.4 and 7.5 of the ALZA Agreement relating to infringement claims.

(c) After consultation by Novo Nordisk with Zosano, as between Zosano and Novo Nordisk, Novo Nordisk shall have the first right, but not the obligation, to enforce and/or defend the Patent Rights included in the Combined Intellectual Property. If requested to do so by Novo Nordisk, Zosano shall reasonably

 

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cooperate with Novo Nordisk, at Novo Nordisk’s cost in the enforcement or defense of such Patent Rights. Zosano shall be kept reasonably advised at all times of such suit or proceedings brought by Novo Nordisk with respect to such Patent Rights. Within thirty (30) days after receiving notice of an infringement or a lawsuit on the validity of a patent (or, in the case of a certification received pursuant to either 21 U.S.C. §§ 355(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) or its successor provisions, or any similar provision in a country in the Territory other than the United States, within ten (10) business days), Novo Nordisk shall decide if it shall institute legal action to enforce and/or defend the Patent Rights included in the Combined Intellectual Property and shall notify Zosano of its decision. If Novo Nordisk decides not to institute legal action to enforce and/or defend such Patent Right(s) within the aforementioned period, and if Zosano sends Novo Nordisk a written request to institute such legal action, then Novo Nordisk shall, at its discretion, either assign the relevant Combined Intellectual Property to Zosano or grant Zosano the right, but not the obligation, to initiate and conduct such legal action at Zosano’s cost. If Novo Nordisk does institute such legal action, but desires at any point in such legal action to cease to continue with such action, then Novo Nordisk will provide a reasonable written notice to Zosano prior to discontinuing such action and, upon Zosano’s written request to continue with such action, Novo Nordisk shall, at its discretion, either assign the relevant Combined Intellectual Property to Zosano or grant Zosano the right, but not the obligation, to continue such legal action at Zosano’s cost.

(d) Zosano and Novo Nordisk agree that upon and after the filing of a BLA for any Licensed Product, the Parties will in good faith initiate discussion of and agree on a preliminary list of Patent Rights to be provided upon the filing of any abbreviated BLA (i) within sixty (60) days of the BLA filing for such Licensed Product,(ii) periodically and in any event upon approval of such BLA and at least every six (6) months thereafter, and (iii) upon receipt of notice of the filing of an abbreviated BLA, each in a manner reasonably intended to enable Novo Nordisk to respond in a satisfactory and timely manner to any biosimilar applications and patent proceedings under the Biologics Price Competition and Innovation Act relating to such Licensed Product. Novo Nordisk shall timely provide the list of Patent Rights the Parties have agreed to provide to the filer of the abbreviated BLA and take all other actions to protect the Licensed Patents and Patent Rights in the Combined Intellectual Property. Zosano shall cooperate and provide information as reasonably required by Novo Nordisk and at Novo Nordisk’s cost.

 

9.5 Enforcement of Novo Nordisk and Combined Intellectual Property .

Subject to Section 9.6, Novo Nordisk shall have the sole right to enforce the Novo Nordisk Intellectual Property and after consultation by Novo Nordisk with Zosano, Novo Nordisk shall have the sole right, but not the obligation, to enforce and/or defend the Patent Rights in Combined Intellectual Property at its own instigation and expense. If requested to do so by Novo Nordisk, Zosano shall

 

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reasonably cooperate with Novo Nordisk to enforce such rights in relation to the Licensed Product, provided that Zosano is reimbursed for FTE Costs and Out-of-Pocket Costs incurred in providing such cooperation. Zosano shall be kept reasonably advised at all times of such suit or proceedings brought by Novo Nordisk with respect to any Combined Intellectual Property.

 

9.6 Conduct of Prosecution and Enforcement.

(a) The Party prosecuting, enforcing and/or defending the Licensed Patents or Combined Intellectual Property shall conduct such actions in a way that shall not have a material adverse impact on the rights granted to Novo Nordisk or on the scope or enforceability of the Licensed Patents or Combined Intellectual Property. The Party enforcing and/or defending the Licensed Patents or Combined Intellectual Property may enter into any settlement, consent judgment or other voluntary final disposition of any action contemplated by this Section 9.6 without the other Party’s prior consent; provided that (i) the other Party receives a general release of any claims against it in such proceeding and is promptly provided thereafter a copy of such settlement, consent judgment or other voluntary disposition, and (ii) such settlement does not have a material adverse impact on the rights granted to Novo Nordisk hereunder or on the scope or enforceability of the Licensed Patents or Combined Intellectual Property or result in a payment or other liability or admission by the other Party to a Third Party. Any other settlement, consent judgment or voluntary final disposition of any proceeding under Section 9.6 by the Party enforcing and/or defending the Licensed Patents or Combined Intellectual Property shall require the prior written consent of the other Party, which consent such other Party shall not unreasonably withhold. With respect to any suit or action regarding Combined Intellectual Property as set forth in the above, any recovery obtained as a result of any such proceeding, by settlement or otherwise, shall (x) first be used to reimburse Novo Nordisk and Zosano for their reasonable costs and legal fees incurred in the conduct of such proceedings, (y) with respect to any suit or action regarding infringement of Combined Intellectual Property by a Third Party product that competes with the Licensed Product, any remaining amount shall be divided as follows: [**].

(b) In the event either Party initiates and/or conducts any legal action to enforce and/or defend the Licensed Patents, the other Party shall provide the initiating Party with all reasonable assistance in such legal action, at the initiating Party’s expense. If either Party is required under any law to join any such legal action initiated by the other Party or if the failure of either Party to become a party to such suit, action or proceeding would in the opinion of counsel to the initiating Party risk dismissal thereof, the other Party shall execute all papers and perform such other acts as may be reasonably required to permit the litigation to be initiated or conducted (including initiating a suit before a court or tribunal at the initiating Party’s request or permitting the other Party to initiate a legal action in the name of Zosano and Novo Nordisk), and the initiating Party shall reimburse

 

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the other Party for its reasonable out-of-pocket expenses relating to its joining thereto and participation therein. If the other Party is required to be joined as a party in any action initiated by a Party, then upon the request of the initiating Party, the other Party shall waive any objection to such joinder on the grounds of personal jurisdiction, venue, or forum non conveniens.

(c) For Combined Intellectual Property, Novo Nordisk may enter into any settlement, consent judgment, or other voluntary final disposition of any action contemplated by this Section 9.6 without Zosano’s prior consent; provided, however, that (i) Zosano receives a general release of any claims against it in such proceeding and is promptly provided thereafter a copy of such settlement, consent judgment or other voluntary disposition, and (ii) such settlement does not result in a payment, admission or other liability by Zosano to a Third Party. Any other settlement, consent judgment or voluntary final disposition of any proceeding under Section 9.6(b) by Novo Nordisk shall require the prior written consent of Zosano, which consent Zosano shall not unreasonably withhold.

 

9.7 Trademarks. Novo Nordisk shall have the sole right to develop trademarks and trade dress in connection with the marketing, sale, advertising and/or promotion of any Licensed Product in the Territory, and Novo Nordisk shall own such trademark(s) and trade dress, and all associated goodwill, and shall prosecute, maintain and enforce such trademarks and trade dress at its own cost and discretion. Notwithstanding the foregoing, Zosano shall promptly notify Novo Nordisk of any known, threatened or suspected infringement, imitation or unauthorized use of or unfair competition relating to such trademarks and trade dress, and shall cooperate with Novo Nordisk and use reasonable efforts to assist Novo Nordisk in the protection of such trademarks and trade dress, if such additional cooperation or assistance is reasonably requested by Novo Nordisk and at Novo Nordisk’s cost.

 

9.8 Inventorship . Notwithstanding anything to the contrary herein, inventorship shall be determined in accordance with U.S. patent law.

 

10. Indemnification

 

10.1

Indemnification by Novo Nordisk. Novo Nordisk agrees to indemnify, defend and hold harmless Zosano and its Affiliates, and their respective officers, directors, employees, and their respective successors, heirs and assigns (the “Zosano Indemnitees” ), from and against any and all claims, costs, expenses, damages and liabilities, including reasonable legal costs ( “Losses” ), to which the Zosano Indemnitees may become subject as a result of any claim, demand, action, suit or other proceeding by any Third Party (a) arising out of (i) the negligence, recklessness or wrongful intentional acts or omissions of Novo Nordisk, its Affiliates and its or their respective directors, officers, employees and agents, in connection with Novo Nordisk’s performance of its obligations or exercise of its

 

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  rights under this Agreement; (ii) any breach by Novo Nordisk of any representation, warranty or covenant set forth in this Agreement; or (iii) the research, development, manufacture, use, import, export, sale, offer for sale, and any transfer of Licensed Product by Novo Nordisk, its Affiliates and/or sublicensees, or (b) alleging infringement of Third Party intellectual property rights by use of Novo Nordisk Intellectual Property or Combined Intellectual Property in the research, development, manufacture, use, import, export, sale, offer for sale and/or any transfer of Licensed Product, except to the extent such Losses result from (i) the negligence or willful misconduct of Zosano; (ii) breach of this Agreement or the Quality Agreement by Zosano; or (iii) any claim by a Third Party alleging that the grant of rights by Zosano to Novo Nordisk under this Agreement violates or conflicts with the terms of any license or other grant of rights by Zosano to such Third Party.

 

10.2 Indemnification by Zosano. Zosano shall indemnify, defend and hold harmless Novo Nordisk and its Affiliates and their respective officers, directors, employees, and their respective successors, heirs and assigns (the “Novo Nordisk Indemnitees) from and against any and all Losses, to which the Novo Nordisk Indemnitees may become subject as a result of any claim, demand, action or other proceeding by any Third Party (a) arising out of the negligence, recklessness or wrongful intentional acts or omissions of Zosano, its Affiliates and/or its sublicensees (excluding Novo Nordisk) and its or their respective directors, officers, employees and agents, in connection with Zosano’s performance of its obligations or exercise of its rights under this Agreement, Device Development Agreement, or Quality Agreement; or (b) any breach by Zosano of any representation, warranty or covenant set forth in this Agreement, except to the extent such Losses result from (i) the negligence or willful misconduct of Novo Nordisk, or (ii) breach of this Agreement or the Quality Agreement by Novo Nordisk.

 

10. 3 Conduct of Claims. The Party seeking an indemnity (the “First Party” ) shall:

 

  (i) fully and promptly notify the other Party (the “Indemnifying Party” ) of any claim or proceedings, or threatened claim or proceedings, for which the First Party may assert indemnification from the Indemnifying Party pursuant to this Section 10;

 

  (ii) the First Party will permit the Indemnifying Party and its insurer(s), at the Indemnifying Party’s expense, to take full control of such claim or proceedings, with counsel of the Indemnifying Party’s choice reasonably acceptable to the First Party, provided that the Indemnifying Party shall reasonably and regularly consult with the First Party in relation to the progress and status of such claim or proceedings, and the First Party may participate in the defense of such claim or proceeding using counsel of its own choice at the First Party’s expense;

 

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  (iii) the First Party will reasonably co-operate with the Indemnifying Party in the investigation and defense of such claim or proceedings at the Indemnifying Party’s expense; and

 

  (iv) take reasonable steps to mitigate any loss or liability in respect of any such claim or proceedings.

The Indemnifying Party may settle a claim or proceeding on terms that provide only for monetary relief and include a general release of the First Party and do not include any admission of liability or impose any obligation on the First Party. Except as set forth above, neither the Indemnifying Party nor the First Party shall acknowledge the validity of, compromise or otherwise settle any claim or proceeding without the prior written consent of the other Party, which shall not be unreasonably withheld, conditioned or delayed.

 

11. Representations and Warranties

 

11.1 Mutual Representations, Warranties and Covenants . Each Party represents, warrants as of the Effective Date and, with respect to Sections (e) and (g) below, covenants to the other that:

(a) It is a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation, and has full corporate power and legal right and authority to enter into this Agreement and to carry out the provisions hereof.

(b) It is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person or persons executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate action.

(c) This Agreement is legally binding upon it, enforceable in accordance with its terms, except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally, or (ii) laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. The execution, delivery and performance of this Agreement by it does not conflict with, or result in the breach of the terms of, any agreement, or instrument, to which it is a Party or by which it may be bound, nor violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

(d) no consent, approval, authorization or order of any court or governmental agency or governmental body or Third Party is required for execution and delivery by such Party of this Agreement.

 

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(e) It has not, and shall not during the Term, grant any right to any Third Party, which would conflict in any material respect with the rights granted to the other Party hereunder.

(f) It is not engaged in any litigation or arbitration, or in any dispute reasonably likely to lead to litigation, arbitration or other proceeding, which would materially affect the validity of this Agreement or its ability to fulfill its obligations under this Agreement.

(g) each employee, agent and consultant of such Party engaged in the performance of activities under this Agreement is, or shall be prior to the performance of any such activities under this Agreement, contractually bound to (i) assign to such Party all of its, his or her right, title and interest in and to any Intellectual Property arising from activities performed by such employee, agent or consultant under this Agreement, and (ii) comply with confidentiality and non-use obligations that are at least as restrictive as those set forth in Section 12.

 

11.2 Zosano Representations, Warranties and Covenant.

(a) Zosano represents and warrants to Novo Nordisk that as of the Effective Date:

 

  (i) the rights granted to Novo Nordisk and its Affiliates hereunder do not conflict with rights granted by Zosano to any Third Party;

 

  (ii) to Zosano’s knowledge, the use of Zosano Intellectual Property as contemplated under this Agreement does not infringe any issued patents of any Third Party.

 

  (iii) it Controls the Zosano Intellectual Property in the Territory and (i) there are no agreements with, assignments by, restrictions, liens or encumbrances on, disputes with, or proceedings or claims against, Zosano or its Affiliates relating to, affecting or limiting Zosano’s rights with respect to the Zosano Intellectual Property, other than a security interest granted in connection with a promissory note of Zosano and Zosano’s parent, ZP Holdings, Inc., with BMV Direct SOTRS LP (as assignee of BioMed Realty Holdings, Inc.);

 

  (iv) Exhibit A identifies all of the pending patent applications and unexpired patents that are Licensed Patents and, as of the Effective Date, are either (i) owned by Zosano or (ii) licensed to Zosano by Third Parties;

 

  (v) each of the issued patents included in the Licensed Patents that is owned by Zosano has been duly maintained and is valid and enforceable;

 

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  (vi) to Zosano’s knowledge, each of Issued Patent Claims included in the Licensed Patents and licensed to Zosano by Third Parties has been duly maintained and is valid and enforceable;

 

  (vii) none of the patents or patent applications set forth in Exhibit A is (i) subject to a pending interference action, opposition action, re-examination proceeding, litigation or other similar action by a Third Party challenging such patents or patent applications, other than actions by Patent Authorities in connection with the prosecution of patent applications, or (ii) has been abandoned, or has been asserted to be invalid or unenforceable in a communication to Zosano or is subject to any inventorship proceeding or dispute;

 

  (viii) to Zosano’s knowledge, except for the Licensed Patents, there are no Third Party patents and/or patent applications that claim Zosano Patch Technology; and

 

  (ix) (1) the ALZA Agreement is in full force and effect and has not been terminated;

(2) to Zosano’s knowledge, ALZA does not have a basis to terminate the ALZA Agreement; and

(3) Zosano has not received any notices from ALZA alleging that Zosano is in material breach of the ALZA Agreement.

(b) Zosano hereby covenants to Novo Nordisk that after the Effective Date Zosano shall: (i) perform its obligations under and in accordance with the terms and conditions of the ALZA Agreement; (ii) provide prompt notice to Novo Nordisk of (1) any notice it receives from ALZA of any alleged material breach of the ALZA Agreement, or (2) any event that constitutes an uncured material breach of the ALZA Agreement; and (iii) not amend, modify or terminate the ALZA Agreement in a way that impacts Novo Nordisk’s rights under this Agreement without the prior written consent of Novo Nordisk.

 

11.3 Novo Nordisk Representations and Warranties . Novo Nordisk represents and warrants to Zosano that, as of the Effective Date:

(a) the rights granted to Zosano and its Affiliates hereunder do not conflict with rights granted by Novo Nordisk to any Third Party; and

(b) it Controls the Novo Nordisk Intellectual Property in the Territory.

 

11.4

Disclaimer . EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT AND THE QUALITY AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTY OF

 

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  ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO. Without limiting the generality of the foregoing, each Party expressly does not warrant the successful development, manufacture or commercialization of any Licensed Product.

 

11.5 Limitation of Liability . EXCEPT FOR LIABILITY FOR BREACH OF SECTION 12 (CONFIDENTIALITY) AND WITHOUT PREJUDICE TO THE OBLIGATION OF EITHER PARTY TO INDEMNIFY THE OTHER WITH RESPECT TO CLAIMS BY A THIRD PARTY UNDER SECTION 10, NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR OTHER INDIRECT DAMAGES IN CONNECTION WITH THIS AGREEMENT OR ANY LICENSE GRANTED HEREUNDER; PROVIDED, HOWEVER, THAT THIS SECTION 11.5 SHALL NOT BE CONSTRUED TO LIMIT DAMAGES AWARDED SPECIFICALLY WITH RESPECT TO EITHER PARTY’S GROSS NEGLIGENCE OR WILFULL CONDUCT.

 

12. Confidentiality

 

12.1

Use and Disclosure of Proprietary Information . Except to the extent expressly authorized by this Agreement or otherwise agreed in writing by the Parties, each Party agrees to hold, and will cause their respective officers, directors, employees, agents, attorneys, accountants, consultants, advisors and agents (“Representatives” ) to hold, including any of the aforementioned employed by a Party’s Affiliates, in confidence, and not disclose to any person, and shall not, and will cause its Representatives to not, use for any purpose other than as expressly provided for in this Agreement, any Confidential Information furnished to it by the other Party pursuant to this Agreement or any Confidential Information of the other Party developed as part of the activities hereunder. Each Party may use such Confidential Information only to the extent required for the purposes of this Agreement. Each Party shall disclose Confidential Information of the other Party only to its Representatives (i) who have a need to know such Confidential Information in the course of the performance of their duties under this Agreement, (ii) who are informed of the confidential nature of the Confidential Information, and (iii) who agree in writing (enforceable by the other Party) to comply with the terms of this Agreement as if a party hereto or are otherwise bound by obligations of confidentiality and non-use of Confidential Information at least as stringent as those set forth in this Agreement. Each Party shall adopt and maintain programs and procedures that are reasonably calculated to protect the confidentiality of Confidential Information and shall be responsible to the other Party for any

 

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  disclosure or misuse of Confidential Information that results from a failure to comply with the terms of this Section 12 by such Party or such Party’s Representatives. Each Party shall promptly report to the other Party any actual or suspected violation of the terms of this Section 12 and shall take all reasonable further steps requested by the other Party to prevent, control or remedy any such violation. A breach of this Section 12 by either Party’s Representative shall be considered a breach by such Party itself.

 

12.2 Limitations on Obligations . The obligations of each Party specified in this Section 12 shall not apply, and such Party shall have no further obligations, with respect to any Confidential Information of the other Party that the receiving Party can prove by competent written evidence:

(a) is now, or hereafter becomes, through no act or failure to act on the part of the receiving Party or its Affiliates, generally known or available to the public;

(b) is known by the receiving Party or its Affiliates at the time of receiving such information other than as a result of the receiving Party’s or its Affiliates’ breach of any legal obligation, as evidenced by its or its Affiliates’ records;

(c) becomes known to the receiving Party or its Affiliates through disclosure, as a matter of right and without restriction on disclosure, by a Third Party who is under no obligation of non-disclosure to the disclosing Party or its Affiliates; or

(d) is independently developed by the receiving Party without the aid, reference to, reliance upon or use of the Confidential Information of the disclosing Party, as evidenced by such Party’s written records; or

(e) is the subject of a written permission to disclose provided by the disclosing Party.

 

12.3 Exceptions . Each Party may disclose Confidential Information belonging to the other Party to the extent such disclosure is necessary in the following instances:

(a) filing or prosecuting patents as permitted by this Agreement in order to obtain Patent Rights that a Party is expressly permitted to obtain under this Agreement;

(b) regulatory filings for Licensed Product as permitted by this Agreement;

(c) prosecuting or defending litigation as permitted by this Agreement;

(d) complying with applicable court orders (or complying with oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) or governmental regulations or law,

 

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including the rules of the U.S. Securities and Exchange Commission and any stock exchange;

(e) disclosure to Third Party potential bona fide licensees or acquirors (except that in the case of Novo Nordisk Competitors, no Confidential Information of Novo Nordisk, other than a redacted copy of this Agreement, may be shared), in connection with due diligence or similar investigations by such Third Party licensees, and disclosure to potential Third Party investors in confidential financing documents, provided, in each case, that any such Third Party agrees to be bound by reasonable obligations of confidentiality and non-use; and

(f) Zosano may provide to ALZA Corporation a copy of this Agreement, redacted by Novo Nordisk to exclude any information not necessary for assessing Zosano’s compliance with the ALZA Agreement;

provided that , if a Party is required to make a disclosure of the other Party’s Confidential Information pursuant to Section 12.3(c), (d), or (e) it shall, except where impracticable, give reasonable advance notice to the other Party of such disclosure request or requirement so that the other Party may seek an appropriate protective order or other appropriate remedy or waive compliance with the provisions of this Agreement. The Party that is required to make the disclosure shall reasonably cooperate with the other Party (at such other Party’s sole cost and expense) to obtain such a protective order or other remedy. If such order or other remedy is not obtained, or the other Party waives compliance with the provisions of this Agreement, then such Party shall only disclose that portion of the Confidential Information which it is advised by counsel that it is legally required to so disclose and shall use reasonable efforts to obtain reliable assurance (at the other Party’s sole cost and expense) that confidential treatment will be accorded the Confidential Information so disclosed. Without limiting the generality of the foregoing, the Parties shall consult with each other on the provisions of this Agreement to be redacted in any filings made by either Party with the U.S. Securities and Exchange Commission or foreign counterpart or as otherwise required by law.

 

12.4

Publications . If Novo Nordisk proposes to publish or present on any results or data related to the manufacture or use of the Zosano Patch Technology (excluding publications or presentations which include only a standard source reference to Zosano Patch Technology, consistent with scientific journal publication practices), Zosano shall have the right to review and comment on any material proposed for such publication or presentation by Novo Nordisk, such as by oral presentation at scientific conferences or seminars, scientific journal manuscripts or abstracts. Before any such material is submitted for publication or presentation, Novo Nordisk shall deliver a complete copy of such material to Zosano at least thirty (30) days prior to the proposed submission for publication or presentation, and Zosano shall use reasonable efforts to give its comments to

 

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  Novo Nordisk within twenty (20) days following delivery of such material. With respect to oral presentation materials and abstracts, Zosano shall use reasonable efforts to expedite review of such material and to provide comments (if any) to Novo Nordisk within fifteen (15) days following the date of delivery of such material to Zosano. Novo Nordisk shall (a) give due consideration to any editorial comments of Zosano, (b) comply with Zosano’s request to delete references to Zosano’s Confidential Information in any such material, and (c) delay any submission for publication or presentation for a period of up to an additional ninety (90) days for the purpose of preparing and filing appropriate patent applications in accordance with the terms of Section 9.2 hereof.

 

12.5 Announcements . Except as expressly permitted in this Agreement, neither Party shall issue any public announcement, press release or other public disclosure regarding this Agreement or its subject matter, nor use the name of the other Party in any publicity, advertising or announcement, without the other Party’s prior written consent, except for any such disclosure that is, in the opinion of counsel to the Party proposing to make such disclosure, required by law or the rules or regulations of the U.S. Securities and Exchange Commission or of a stock exchange on which the securities of such Party are listed, provided that such disclosure is subject to the proviso in Section 12.3 to the extent practicable. Notwithstanding anything to the contrary contained in this Agreement:

(a) each Party may disclose the terms of this Agreement (but not other Confidential Information received from the other Party) to its legal, accounting and tax advisors, in each case who are bound to obligations of confidentiality and non-use substantially equivalent in scope to those set forth in this Section 12; and

(b) As soon as practicable after the Effective Date Zosano may issue a public statement reasonably acceptable to Novo Nordisk.

 

12.6 Term of Confidentiality . The confidentiality and non-use obligations imposed on each Party under this Section 12 shall continue with respect to a particular item of Confidential Information of the other Party until ten (10) years after expiration of this Agreement.

 

13. Term and Termination

 

13.1 Term . The term of this Agreement shall commence on the Effective Date and shall expire, on a country-by-country basis, unless earlier terminated under this Section 13, upon the date of expiration of all payment obligations under Sections 3 and 4 of this Agreement with respect to all Licensed Products in such country. Upon such expiration (but not after early termination) Novo Nordisk shall have a fully paid-up, exclusive license under Zosano Intellectual Property for such Licensed Products in such country.

 

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13.2 Termination by Novo Nordisk; Certain Effects of Such Termination . Novo Nordisk shall have the right to terminate this Agreement as a whole for convenience and without cause at any time after the Effective Date upon [**] written notice to Zosano. Upon such notice, Zosano shall use reasonable efforts to terminate and/or reassign Zosano personnel working under the Work Plan and reduce costs incurred by Zosano under the Work Plan. Upon such termination, Novo Nordisk shall [**].

 

13.3 Termination for Failure to Provide License Continuation. This Agreement shall automatically terminate if Zosano does not receive the License Continuation Notice from Novo Nordisk within the [**] period required pursuant to Section 4.3.

 

13.4 Termination for Material Breach. If a Party is in material breach of its obligations hereunder and the other Party provides written notice to the breaching Party specifying the nature of such breach, the breaching Party shall either cure such breach or produce a plan for such cure reasonably acceptable to the other Party within sixty (60) calendar days after such written notice. If the breaching Party does not provide a plan for cure, or comply with a plan, in each case reasonably acceptable to the non-breaching Party, the non-breaching Party shall have the right to terminate this Agreement by giving written notice of termination to the breaching Party.

 

13.5 Termination for Insolvency Event . If a Party becomes insolvent, is dissolved or liquidated, files or has filed against it a petition in bankruptcy, reorganization, dissolution or liquidation or similar action filed by or against it, is adjudicated as bankrupt, or has a receiver appointed for its business occur (any of the preceding events, an “Insolvency Event” ), then such Party shall promptly notify the other Party in writing that such event has occurred. If any Insolvency Event is not cured within ninety (90) calendar days after such Insolvency Event, then the other Party shall have the right to terminate this Agreement by giving written notice of termination to the other Party.

 

13.6 Effect of Termination.

(a) Upon termination of this Agreement by Novo Nordisk for material breach by Zosano pursuant to Section 13.4:

(i) the license granted by Novo Nordisk under Section 2.3(a) shall automatically terminate and revert to Novo Nordisk;

(ii) the licenses granted by Zosano to Novo Nordisk under Section 2.1 shall remain in effect with respect to Zosano Intellectual Property used in the development, manufacture or commercialization of the Licensed Product as of the effective date of termination and subject to compliance

 

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by Novo Nordisk with the terms and conditions of such licenses, including all applicable payment obligations under this Agreement; and

(iii) the Quality Agreement shall automatically terminate.

(b) Upon termination of this Agreement by Novo Nordisk pursuant to Section 13.2, termination under Section 13.3 or termination of this Agreement by Zosano under Section 13.4 for material breach by Novo Nordisk:

(i) the licenses granted by Zosano under Section 2.1 shall automatically terminate and revert to Zosano;

(ii) the license granted by Novo Nordisk under Section 2.3(b) shall continue in full force and effect;

(iii) Novo Nordisk shall transfer to Zosano as soon as reasonably practicable all information received by Novo Nordisk during the Technology Transfer process described in Section 5.10;

(iv) Novo Nordisk will grant to Zosano (which grant shall be automatic upon such termination, without further action by the Parties) a fully paid up exclusive license, including the right to grant sublicenses, under the Combined Intellectual Property to research, develop, make, have made, use, sell, offer to sell, and import/export any products, but shall specifically exclude (a) rights to research, develop, manufacture, make, have made, sell or offer for sale Novo Nordisk Proprietary Molecules, (b) rights to any other Novo Nordisk Intellectual Property and (c) Intellectual Property not owned by Novo Nordisk. Zosano shall take over prosecution of and bear all maintenance and prosecution costs for the Patent Rights included in such Combined Intellectual Property.

(v) Zosano shall use reasonable efforts to terminate and/or reassign Zosano personnel working under the Work Plan and reduce costs incurred by Zosano under the Work Plan. Upon such termination, Novo Nordisk shall (i) compensate Zosano for all work performed by Zosano up to the date of termination, (ii) reimburse Zosano for all FTE Costs incurred by Zosano to the extent that Zosano is unable to terminate and/or reassign personnel working under the Work Plan to other areas, and (iii) pay Zosano for any other costs reasonably incurred by Zosano in winding-down any activities under the Work Plan; and

(vi) the Quality Agreement shall automatically terminate.

(c) Except as otherwise specifically set forth in this Agreement, all rights and obligations of the Parties shall terminate upon the expiration or termination of this Agreement, provided , however , that expiration or termination of this Agreement

 

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shall not relieve the Parties of any rights or obligations accruing prior to such expiration or termination.

(d) Within thirty (30) days following the expiration or termination of this Agreement, except to the extent and for so long as Novo Nordisk retains license rights under Section 13.6(a), upon the written request of the other Party, promptly return to the other Party all Confidential Information of the other Party (and all copies and reproductions thereof). In addition, each Party shall destroy (a) that portion of any notes, reports or other documents prepared by such Party which contain Confidential Information of the other Party, and (b) any Confidential Information of the other Party (and all copies and reproductions thereof) which is in electronic form or cannot otherwise be returned to the other Party. Alternatively, upon written request of the other Party, each Party shall promptly destroy all Confidential Information of the other Party (and all copies and reproduction thereof) and that portion of any notes, reports or other documents prepared by such Party, which contain Confidential Information of the other Party. Notwithstanding the foregoing, each Party and its Representatives (i) may retain solely for compliance purposes copies of the Confidential Information of the other Party in order comply with law or regulation, and (ii) need not destroy electronic archives and backups made in the ordinary course of business where it would be commercially impracticable to do so. Moreover, notwithstanding the return or destruction of the Confidential Information of the other Party, each Party and its Representatives shall continue to be bound by their obligations of confidentiality and other obligations hereunder.

 

13.7 Remedies . Expiration or termination of this Agreement shall not preclude either Party from claiming any other damages, compensation or other remedies available at law that it may be entitled to upon such expiration or termination.

 

13.8

Rights in Bankruptcy . The occurrence of an Insolvency Event with respect to Zosano, will not, in itself, impact either Party’s license rights under this Agreement, nor adversely impact the right of Zosano to receive royalties or milestones. All rights and licenses granted under or pursuant to this Agreement by either Party to the other Party are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to “intellectual property” as defined under the U.S. Bankruptcy Code. The Parties agree that each Party, as licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against either Party under the U.S. Bankruptcy Code (the “Party subject to such proceeding”), the other Party (the “non-subject Party”) shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, shall be promptly delivered to the non-subject Party (i) upon any such commencement of a bankruptcy proceeding upon the non-subject Party’s written request therefor, unless the Party subject to such proceeding elects to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under (i) above, following the rejection of this Agreement by or on behalf of the Party subject to such proceeding upon written

 

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  request therefor by the non-subject Party. In addition, in the event the trustee (or similar person) rejects this Agreement during a Zosano Insolvency Event, then the license granted by Novo Nordisk to Zosano under Section 2.3(a) shall automatically terminate. Novo Nordisk agrees that in consideration of the rights granted under the license set forth in Section 2.1 it will pay to Zosano all royalty and milestone payments which would have been payable under this Agreement by Novo Nordisk with respect to the exercise of its rights under the license granted in this Agreement. The provisions of this Section 13.7 are without prejudice to any rights that either Party may have arising under any applicable insolvency statute or other applicable law.

 

13.9 Surviving Provisions . The provisions of Sections 1, 2.7, 6.3, 8.2, 8.4, 8.5, 9, 10, 11.4, 11.5, 12, 13.6, 13.7, 13.9 and 14 and any accrued rights and obligations shall survive the expiration or termination of this Agreement in accordance with their terms.

 

14. Miscellaneous Provisions

 

14.1 Dispute Resolution . Except for JCC disputes (which shall be resolved pursuant to Section 5.3), each Party shall have the right to refer a dispute, controversy or claim in connection with this Agreement, including, without limitation, if related to compliance with the terms of the Agreement, or the validity, breach, termination or interpretation of the Agreement, to the senior management within each Party for resolution. The senior management shall have thirty (30) days in which to meet in good faith to resolve the dispute, controversy or claim. If the senior management of the Parties is unable to resolve the matter within thirty (30) days, then the dispute, controversy or claim, shall be submitted promptly to the Chief Executive Officer of Zosano or its delegate and either the Chief Science Officer or the Chief Operating Officer of Novo Nordisk or their delegate for resolution. If either Party does not comply with the above, or such senior officers are unable to resolve the dispute, controversy or claim within thirty (30) days, then the dispute, controversy or claim shall be resolved as set forth in Section 14.2.

 

14.2

Governing Law; Waiver of Jury Trial . This Agreement shall be governed in all respects by the laws of the State of New York, USA, without regard to its choice of law provisions. Except for JCC disputes (which shall be resolved pursuant to Section 5.3), any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby which cannot be resolved pursuant to Section 14.2, shall be brought in the Federal court sitting in Manhattan, New York, New York, USA, and each of the Parties hereby irrevocably consents to the jurisdiction

 

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  of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. THE PARTIES AGREE THAT THEIR DISPUTES SHALL BE RESOLVED BY A JUDGE AND EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, ASSERTED BY EITHER PARTY AGAINST THE OTHER PARTY.

 

14.3 Equitable Relief . Each Party hereto acknowledges that the remedies at law of the other Party for a breach or threatened breach of this Agreement may be inadequate and, in recognition of this fact, either Party to this Agreement, without posting any bond, and in addition to all other remedies that may be available, shall be entitled to seek equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy in a court of competent jurisdiction that may then be available.

 

14.4 Entire Agreement; Modification . This Agreement (including the Exhibits hereto) and, subject to finalization of terms, the Device Development Agreement and the Quality Agreement constitute a final expression of the Parties’ agreement and a complete and exclusive statement with respect to all of its respective terms. This Agreement supersedes all prior and contemporaneous agreements and communications, whether oral, written or otherwise, concerning any and all matters contained herein, including the Confidentiality Agreement, the Feasibility Agreement and the term sheet, dated August 26, 2013, between the Parties. No trade customs, courses of dealing or courses of performance by the Parties shall be relevant to modify, supplement or explain any terms used in this Agreement. In the event of any inconsistency or conflict between the terms of this Agreement, the Device Development Agreement and the Quality Agreement, the terms of this Agreement shall govern. This Agreement may not be modified or supplemented by any purchase order, change order, acknowledgment, order acceptance, standard terms of sale, invoice or the like. This Agreement may only be modified or supplemented in writing signed by the Parties to this Agreement.

 

14.5 Relationship Between the Parties . The Parties’ relationship, as established by this Agreement, is solely that of independent contractors. This Agreement does not create any partnership, joint venture or similar business relationship between the Parties. Neither Party is a legal representative of the other Party; neither Party can assume or create any obligation, representation, warranty or guarantee, express or implied, on behalf of the other Party for any purpose whatsoever.

 

14.6

Non-Waiver . The failure of a Party to insist upon strict performance of any provision of this Agreement or to exercise any right arising out of this Agreement

 

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  shall neither impair that provision or right nor constitute a waiver of that provision or right, in whole or in part, in that instance or in any other instance. Any waiver by a Party of a particular provision or right shall be in writing, shall be as to a particular matter and, if applicable, for a particular period of time and shall be signed by such Party.

 

14.7 Assignment. Except as expressly provided hereunder, neither this Agreement nor any rights or obligations hereunder may be assigned or otherwise transferred by either Party without the prior written consent of the other Party (which consent shall not be unreasonably withheld); provided , however , that (a) either Party may assign this Agreement, and its rights and obligations hereunder, to an Affiliate, provided that such Party shall remain liable and responsible to the other Party for the performance and observance of all such duties and obligations by such Affiliate; and (b) either Party may assign this Agreement, and its rights and obligations hereunder, to a Third Party in connection with the transfer or sale of all or substantially all of the business of such Party to which this Agreement relates, whether by merger, sale of stock, sales of assets or otherwise. The rights and obligations of the Parties under this Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment not in accordance with this Agreement shall be void.

 

14.8 No Third Party Beneficiaries . This Agreement is neither expressly nor impliedly made for the benefit of any party other than those executing it.

 

14.9 Severability . If, for any reason, any part of this Agreement is adjudicated invalid, unenforceable or illegal by a court of competent jurisdiction, then such adjudication shall not affect or impair, in whole or in part, the validity, enforceability or legality of any remaining portions of this Agreement. All remaining portions shall remain in full force and effect as if the original Agreement had been executed without the invalidated, unenforceable or illegal part.

 

14.10 Notices . Any notice to be given under this Agreement must be in writing and delivered either (a) in person, (b) by any method of mail (postage prepaid) requiring return receipt, (c) by overnight courier confirmed thereafter to the Party to be notified at its addresses given below, or at any address such Party has previously designated by prior written notice to the other Party, or (d) by sending it by facsimile or email followed by delivery via one of the methods set forth in (a), (b) or (c) above. Notice shall be deemed sufficiently given for all purposes upon the earlier of: (x) the date of actual receipt; (y) if mailed, five business days after the date of postmark; or (z) if delivered by overnight courier, the next business day the overnight courier regularly makes deliveries.

If to Novo Nordisk, notices must be addressed to:

 

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Novo Nordisk A/S

Novo Allé

2880 Bagsvaerd

Denmark

Attn: Head of Corporate Alliance Management

Facsimile:

With a copy to: Novo Nordisk A/S

Novo Allé

2880 Bagsvaerd

Denmark

Attn: General Counsel

Facsimile:

If to Zosano, notices must be addressed to:

Zosano Pharma, Inc.

34790 Ardentech Court

Fremont, California 94555

Attention: Chief Executive Officer

Facsimile: 1-510-742-6288

With a copy to:

Foley Hoag LLP

155 Seaport Blvd

Boston, MA 02210

Attention: Jeff Quillen

Facsimile: 1-617-832-7000

 

14.11 Force Majeure . Except for the obligation to make payment when due, each Party shall be excused from liability for the failure or delay in performance of any obligation under this Agreement by reason of any event beyond such Party’s reasonable control, including, but not limited to, Acts of God, fire, flood, explosion, earthquake, or other natural forces, war, civil unrest, terrorism, accident, destruction or other casualty, any lack or failure of transportation facilities, any lack or failure of supply of raw materials, any strike or labor disturbance, or any other event similar to those enumerated above. Such excuse from liability shall be effective only to the extent and duration of the event(s) causing the failure or delay in performance, provided that the Party has not caused such event(s) to occur. Notice of a Party’s failure or delay in performance due to force majeure shall be given to the other Party within ten (10) days after its occurrence. All delivery dates under this Agreement that have been affected by force majeure shall be tolled for the duration of such force majeure.

 

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14.12 No Use of Names . Except as otherwise provided herein, nothing contained in this Agreement shall be construed as conferring any right on either Party to use in advertising, publicity or other promotional activities any name, trade name, trademark or other designation of the other Party, including any contraction, abbreviation or simulation of any of the foregoing, unless the express written permission of such other Party has been obtained.

 

14.13 Counterparts . This Agreement may be executed in two counterparts, each of which shall be deemed an original document, and all of which, together with this writing, shall be deemed one instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or by email of a scanned copy will be effective as delivery of an original executed counterpart of this Agreement.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement.

Zosano Pharma, Inc.

 

By:

/s/ Vikram Lamba

Name: Vikram Lamba
Title: Chief Executive Officer
Date: Jan. 31, 2014

Novo Nordisk A/S

 

By:

/s/ Peter Kurtzhals

Name: Peter Kurtzhals
Title: Senior Vice President, Diabetes Research Unit
Date: 31 January 2014

 

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Exhibit A

Licensed Patents

(as of the Effective Date)

 

Matter Number    Country    Patent Number    Issue Date    Invention Title

80861

3910.1010/

   China (People’s Republic)    1820462.7    04-Jun-2008    MICROBLADE ARRAY IMPACT APPLICATOR

80861

3910.1010/

   France    1341442    29-Jun-2005    MICROBLADE ARRAY IMPACT APPLICATOR

80861

3910.1010/

   Germany    60111771.9    29-Jun-2005    MICROBLADE ARRAY IMPACT APPLICATOR

80861

3910.1010/

   Italy    1341442    29-Jun-2005    MICROBLADE ARRAY IMPACT APPLICATOR

80861

3910.1010/

   Japan    4198985    10-Oct-2008    MICROBLADE ARRAY IMPACT APPLICATOR

80861

3910.1010/

   Korea, Republic of    818545    26-Mar-2008    MICROBLADE ARRAY IMPACT APPLICATOR

80861

3910.1010/

   Spain    1341442    29-Jun-2005    MICROBLADE ARRAY IMPACT APPLICATOR

80861

3910.1010/

   United Kingdom    1341442    29-Jun-2005    MICROBLADE ARRAY IMPACT APPLICATOR

80887

3910.1014/

   China (People’s Republic)    ZL02812251.8    21-Nov-2007    MICROPROJECTION ARRAY HAVING A BENEFICIAL AGENT CONTAINING COATING

80887

3910.1014/

   France    1392389    07-Oct-2009    MICROPROJECTION ARRAY HAVING A BENEFICIAL AGENT CONTAINING COATING

80887

3910.1014/

   Germany    1392389    07-Oct-2009    MICROPROJECTION ARRAY HAVING A BENEFICIAL AGENT CONTAINING COATING

80887

3910.1014/

   Italy    1392389    07-Oct-2009    MICROPROJECTION ARRAY HAVING A BENEFICIAL AGENT CONTAINING COATING

80887

3910.1014/

   Spain    1392389    07-Oct-2009    MICROPROJECTION ARRAY HAVING A BENEFICIAL AGENT CONTAINING COATING

80887

3910.1014/

   United Kingdom    1392389    07-Oct-2009   

MICROPROJECTION ARRAY HAVING A BENEFICIAL AGENT

CONTAINING COATING

 

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A-1


Matter Number    Country    Patent Number    Issue Date    Invention Title

80887

3910.1014/

   United States of America    7963935    21-Jun-2011    MICROPROJECTION ARRAY HAVING A BENEFICIAL AGENT CONTAINING COATING

80892

3910.1030/

   China (People’s Republic)    3820487    04-Mar-2009    TRANSDERMAL DRUG DELIVERY DEVICES HAVING COATED MICROPROTRUSIONS

80895

3910.1038/

   China (People’s Republic)    ZL200480024388.3    03-Feb-2010    TRANSDERMAL DELIVERY DEVICE AND METHOD FOR FORMING THE SAME

80895

3910.1038/

   Japan    5174347    11-Jan-2013    METHOD FOR COATING SKIN PIERCING MICROPROJECTIONS

80901

3910.1055/

   China (People’s Republic)    ZL200480039547.7    23-Dec-2009    SELF-ACTUATING APPLICATOR FOR MICROPROJECTION ARRAY

80901

3910.1055/

   France    1680154    04-Jan-2012    SELF-ACTUATING APPLICATOR FOR MICROPROJECTION ARRAY

80901

3910.1055/

   Germany    1680154    04-Jan-2012    SELF-ACTUATING APPLICATOR FOR MICROPROJECTION ARRAY

80901

3910.1055/

   Italy    1680154    04-Jan-2012    SELF-ACTUATING APPLICATOR FOR MICROPROJECTION ARRAY

80901

3910.1055/

   Japan    4682144    10-Feb-2011    SELF-ACTUATING APPLICATOR FOR MICROPROJECTION ARRAY

80901

3910.1055/

   Spain    1680154    04-Jan-2012    SELF-ACTUATING APPLICATOR FOR MICROPROJECTION ARRAY

80901

3910.1055/

   United Kingdom    1680154    04-Jan-2012    SELF-ACTUATING APPLICATOR FOR MICROPROJECTION ARRAY

80901

3910.1055/

   United States of America    7097631    29-Aug-2006    SELF-ACTUATING APPLICATOR FOR MICROPROJECTION ARRAY

80902

3910.1058/

   China (People’s Republic)    ZL200480040402.9    14-Oct-2009    COMPOSITION AND APPARATUS FOR TRANSDERMAL DELIVERY

80902

3910.1058/

   Japan    5388415    18-Oct-2013    COMPOSITION AND APPARATUS FOR TRANSDERMAL DELIVERY

 

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A-2


Matter Number    Country    Patent Number    Issue Date    Invention Title

80905

3910.1067/

   China (People’s Republic)    ZL200580023222.4    09-Dec-2009    APPARATUS AND METHOD FOR TRANSDERMAL DELIVERY OF PARATHYROID HORMONE AGENTS

80905

3910.1067/

   Japan    5007427    06-Jun-2012    APPARATUS AND METHOD FOR TRANSDERMAL DELIVERY OF PARATHYROID HORMONE AGENTS

80905

3910.1067/

   United States of America    7556821    07-Jul-2009    APPARATUS AND METHOD FOR TRANSDERMAL DELIVERY OF PARATHYROID HORMONE AGENTS

80905DIV

3910.1068/

   Japan    5309203    05-Jul-2013    APPARATUS AND METHOD FOR TRANSDERMAL DELIVERY OF PARATHYROID HORMONE AGENTS

80905CON2

3910.1070/

   United States of America    8361022    29-Jan-2013    APPARATUS FOR TRANSDERMAL DELIVERY OF PARATHYROID HORMONE AGENTS

80905CON3

3910.1071/

   United States of America    8633159       APPARATUS AND METHOD FOR TRANSDERMAL DELIVERY OF PARATHYROID HORMONE AGENTS

80909

3910.1079/

   China (People’s Republic)    ZL97199015.8    07-Jan-2004    DEVICE AND METHOD FOR ENHANCING TRANSDERMAL AGENT FLUX

80909

3910.1079/

   Japan    4153999    11-Jul-2008    DEVICE AND METHOD FOR ENHANCING TRANSDERMAL AGENT FLUX

80910

3910.1082/

   China (People’s Republic)    ZL01818583.5    01-Oct-2008    METHODS FOR INHIBITING DECREASE IN TRANSDERMAL DRUG FLUX BY INHIBITION OF PATHWAY CLOSURE

80912

3910.1086/

   China (People’s Republic)    1820464.3    12-Apr-2006    APPARATUS AND METHOD FOR PIERCING SKIN WITH MICROPROTRUSIONS

80912

3910.1086/

   European Patent Convention    1341453    15-Apr-2009    APPARATUS AND METHOD FOR PIERCING SKIN WITH MICROPROTRUSIONS

 

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A-3


Matter Number    Country    Patent Number    Issue Date    Invention Title

80912

3910.1086/

   France    1341453    15-Apr-2009    APPARATUS AND METHOD FOR PIERCING SKIN WITH MICROPROTRUSIONS

80912

3910.1086/

   Germany       15-Apr-2009    APPARATUS AND METHOD FOR PIERCING SKIN WITH MICROPROTRUSIONS

80912

3910.1086/

   Italy    1341453    15-Apr-2009    APPARATUS AND METHOD FOR PIERCING SKIN WITH MICROPROTRUSIONS

80912

3910.1086/

   Japan    4659332    07-Jan-2011    APPARATUS AND METHOD FOR PIERCING SKIN WITH MICROPROTRUSIONS

80912

3910.1086/

   Spain    1341453    15-Apr-2009    APPARATUS AND METHOD FOR PIERCING SKIN WITH MICROPROTRUSIONS

80912

3910.1086/

   United Kingdom    1341453    15-Apr-2009    APPARATUS AND METHOD FOR PIERCING SKIN WITH MICROPROTRUSIONS

80912

3910.1086/

   United States of America    7131960    07-Nov-2006    APPARATUS AND METHOD FOR PIERCING SKIN WITH MICROPROTRUSIONS

80912CIP

3910.1087/

   United States of America    7419481    02-Sep-2008    APPARATUS AND METHOD FOR PIERCING SKIN WITH MICROPROTRUSIONS

80912DIV

3910.1088/

   United States of America    7798987    21-Sep-2010    APPARATUS AND METHOD FOR PIERCING SKIN WITH MICROPROTRUSIONS

80920

3910.1108/

   China (People’s Republic)    ZL200680010126.0    25-May-2011    COATED MICROPROJECTIONS HAVING REDUCED VARIABILITY AND METHOD FOR PRODUCING SAME

80920

3910.1108/

   Japan    5277456    31-May-2013    COATED MICROPROJECTIONS HAVING REDUCED VARIABILITY AND METHOD FOR PRODUCING SAME

80922

3910.1111/

   United States of America    8632801       STABLE THERAPEUTIC FORMULATIONS

80925

3910.1119/

   France    1037687    03-Sep-2008    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925

3910.1119/

   Germany    1037687    03-Sep-2008    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

 

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A-4


Matter Number    Country    Patent Number    Issue Date    Invention Title

80925

3910.1119/

   Italy    1037687    03-Sep-2008    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925

3910.1119/

   Spain    1037687    03-Sep-2008    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925

3910.1119/

   United Kingdom    1037687    03-Sep-2008    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925

3910.1119/

   United States of America    6322808    27-Nov-2001    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925(2)

3910.1120/

   United States of America    6083196    04-Jul-2000    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925(2)

3910.1121/

   China (People’s Republic)    ZL98812096.8    11-Aug-2004    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925(2)

3910.1121/

   Germany    69806963.3    31-Jul-2002    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925(2)

3910.1121/

   Japan    4061022    28-Dec-2007    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925(2)

3910.1121/

   United Kingdom    1035889    31-Jul-2002    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925CON

3910.1121/

   United States of America    6953589    11-Oct-2005    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925(3)

3910.1122/

   China (People’s Republic)    ZL98811989.7    13-Oct-2004    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925(3)

3910.1122/

   France    1037686    17-Aug-2005    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925(3)

3910.1122/

   Germany    1037686    17-Aug-2005    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925(3)

3910.1122/

   Italy    1037686    17-Aug-2005    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925(3)

3910.1122/

   Spain    1037686    17-Aug-2005    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

 

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A-5


Matter Number    Country    Patent Number    Issue Date    Invention Title

80925(3)

3910.1122/

   United Kingdom    1037686    17-Aug-2005    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80925(3)

3910.1122/

   United States of America    6050988    18-Apr-2000    DEVICE FOR ENHANCING TRANSDERMAL AGENT FLUX

80926

3910.1124/

   Japan    4012252    14-Sep-2007    DEVICE FOR ENHANCING TRANSDERMAL AGENT DELIVERY OR SAMPLING

80926

3910.1124/

   United States of America    7184826    27-Feb-2007    DEVICE AND METHOD FOR ENHANCING TRANSDERMAL FLUX OF AGENTS BEING DELIVERED OR SAMPLED

80927

3910.1133/

   United States of America    6855372    15-Feb-2005    METHOD AND APPARATUS FOR COATING SKIN PIERCING MICROPROJECTIONS

80927DIV

3910.1134/

   United States of America    7435299    14-Oct-2008    METHOD AND APPARATUS FOR COATING SKIN PIERCING MICROPROJECTIONS

80928

3910.1137/

   France    1341452    10-Dec-2008    MICROPROTRUSION MEMBER RETAINER FOR IMPACT APPLICATOR

80928

3910.1137/

   Germany    1341452    10-Dec-2008    MICROPROTRUSION MEMBER RETAINER FOR IMPACT APPLICATOR

80928

3910.1137/

   Italy    1341452    10-Dec-2008    MICROPROTRUSION MEMBER RETAINER FOR IMPACT APPLICATOR

80928

3910.1137/

   Japan    4104975    04-Apr-2008    MICROPROTRUSION MEMBER RETAINER FOR IMPACT APPLICATOR

80928

3910.1137/

   Spain    1341452    10-Dec-2008    MICROPROTRUSION MEMBER RETAINER FOR IMPACT APPLICATOR

80928

3910.1137/

   United Kingdom    1341452    10-Dec-2008    MICROPROTRUSION MEMBER RETAINER FOR IMPACT APPLICATOR

80928

3910.1137/

   United States of America    6855131    15-Feb-2005    MICROPROTRUSION MEMBER RETAINER FOR IMPACT APPLICATOR

 

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES

AND EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.

A-6


Matter Number    Country    Patent Number    Issue Date    Invention Title

80929

3910.1140/

   China (People’s Republic)    1821359.6    16-Sep-2005    TRANSDERMAL DRUG DELIVERY DEVICES HAVING COATED MICROPROTRUSIONS

80929

3910.1140/

   France    1333880    15-Apr-2009    TRANSDERMAL DRUG DELIVERY DEVICES HAVING COATED MICROPROTRUSIONS

80929

3910.1140/

   Germany    1333880    15-Apr-2009    TRANSDERMAL DRUG DELIVERY DEVICES HAVING COATED MICROPROTRUSIONS

80929

3910.1140/

   Italy    1333880    15-Apr-2009    TRANSDERMAL DRUG DELIVERY DEVICES HAVING COATED MICROPROTRUSIONS

80929

3910.1140/

   Japan    4659336    07-Jan-2011    TRANSDERMAL DRUG DELIVERY DEVICES HAVING COATED MICROPROTRUSIONS

80929

3910.1140/

   Korea, Republic of    812097    04-Mar-2008    TRANSDERMAL DRUG DELIVERY DEVICES HAVING COATED MICROPROTRUSIONS

80929

3910.1140/

   Spain    1333880    15-Apr-2009    TRANSDERMAL DRUG DELIVERY DEVICES HAVING COATED MICROPROTRUSIONS

80929

3910.1140/

   United Kingdom    1333880    15-Apr-2009    TRANSDERMAL DRUG DELIVERY DEVICES HAVING COATED MICROPROTRUSIONS

80929

3910.1140/

   United States of America    7537795    26-May-2009    TRANSDERMAL DRUG DELIVERY DEVICES HAVING COATED MICROPROTRUSIONS

80929DIV

3910.1141/

   Japan    4875457    02-Dec-2011    TRANSDERMAL DRUG DELIVERY DEVICES HAVING COATED MICROPROTRUSIONS

80930

3910.1144/

   China (People’s Republic)    ZL 00818309.0    16-Jul-2008    SKIN TREATMENT APPARATUS FOR SUSTAINED TRANSDERMAL DELIVERY

80930

3910.1144/

   Germany    1239917    11-May-2005    SKIN TREATMENT APPARATUS FOR SUSTAINED TRANSDERMAL DRUG DELIVERY

 

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES

AND EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.

A-7


Matter Number    Country    Patent Number    Issue Date    Invention Title

80930

3910.1144/

   Italy    1239917    11-May-2005    SKIN TREATMENT APPARATUS FOR SUSTAINED TRANSDERMAL DRUG DELIVERY

80930

3910.1144/

   Japan    4312407    22-May-2009    SKIN TREATMENT APPARATUS FOR SUSTAINED TRANSDERMAL DRUG DELIVERY

80930

3910.1144/

   Spain    1239917    11-May-2005    SKIN TREATMENT APPARATUS FOR SUSTAINED TRANSDERMAL DRUG DELIVERY

80930

3910.1144/

   United Kingdom    1239917    11-May-2005    SKIN TREATMENT APPARATUS FOR SUSTAINED TRANSDERMAL DRUG DELIVERY

80931

3910.1148/

   France    1239916    23-Nov-2005    DEVICE AND METHOD FOR ENHANCING MICROPROTRUSION SKIN PIERCING

80931

3910.1148/

   Germany    1239916    23-Nov-2005    DEVICE AND METHOD FOR ENHANCING MICROPROTRUSION SKIN PIERCING

80931

3910.1148/

   Italy    1239916    23-Nov-2005    DEVICE AND METHOD FOR ENHANCING MICROPROTRUSION SKIN PIERCING

80931

3910.1148/

   Spain    1239916    23-Nov-2005    DEVICE AND METHOD FOR ENHANCING MICROPROTRUSION SKIN PIERCING

80931

3910.1148/

   United Kingdom    1239916    23-Nov-2005    DEVICE AND METHOD FOR ENHANCING SKIN PIERCING BY MICROPROTRUSIONS

80931

3910.1148/

   United States of America    7087035    08-Aug-2006    DEVICE AND METHOD FOR ENHANCING SKIN PIERCING BY MICROPROTRUSIONS

80933

3910.1151/

   China (People’s Republic)    ZL200480024334.7    19-Jun-2013    FORMUALTIONS FOR COATED MICROPROJECTIONS CONTAINING NON-VOLATILE COUNTERIONS

80933

3910.1151/

   France    1638523    30-Oct-2013    FORMUALTIONS FOR COATED MICROPROJECTIONS CONTAINING NON-VOLATILE COUNTERIONS

 

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES

AND EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.

A-8


Matter Number    Country    Patent Number    Issue Date    Invention Title

80933

3910.1151/

   Germany    1638523    30-Oct-2013    FORMUALTIONS FOR COATED MICROPROJECTIONS CONTAINING NON-VOLATILE COUNTERIONS

80933

3910.1151/

   Italy    1638523    30-Oct-2013    FORMUALTIONS FOR COATED MICROPROJECTIONS CONTAINING NON-VOLATILE COUNTERIONS

80933

3910.1151/

   Spain    1638523    30-Oct-2013    FORMUALTIONS FOR COATED MICROPROJECTIONS CONTAINING NON-VOLATILE COUNTERIONS

80933

3910.1151/

   United Kingdom    1638523    30-Oct-2013    FORMUALTIONS FOR COATED MICROPROJECTIONS CONTAINING NON-VOLATILE COUNTERIONS

80933

3910.1151/

   United States of America    7579013    25-Aug-2009    FORMULATIONS FOR COATED MICROPROJECTIONS CONTAINING NON-VOLATILE COUNTERIONS

80861CON

3910.1011/

   United States of America    11/251,488    14-Oct-2005    MICROBLADE ARRAY IMPACT APPLICATOR

80887

3910.1015/

   European Patent Convention    6076360.40    20-Apr-2002    MICROPROJECTION ARRAY HAVING A BENEFICIAL AGENT CONTAINING COATING

80887

3910.1015/

   Japan    2011-103757    20-Apr-2002    MICROPROJECTION ARRAY HAVING A BENEFICIAL AGENT CONTAINING COATING

80901CON

3910.1056/

   United States of America    11/477,045    27-Jun-2006    SELF-ACTUATING APPLICATOR FOR MICROPROJECTION ARRAY

80905

3910.1067/

   European Patent Convention    5727716.20    18-Mar-2005    APPARATUS AND METHOD FOR TRANSDERMAL DELIVERY OF PARATHYROID HORMONE AGENTS-Accelerated Status

 

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES

AND EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.

A-9


Matter Number    Country    Patent Number    Issue Date    Invention Title

80905CON

3910.1069/

   United States of America    12/455,830    08-Jun-2009    APPARATUS AND METHOD FOR TRANSDERMAL DELIVERY OF PARATHYROID HORMONE AGENTS

80910

3910.1082/

   Japan    2002-524470    06-Sep-2001    METHODS FOR INHIBITING DECREASE IN TRANSDERMAL DRUG FLUX BY INHIBITION OF PATHWAY CLOSURE

80912(2)

3910.1089/

   European Patent Convention    6748914.60    27-Mar-2006    APPARATUS AND METHOD FOR PIERCING SKIN WITH MICROPROJECTIONS

80912(2)

3910.1089/

   Japan    2008-504343    27-Mar-2006    APPARATUS AND METHOD FOR PIERCING SKIN WITH MICROPROJECTIONS

80922

3910.1111/

   European Patent Convention    6849294.10    28-Dec-2006    STABLE THERAPEUTIC FORMULATIONS

80922

3910.1111/

   Japan    2008-548743    28-Dec-2006    STABLE THERAPEUTIC FORMULATIONS

80923

3910.1113/

   China (People’s Republic)    200680019269.80    01-Jun-2006    METHOD FOR TERMINAL STERILIZATION OF TRANSDERMAL DELIVERY DEVICES

80923

3910.1113/

   Japan    2008-514934    01-Jun-2006    METHOD FOR TERMINAL STERILIZATION OF TRANSDERMAL DELIVERY DEVICES

80926CON

3910.1129/

   United States of America    11/668,157    29-Jan-2007    DEVICE WITH ANCHORING ELEMENTS FOR TRANSDERMAL DELIVERY OR SAMPLING OF AGENTS

80928CON

3910.1138/

   United States of America    10/978,807    01-Nov-2004    MICROPROTRUSION MEMBER RETAINER FOR IMPACT APPLICATOR

80929CON

3910.1142/

   United States of America    11/347,779    02-Feb-2006    TRANSDERMAL DRUG DELIVERY DEVICES HAVING COATED MICROPROTRUSIONS

80933

3910.1151/

   Japan    2006-518731    29-Jun-2004    FORMUALTIONS FOR COATED MICROPROJECTIONS CONTAINING NON-VOLATILE COUNTERIONS

80933(2)

3910.1152/

   China (People’s Republic)    200680007669.70    11-Jan-2006    FORMUALTIONS FOR COATED MICROPROJECTIONS HAVING CONTROLLED SOLUBILITY

 

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES

AND EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.

A-10


Matter Number    Country    Patent Number    Issue Date    Invention Title

80933(2)

3910.1152/

   European Patent Convention    6718051.30    11-Jan-2006    FORMULATIONS FOR COATED MICROPROJECTIONS HAVING CONTROLLED SOLUBILITY

80933DIV

3910.1153/

   United States of America    12/583,761    24-Aug-2009    FORMULATIONS FOR COATED MICROPROJECTIONS CONTAINING NON-VOLATILE COUNTERIONS

80935

3910.1158/

   China (People’s Republic)    200780013557.70    15-Mar-2007    APPARATUS AND METHOD FOR TRANSDERMAL DELIVERY OF PARATHYROID HORMONE AGENTS TO PREVENT OR TREAT OSTEOPENIA

80935

3910.1158/

   European Patent Convention    7753418.80    15-Mar-2007    APPARATUS AND METHOD FOR TRANSDERMAL DELIVERY OF PARATHYROID HORMONE AGENTS TO PREVENT OR TREAT OSTEOPENIA

80935

3910.1158/

   Japan    2009-500526    15-Mar-2007    APPARATUS AND METHOD FOR TRANSDERMAL DELIVERY OF PARATHYROID HORMONE AGENTS TO PREVENT OR TREAT OSTEOPENIA

80935

3910.1158/

   United States of America    11/686,909    15-Mar-2007    APPARATUS AND METHOD FOR TRANSDERMAL DELIVERY OF PARATHYROID HORMONE AGENTS TO PREVENT OR TREAT OSTEOPENIA

80944

3910.1178/

   Japan    2007-556401    15-Feb-2006    MICROPROJECTION ARRAYS WITH IMPROVED BIOCOMPATIBILITY

No alternate #

3910.1195/

   United States of America    61/860,001    30-Jul-2013    LOW-PROFILE MICRONEEDLE PATCH APPLICATOR

80910DIV

3910.1197/

   Japan    2013-143738    9-Jul-2013    METHODS FOR INHIBITING DECREASE IN TRANSDERMAL DRUG FLUX BY INHIBITION OF PATHWAY CLOSURE

 

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES

AND EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.

A-11


Confidential

Exhibit B

Novo Nordisk Competitors

[**]

 

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES

AND EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.

B-1


Exhibit C

Feasibility Study

[**]

 

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES

AND EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.

C-1


Exhibit D

Novo Nordisk A/S’ Invoicing Instructions

In order to ensure timely settlement of invoices, you are kindly requested to observe the below guidelines when sending invoices or credit notes to Novo Nordisk.

All invoices should be sent to:

Novo Nordisk A/S

PO box 1000

DK - 2880 Bagsværd

You may also invoice Novo Nordisk via email by attaching the invoice as a PDF file, email address: centpostice@novonordisk.com. Novo Nordisk is unable to process invoices sent by telefax.

All invoices must include the following information:

 

    Full name and Novo Nordisk initials of the Project Director for Novo Nordisk :

 

    It must be clearly stated that the document is an invoice

 

    A reference to the Novo Nordisk agreement ID CMS ID             

 

    Value Added Tax number or Federal ID/registration number

 

    Bank information, including International Bank Account Number:

 

  1. International Bank Account Number

 

  2. Bank Name: The name of beneficiary’s bank

 

  3. Bank Address: The address of beneficiary’s bank

 

  4. Bank Key #: ABA/Routing/Fedwire/Transit number/Sort Number

 

  5. Swift: Swift code

 

  6. Account Name: Under what name beneficiary’s bank account is open

 

  7. Account Number: Number of beneficiary’s bank account and/or IBAN code, which is applicable in all EU countries.

 

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES

AND EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.

D-1

Exhibit 10.2

 

LOGO

 

1-105 Kanda Jinbocho, Chiyoda-ku, Tokyo 101-8101, Japan

Phone +81-(0)3-3296-3631, Fax +81-(0)3-3296-3681

January 27, 2014

Zosano Pharma, Inc.

34790 Ardentech Court

Fremont, CA 94555

United States of America

Attn: Mr. Vikram Lamba, President and Chief Executive Officer

[ Via Express Courier Service / Via Facsimile (Fax +1 510 742 8262) ]

Re: Notice of Termination

Ladies and Gentlemen:

Reference is made to the Amended and Restated License Agreement dated as of April 1, 2012, as amended by the First Amendment thereto dated as of December 14, 2012, by and between Zosano Pharma, Inc. (“Zosano”) and Asahi Kasei Pharma Corporation (“AKP”) (“License Agreement”).

AKP hereby terminates the License Agreement at will in its entirety pursuant to Section 15.2 of the License Agreement, effective immediately as of the date of this letter agreement (the “Termination Date”), with the surviving provisions of the License Agreement remaining valid. By its signature below, Zosano hereby waives, in accordance with Section 17.8 of the License Agreement, the one hundred eighty (180) days’ notice period for termination as provided in Section 15.2 of the License Agreement, and agrees to AKP’s termination of the License Agreement as of the Termination Date. For the avoidance of doubt, the foregoing waiver shall not be deemed to affect, alter or modify the consequences of termination of the License Agreement as set forth in Section 15.7(d) thereof or the survival of provisions of the License Agreement as set forth in Section 15.8 thereof. Zosano and AKP may publish the fact of termination of the License Agreement and AKP’s discontinuance of the Development (as defined in the License Agreement), in English and/or in Japanese, with the content of each of Zosano’s and AKP’s publication to be substantially in the form of the press release attached hereto as Exhibit A.

Notwithstanding the termination of the License Agreement according to the foregoing


LOGO

 

Zosano Pharma, Inc.   

January 27, 2014

Page 2

 

paragraph, Zosano hereby agrees by its signature below, that AKP may, following the Termination Date, perform in accordance with Articles 4 and 9 of the License Agreement, the work concerning preparation of the reports and other documents relating to the Development activities conducted by AKP during the term of the License Agreement, which is required under Applicable Laws (as defined in the License Agreement) and/or is consistent with the Development Plan (as defined in the License Agreement) and AKP’s internal past practices in the ordinary course of business, provided that AKP agrees to provide to Zosano a copy of each such report and other document promptly following its preparation, and such reports and other documents shall be deemed to be Project Information (as defined in the License Agreement) owned by AKP and subject to the licenses granted to Zosano pursuant to Sections 2.2 and 15.7 of the License Agreement.

Without limiting the generality of Section 15.7(d) of the License Agreement and all surviving provisions of the License Agreement referred to in Section 15.8 thereof, Asahi hereby confirms, and Zosano hereby confirms by its signature below, that:

 

(1) Except payments payable by AKP or AKP USA, Inc. (AKP’s Affiliate (as defined in the License Agreement), “AKPUS”) to Zosano or ZP Group LLC (a wholly owned subsidiary of Zosano, “LLC”) under or contemplated by the Termination and Membership Interest Transfer Agreement dated as of December 20, 2013, by and among Zosano, LLC, AKPUS and AKP, no other payments are payable by AKP or AKPUS to Zosano, any of Zosano’s Affiliates or LLC under the License Agreement or any other related agreements;

 

(2) AKP shall destroy all Products (as defined in the License Agreement) and Placebo Patches (as defined in the License Agreement) other than those samples required to be retained by Applicable Laws, received from Zosano or LLC under the License Agreement or any other related agreements, in compliance with Applicable Laws, and furnish Zosano with a certificate indicating what was destroyed, the amounts (if applicable), and a statement certifying that such Products and Placebo Patches were disposed in accordance with Applicable Laws;

 

(3) Zosano shall, or shall cause LLC to, destroy all Teribone formulations and its standard solutions received from AKP under the License Agreement or any other related agreements, in compliance with Applicable Laws, and furnish AKP with a certificate indicating what was destroyed, the amounts (if applicable), and a statement certifying that such Teribone formulations and its standard solutions were disposed in accordance with Applicable Laws;

 

(4)

Zosano shall, and shall cause LLC to, retain samples of the Product Patches (as defined in the License Agreement) and Placebo Patches supplied to AKP under the License Agreement or any other related agreements until the third (3 rd ) anniversary of December 17, 2013 (i.e., the date AKP determined discontinuation of the Development of the


LOGO

 

Zosano Pharma, Inc.   

January 27, 2014

Page 3

 

  Product), in accordance with Applicable Laws in Japan and Zosano’s or LLC’s “Retain Products SOP QA-417” (except for the duration of retaining samples). The amount of samples of such Product Patches and Placebo Patches shall be at least twice the quantity required to carry out all of the tests required to determine whether such Product Patches and Placebo Patches meet its release specifications, with the exception of bioburden and endotoxin testing; and

 

(5) Zosano shall, and shall cause LLC to, retain samples of the Product Patches and Placebo Patches supplied to Zosano under certain related agreements of the License Agreement (i.e., the Memorandum dated as of December 14, 2012, as amended by the Amendment No. 1 to Memorandum dated as of February 25, 2013, by and among Zosano, AKP and LLC, and the Quality Agreement dated as of December 14, 2012, by and among Zosano, AKP and LLC), and all materials thereof, for a certain period in accordance with Applicable Laws in Australia.

 

Sincerely,
ASAHI KASEI PHARMA CORPORATION
By:  

/s/ Toshio Asano

Name:   Toshio Asano
Title:   President
Acknowledged and agreed:
ZOSANO PHARMA, INC.
By:  

/s/ Vikram Lamba

Name:   Vikram Lamba
Title:   President and CEO

Copy to: Latham & Watkins LLP

140 Scott Drive

Menlo Park, CA 94025

United States of America

Attn: Alan C. Mendelson

          Judith A. Hasko

(FAX: +1 650 463 2600)


LOGO

 

Zosano Pharma, Inc.   

January 27, 2014

Page 4

 

Foley Hoag LLP

Seaport West

155 Seaport Boulevard, Boston

Massachusetts 02210-2600

United States of America

Attn: Mr. Joel D. Needleman

(Fax +1 617 832 7000)


EXHIBIT A

Form of AKP Press Release

Discontinuation of the development of a transdermal patch formulation of

Teribone™ human parathyroid hormone

Asahi Kasei Pharma Corporation (headquarters: Tokyo, Japan; President: Toshio Asano) and Zosano Pharma, Inc. (headquarters: Fremont, California, USA; CEO: Vikram Lamba) have reached a decision to discontinue the development of a transdermal patch formulation of Teribone™ human parathyroid hormone using microprojection technology from Zosano and to terminate the relevant license agreement between Asahi Kasei Pharma and Zosano.

Asahi Kasei Pharma has advanced the development of the transdermal patch formulation in Japan under the license agreement with Zosano, but results of the Phase I clinical trial did not meet the go/no-go decision criteria established by Asahi Kasei Pharma to proceed to Phase II. It was therefore determined that the development of this formulation could not continue.

Moving forward, Asahi Kasei Pharma remains committed to further developments of new formulations of Teribone™ that enhance usability for patients.

 

For more information, please contact:  
Asahi Kasei Pharma Corporation   Asahi Kasei Corporation
General Affairs   Corporate Communications
Phone: +81-(0)3-3296-3600   Phone: +81-(0)3-3296-3008
Fax: +81-(0)3-3296-3680   Fax: +81-(0)3-3296-3162

Exhibit 10.3

CONFIDENTIAL

February 22, 2011

Patrick Hannon

ALZA Corporation

700 Eubanks Drive

Vacaville, CA 95688

Re:    Intellectual Property License Agreement dated October 5, 2006 between ALZA Corporation (“ALZA”) and The Macroflux Corporation (predecessor in interest to Zosano Pharma, Inc.) (the “Agreement”).

Dear Mr. Hannon:

As you know, ALZA and Zosano Pharma, Inc. (“Zosano”) are parties to the Agreement, under which Zosano obtained certain rights to develop products for the transdermal delivery of active pharmaceutical ingredients based upon the Macroflux ® technology. Zosano is negotiating the terms under which Zosano would collaborate with one or more third parties in the development and commercialization of PTH Products (as defined in the Agreement). As Zosano and ALZA have discussed, Zosano desires to modify the terms set forth in Section 15.7, which govern the ability of Sublicensees (as defined in the Agreement) to retain the rights sublicensed to them by Zosano upon certain terminations of the Agreement, solely to address the mechanisms under which rights sublicensed to a Sublicensee with respect to PTH Products would survive termination of the Agreement. This letter amendment (“Letter Amendment”) sets forth the terms under which Zosano and ALZA have agreed to modify Section 15.7 solely with respect to rights a Sublicensee may retain for PTH Products. For clarity, Section 15.7 shall not be deemed to be modified by this Letter Amendment for purposes of the survival of Sublicensees’ rights to any Products other than PTH Products. Any capitalized terms in this Letter Amendment not otherwise defined herein shall have the meaning provided in the Agreement.

1.    Section 15.7.3 shall be modified as follows solely with respect to licenses granted to Sublicensees with respect to PTH Products. For clarity, Section 15.7.3 as it appears in the Agreement immediately prior to this Letter Amendment shall continue to apply to sublicenses for all Products other than PTH Products, and Section 15.7.3 shall be deemed modified as set forth in this Letter Amendment solely for purposes of sublicenses with respect to PTH Products, as set forth below.

(a)    The phrase “following the First Sale of the second Product” shall be deemed to be omitted from such Section.

(b)    Subsection (iv) shall be deemed to be replaced in its entirety with the following: “(iv) the royalties and non-royalty payments to ALZA by such Sublicensee in respect of PTH Products will be what ALZA would have received from TMC under this Agreement in respect of such Sublicensee’s activities with respect to PTH Products;”

(c)    Subsection (v) shall be deemed to be replaced in its entirety with the following: “(v) the Sublicensee will pay its portion of ALZA’s patent filing, prosecution, issuance


CONFIDENTIAL

 

and maintenance expenses related to those Licensed Patents under which such Sublicensee has been granted a sublicense, and would otherwise have been borne by TMC under Section 7.3.2(a) of this Agreement, which expenses will be apportioned pro rata among each surviving Sublicensee with respect to the sublicense granted each Sublicensee in each applicable country(ies) or territory(ies);

(d)    Subsection (vi) shall be deemed to be modified by adding the following to the end of such subsection immediately prior to the semicolon: “, except that for sublicenses granted for Japan, Korea, Taiwan or China, such Sublicensee shall be obligated under such Sections to use those efforts that would be devoted by a mid-sized Japanese specialty pharmaceutical company doing business in the relevant country, rather than those that would be devoted by a United States-based, mid-sized, specialty pharmaceutical company’’

(e)    The last three sentences of Section 15.7.3 (commencing with the phrase “ALZA may require…”) shall be deemed to be replaced in their entirety with the following four sentences:

“ALZA may require any Sublicensee of rights to PTH Products that is a party to a sublicense agreement that survives termination of this Agreement pursuant to this Section 15.7.3 to enter into a direct license with ALZA to “replace such sublicense agreement, for the purpose of clarifying the terms of the rights retained by such Sublicensee following termination of this Agreement. Specifically, such direct license shall be consistent with this Agreement, as modified to the extent necessary to implement the standards set forth in this Section 15.7.3(c)(i)-(vii) and to reflect the scope of rights granted to such Sublicensee pursuant to the relevant sublicense granted by TMC. If ALZA desires to enter into a direct license with a Sublicensee, ALZA will provide written notification to such Sublicensee and will, for a period of ninety (90) days after providing such notice, negotiate in good faith the terms and conditions of, and enter into, with such Sublicensee a direct license under the Licensed Patents, Future ALZA Patents, and ALZA Know-How, in each case, to the extent such rights were sublicensed from TMC to such Sublicensee in the sublicensed field. If ALZA and such Sublicensee do not enter into a direct license within such ninety (90) day negotiation period, either ALZA or the Sublicensee may submit outstanding any issues for resolution on the terms set forth in Article 17 of this Agreement.”

2.    Section 1.20 shall be amended to include the following as the last sentence in such section:

‘‘For clarity, references to ALZA’s licensees in this Section 1.20 are intended to refer to ALZA’s Third Party licensees, and are not intended, and shall not be deemed, to refer to: (1) licenses between ALZA and its Affiliates; or (2) TMC, its Affiliates or Sublicensees.”

Except as expressly modified by this Letter Amendment, the Agreement shall continue in full force and effect. This Letter Amendment may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one legal instrument.


CONFIDENTIAL

 

If the foregoing is acceptable to ALZA, please sign two copies of this Letter Amendment where indicated below and send one copy back to me.

Please call me if you have any questions.

 

Sincerely,
/s/ Gail Shulze
Gail Schulze
CEO and Executive Chair of the Board
Zosano Pharma, Inc.

 

Agreed and acknowledged:
/s/ Patrick Hannon
Patrick Hannon
President, ALZA Corporation and
General Manager of GPSG West, a unit of ALZA

Exhibit 10.4

INTELLECTUAL PROPERTY LICENSE AGREEMENT

BETWEEN

ALZA CORPORATION

AND

THE MACROFLUX CORPORATION

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


TABLE OF CONTENTS

 

     Page  

ARTICLE 1 — DEFINITIONS

     2   

1.1 “Active Clinical Development”

     2   

1.2 “Active Early Development”

     2   

1.3 “Affiliate”

     2   

1.4 “Agreement”

     3   

1.5 “ALZA Inventions”

     3   

1.6 “ALZA Know-How”

     3   

1.7 “[**] Agreement”

     3   

1.8 “Commercialize” or “Commercialization”

     3   

1.9 “Confidential Information”

     3   

1.10 “Control” or “Controlled”

     4   

1.11 “Derivative Information”

     5   

1.12 “Development Agreements”

     5   

1.13 “Dollars”

     5   

1.14 “Effective Date”

     5   

1.15 “FDA”

     5   

1.16 “Field”

     5   

1.17 “Financial Records”

     5   

1.18 “Financing Transaction”

     5   

1.19 “First Sale”

     5   

1.20 “Future ALZA Inventions”

     6   

1.21 “Future ALZA Patents”

     6   

1.22 License”

     6   

1.23 “Licensed Patent(s)”

     6   

1.24 “NDA”

     7   

1.25 “Microprojection System”

     7   

1.26 “Natrecor ® (nesiritide)”

     7   

1.27 “Net Sales”

     7   

1.28 “Nesiritide Product”

     7   

1.29 “Patent(s)”

     7   

1.30 “Product”

     7   

1.31 “Product Payments”

     8   

1.32 “PTH”

     8   

1.33 “PTH Product”

     8   

1.34 “Quarter”

     8   

1.35 “Regulatory Approval”

     8   

1.36 “Regulatory Authority”

     8   

1.37 “Regulatory Documents”

     8   

1.38 [**]

     8   

1.39 “Sublicensee”

     8   

1.40 “Term”

     8   

 

 

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1.41 “Territory”

     8   

1.42 “Third Party”

     8   

1.43 “Third Party Product”

     9   

1.44 “TMC Inventions”

     9   

1.45 “TMC Patents”

     9   

1.46 “Trademark”

     9   

1.47 “Transitional Services Agreement”

     10   

1.48 “Valid Patent Claim”

     10   

ARTICLE 2 — GRANT OF LICENSE RIGHTS

     10   

2.1 License to TMC

     10   

2.2 License to ALZA

     12   

ARTICLE 3 — DEVELOPMENT AND COMMERCIALIZATION

     13   

3.1 Development Responsibility and Costs

     13   

3.2 Regulatory Responsibilities and Costs

     13   

3.3 Existing Agreements

     13   

3.4 ALZA Know-How

     13   

3.5 Future Vendor Agreements

     15   

3.6 TMC Diligence

     16   

3.7 Annual Development Activity Report

     16   

3.8 Commercial Responsibilities

     17   

ARTICLE 4 — TRADEMARK RIGHTS TO TMC

     18   

4.1 Trademark Assignment

     18   

4.2 Limited Continued Obligation

     18   

4.3 Trademark Maintenance

     18   

4.4 Trademark Enforcement

     18   

4.5 Effect of Termination

     18   

ARTICLE 5 — FINANCIAL PROVISIONS

     19   

5.1 [**]

     19   

5.2 [**]

     19   

5.3 [**]

     19   

5.4 Timing and Mode of Payment

     19   

5.5 Product Payment Reports

     19   

5.6 Financial Records

     20   

5.7 Currency Exchange

     20   

5.8 Audit

     20   

5.9 Interest Due

     22   

5.10 Tax Withholding

     22   

ARTICLE 6 — CONFIDENTIAL INFORMATION

     22   

6.1 Confidentiality Obligations

     22   

6.2 Written Assurances and Permitted Uses of Confidential Information

     23   

 

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6.3 Public Announcements

     24   

6.4 Publications

     24   

ARTICLE 7 — PATENTS AND INTELLECTUAL PROPERTY

     25   

7.1 Ownership; Inventions

     25   

7.2 Disclosure of Patentable Invention

     26   

7.3 Prosecution of Licensed Patents

     26   

7.4 Infringement Claims by Third Parties

     29   

7.5 Infringement Claims Against Third Parties

     30   

7.6 Regulatory Listings and Notices Relating to the Act

     33   

7.7 Patent Term Extensions

     33   

7.8 Marking

     34   

7.9 Entitlement Action

     34   

ARTICLE 8 — INDEMNIFICATION

     34   

8.1 Indemnification

     34   

8.2 Insurance Proceeds

     36   

8.3 Insurance

     36   

8.4 Future Litigation Regarding Development Agreements

     37   

ARTICLE 9 — RIGHT OF FIRST NEGOTIATION FOR PTH PRODUCT

     37   

9.1 ALZA Rights Regarding PTH Product

     37   

9.2 TMC Notice Regarding PTH Product

     37   

9.3 Decision Regarding PTH Product

     38   

9.4 No Negotiation of PTH Product

     39   

9.5 Good Faith Negotiation Regarding PTH Product

     39   

9.6 No Agreement Regarding PTH Product

     39   

9.7 Additional Rights Regarding PTH Product

     39   

9.8 No Implied Rights

     41   

ARTICLE 10 — OPTION FOR NESIRITIDE PRODUCT

     41   

10.1 Option for Nesiritide Product

     41   

10.2 Exercise Of Option

     42   

ARTICLE 11 — TMC’S RIGHT OF FIRST NEGOTIATION FOR EXPANDED LICENSE

     42   

11.1 ALZA Notice Regarding Expanded License

     42   

11.2 Decision Regarding Expanded License Negotiations

     42   

11.3 No Negotiation Regarding Expanded License

     42   

11.4 Good Faith Negotiation Regarding Expanded License

     42   

11.5 No Agreement Regarding Expanded License

     43   

ARTICLE 12 — TMC’S RIGHT OF FIRST NEGOTIATION ON PRODUCTS UTILIZING MICROPROJECTION SYSTEMS OUTSIDE THE FIELD

     43   

12.1 ALZA Notice Regarding Collaboration

     43   

12.2 Decision Regarding Collaboration Negotiations

     43   

 

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12.3 No Negotiation Regarding Collaboration

    44   

12.4 Good Faith Negotiations Regarding Collaboration

    44   

12.5 No Agreement Regarding Collaboration

    44   

ARTICLE 13 — TMC’S RIGHT TO MEET

    44   

13.1 TMC Proposal

    44   

ARTICLE 14 — EXCLUSIVITY

    45   

14.1 TMC Exclusivity

    45   

14.2 ALZA Exclusivity

    45   

ARTICLE 15 — TERM AND TERMINATION

    47   

15.1 Term

    47   

15.2 Termination of this Agreement by TMC for any Reason

    47   

15.3 Termination by ALZA

    47   

15.4 Termination By Either Party for Breach

    47   

15.5 Effective Date of Termination

    47   

15.6 Termination for Bankruptcy

    48   

15.7 Effect of Termination

    48   

15.8 No Waiver

    50   

15.9 Consequences of Termination

    50   

15.10 [**]

    51   

15.11 Survival of Obligations

    51   

15.12 Termination Not Sole Remedy

    51   

ARTICLE 16 — REPRESENTATIONS AND WARRANTIES

    51   

16.1 Authority

    51   

16.2 No Conflicts

    51   

16.3 ALZA Representations

    51   

16.4 No Implication By ALZA

    53   

16.5 TMC Representations

    54   

16.6 Disclaimer of Warranties

    54   

ARTICLE 17 — DISPUTE RESOLUTION

    54   

17.1 Dispute Resolution and Arbitration

    54   

17.2 Arbitration

    55   

ARTICLE 18 — MISCELLANEOUS PROVISIONS

    55   

18.1 Entire Agreement

    55   

18.2 Further Actions

    55   

18.3 Binding Effect

    55   

18.4 Assignment

    55   

18.5 No Implied Licenses

    56   

18.6 No Waiver

    56   

18.7 Force Majeure 

    56   

 

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18.8 Independent Contractors

    56   

18.9 Notices and Deliveries

    57   

18.10 Headings

    58   

18.11 Severability

    58   

18.12 Applicable Law

    58   

18.13 Advice of Counsel

    58   

18.14 Counterparts

    58   

18.15 Waiver

    58   

18.16 Bankruptcy

    58   

18.17 Compliance with Laws

    59   

18.18 Certain Tax Matters

    59   

 

ATTACHMENT 1.5    CERTAIN ALZA INVENTIONS
ATTACHMENT 1.6    ALZA KNOW-HOW
ATTACHMENT 1.12    DEVELOPMENT AGREEMENTS
ATTACHMENT 1.23    LICENSED PATENTS
ATTACHMENT 1.46    TRADEMARK
ATTACHMENT 2.1.4    NON-FIELD PATENTS/APPLICATIONS
ATTACHMENT 3.3.1    EXISTING AGREEMENTS
ATTACHMENT 4.1    GENERAL TRADEMARK ASSIGNMENT
ATTACHMENT 4.5    TRADEMARK ASSIGNMENT FORM
ATTACHMENT 6.3    PRESS RELEASE
ATTACHMENT 10.1    TERM SHEET FOR NESIRITIDE PRODUCT
ATTACHMENT 16.3.4    DISCLOSURES
ATTACHMENT 17.2    ARBITRATION PROCEEDINGS

 

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INTELLECTUAL PROPERTY LICENSE AGREEMENT

This Intellectual Property License Agreement (the “Agreement”) is made and effective as of October 5, 2006 (the “Effective Date”), by and between ALZA Corporation, a Delaware corporation (“ALZA”) and The Macroflux Corporation, a Delaware corporation (“TMC”). ALZA and TMC may be referred to individually herein as a “Party” or together as the “Parties”.

RECITALS

1. ALZA is the owner of certain inventions and know-how regarding transdermal drug delivery systems and technologies.

2. TMC desires to acquire, certain know-how and patent licenses under ALZA’s technology from ALZA on the terms set forth herein.

3. In consideration of (i) the issuance of shares of TMC Series A Convertible Participating Preferred Stock pursuant to the Asset Transfer and Series A Convertible Participating Preferred Stock Purchase Agreement made on or about the Effective Date, by and between TMC and ALZA (the “Series A Agreement”) and (ii) the obligations of TMC hereunder, ALZA is willing to grant certain intellectual property licenses to TMC, subject to the terms and conditions of this Agreement.

4. The Parties hereto intend that the exchange of Licenses for TMC Series A Convertible Participating Preferred Stock (“Series A Preferred”) and Product Payments pursuant to the terms of this Agreement together with the transactions effected pursuant to the terms of the Series A Agreement and with all purchases of Series B Convertible Participating Preferred Stock (“Series B Preferred”) under the Series B Convertible Participating Preferred Stock Purchase Agreement made on or about the Effective Date, by and among TMC and certain investors (the “Series B Agreement”) will be treated as a contribution of property (or cash in the case of the Series B Preferred) to TMC in exchange for shares (and boot in the case of

 

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Product Payments) pursuant to Section 351 of the Internal Revenue Code of 1986, as amended (the “Code”) for federal income tax purposes.

NOW, THEREFORE, in consideration of the various promises and undertakings set forth herein, the Parties agree as follows:

ARTICLE 1 — DEFINITIONS

The terms in this Agreement with initial letters capitalized, whether used in the singular or the plural, will have the meaning set forth below or, if not listed below, the meaning designated where first used in this Agreement.

1.1 “Active Clinical Development” of a Product means that at any given time TMC is diligently engaging in one or more of the following development activities for such Product in the Field: (a) awaiting protocol approval from an applicable institutional review board, FDA or other Regulatory Authority; (b) patient recruitment, patient treatment, data analysis, or report writing for any clinical trial; (c) regulatory file(s) being drafted or pending; and (d) manufacturing scale-up and validation.

1.2 “Active Early Development” of a Product means that at any given time TMC is diligently engaging in one or more of the following development activities for such Product in the Field: (a) formulation development; (b) preclinical studies to evaluate delivery or the feasibility of a prototype Product; (c) preclinical studies to evaluate pharmacokinetics, pharmacodynamics, and/or safety of a prototype Product; and (d) analytical development.

1.3 “Affiliate” means, with respect to any Party, any corporation or other business entity, which directly or indirectly controls, is controlled by, or is under common control with such Party. For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as used with respect to any Party, will mean the possession of at least 50% of the voting stock or other ownership interest of the other corporation or entity, or the power to direct or cause the direction of the management and policies of the corporation or other entity or the power to elect or appoint at

 

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least 50% of the members of the governing body of the corporation or other entity through the ownership of the outstanding voting securities or by contract or otherwise.

1.4 “Agreement” means this Intellectual Property License Agreement, including its Attachments, as the same may be amended from time to time.

1.5 “ALZA Inventions” means any inventions arising out of work conducted by or on behalf of ALZA prior to the Effective Date that both (i) relate primarily to Microprojection Systems (including the use or manufacture thereof) and (ii) that are described in Attachment 1.5.

1.6 “ALZA Know-How” means all currently available and reasonably relevant tangible and written know-how, data, and reports owned or Controlled by ALZA as of the Effective Date that (i) relate to Microprojection Systems and Products or the business operations and plans of the Macroflux Internal Venture unit of ALZA, or (ii) that is otherwise necessary or useful for the development, manufacture, promotion or use of a Microprojection System or a Product, in each case to the extent such know-how, data, and reports are listed on Attachment 1.6 or on the Post-Closing List (as defined in Section 3.4), together with tangible and written know-how, data and reports generated after the Effective Date pursuant to the Transitional Services Agreement; provided, however, that ALZA Know-How will not include any written documentation, data or reports, or any portion thereof, relating solely to any compound proprietary to or Controlled by ALZA or any of its Affiliates (including but not limited to nesiritide) or consisting of Improperly Transferred Documents.

1.7 “[**] Agreement” means [**]

1.8 “Commercialize” or “Commercialization” means the ongoing process and activities (including pre-launch activities) generally engaged in by a pharmaceutical company to sell and market a pharmaceutical product. When used as a verb, “Commercialize” means to engage in Commercialization.

1.9 “Confidential Information” means, in the case of ALZA, ALZA Know-How, and other business and technical information regarding ALZA and its Affiliates, including information relating to technologies, compounds and products (other than Products), whether in development or Commercialized, or the use, manufacturing or Commercialization for any of the foregoing, or related clinical or regulatory affairs, and ALZA’s processes and procedures, and financial and other business information regarding ALZA and its Affiliates, in each case to the extent such information has been disclosed to TMC by or on behalf of ALZA prior to or during

 

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the Term for the purposes described in this Agreement or the purposes of ALZA and its Affiliates providing facilities or services to TMC (“ ALZA Confidential Information ”), and in the case of TMC, business and technical information regarding TMC and its Affiliates, limited to (i) information included in TMC’s annual development activity reports, (ii) agreements between TMC and Sublicensees, (iii) financial information regarding Net Sales of Products and payments due to TMC regarding Third Party Products, and (iv) data and information developed by or on behalf of TMC after the Effective Date regarding the PTH Product or any other Product, in each case to the extent such information has been disclosed to ALZA by or on behalf of TMC during the Term for the purposes described in this Agreement (“ TMC Confidential Information ”), and in each case, which information is owned or Controlled by a Party hereto or any of its Affiliates or generated pursuant to this Agreement; provided, however, that Confidential Information will not include information which:

(a) is or becomes part of the public domain through no breach of this Agreement (or any other agreement between TMC and ALZA or its Affiliates) by the recipient or any of its Affiliates and through no breach of any agreement between individual TMC employees and ALZA or its Affiliates which breach occurs any time after August 1, 2006 (provided that it is understood that TMC will in no event be liable to ALZA with respect to any breach of a prior agreement between individual TMC employees and ALZA or its Affiliates);

(b) is known by the recipient or any of its Affiliates (without an obligation to keep such information confidential) prior to the disclosure thereof by the disclosing Party as demonstrated by the recipient’s written records;

(c) becomes available to the receiving Party or its Affiliates on a nonconfidential basis, whether directly or indirectly, from a Third Party who has the right to make such disclosure;

(d) is independently developed by employees of the recipient who did not have knowledge of or access to any of the Confidential Information of the disclosing Party (as Confidential Information is defined without reference to this subsection (d)).

1.10 “Control” or “Controlled” means possession of the ability to grant a license or sublicense of Patents, know-how or other intangible rights as provided for herein without violating the terms of any contract or other arrangements with any Third Party.

 

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1.11 “Derivative Information” means information, data or know-how (unless and until such information, data or know-how is part of the public domain) that (a) is generated while performing work on a product in the Field covered by a Valid Patent Claim of the Licensed Patents or (b) arises out of the use of or reference to ALZA Know-How or ALZA Confidential Information.

1.12 “Development Agreements” means the agreements described on Attachment 1.11.

1.13 “Dollars” means the legal currency of the United States.

1.14 “Effective Date” means the date of this Agreement as set forth in the first paragraph above.

1.15 “FDA” means the United States Food and Drug Administration or any successor agency to its responsibilities for pharmaceutical products such as Products.

1.16 “Field” means (a) passive, diffusion-mediated delivery of one or more therapeutic or prophylactic agents into or through the skin from a Microprojection System, which Microprojection System is coated with such therapeutic or prophylactic agents; or (b) diffusion-mediated delivery of one or more therapeutic or prophylactic agents into or through the skin by way of pathways formed by a Microprojection System. For clarity, the Field does not include any other applications of Microprojection Systems, such as (i) delivery of therapeutic or prophylactic agents into or through the skin utilizing a Microprojection System in combination with any delivery system that utilizes a driving source (including, but not limited to, delivery systems that utilize one or more driving sources such as electrical potential gradients, sound waves, heating systems, laser energy, hydraulic systems or radio waves), other than as provided by the microprojections, the therapeutic or prophylactic agent itself or chemical permeation enhancers, or (ii) the use of a Microprojection System for sampling or sensing.

1.17 “Financial Records” will have the meaning ascribed thereto in Section 5.6.

1.18 “Financing Transaction” means a private equity financing transaction to fund TMC raising a minimum of $75 million in cash from Third Parties reasonably acceptable to ALZA.

1.19 “First Sale” means with respect to each Product, the first sale in an arms length transaction and shipment of such Product to a Third Party by or on behalf of TMC or its

 

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Sublicensee in a country in the Territory following receipt of applicable Regulatory Approval for such Product in such country.

1.20 “Future ALZA Inventions” means any inventions conceived or reduced to practice and arising out of work conducted by or on behalf of ALZA or any of its licensees after the Effective Date and for so long as TMC holds a license to the ALZA Know-How under Section 2.1.2 that relate primarily to Microprojection Systems (including the use or manufacture thereof); provided, however, that Future ALZA Inventions will not include (i) inventions arising out of work conducted independently by ALZA’s licensees outside of any agreement with ALZA by employees of such licensees without access to, use of or reference to any ALZA Know-How, ALZA confidential information (including ALZA Confidential Information) or other Future ALZA Inventions, TMC Inventions or confidential information of TMC, (ii) inventions developed by ALZA’s licensees to the extent made by employees of such licensee without access to, use of or reference to any ALZA Know-How, ALZA confidential information (including ALZA Confidential Information) or other Future ALZA Inventions, TMC Inventions or confidential information of TMC, (iii) inventions that ALZA demonstrates by clear and convincing evidence were independently developed solely by ALZA employees without access to or knowledge of any ALZA Know-How, TMC Confidential Information or TMC Inventions and (iv) any invention developed by a Third Party whom ALZA had engaged to develop an ALZA product utilizing such Third Party’s proprietary Microprojection System under an agreement with ALZA, provided that ALZA has not obtained from such Third Party the right to grant TMC a license to such invention (although ALZA will be under no obligation to do so) and provided further that ALZA fulfilled its obligations under Article 12 prior to having entered into such agreement with such Third Party.

1.21 “Future ALZA Patents” means Patents based on Future ALZA Inventions.

1.22 “License” means the licenses granted in Sections 2.1.1, 2.1.2 and 2.1.4.

1.23 “Licensed Patent(s)” means the patents and patent applications that are identified in Attachment 1.23, as well as all Patents derived therefrom. Licensed Patents are divided into two categories, Category A and Category B, as described in Attachment 1.23. Additionally, Licensed Patents will include all Patents based on ALZA Inventions, which Patents will be deemed to be included in Category B.

 

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1.24 “NDA” means, for a particular Product, its United States New Drug Application, filed with the FDA, as such application may be amended or supplemented from time to time.

1.25 “Microprojection System” means a microprojection array having a plurality of microprojections which pierce at least through the outmost layer (i.e., the stratum corneum layer) of the skin.

1.26 “Natrecor ® (nesiritide)” means any product incorporating nesiritide.

1.27 “Net Sales” means [**]

1.28 “Nesiritide Product” means a Product incorporating nesiritide or any analog or derivative thereof.

1.29 “Patent(s)” means all multinational, foreign and domestic patents and patent applications, including any continuations, continuations-in-part, divisions, provisionals or any substitute applications, as well as any patents throughout the world issuing with respect to any such patent applications, continuations, continuations-in-part, divisions, provisionals or substitute applications, and any reissues, reexaminations, renewals and extensions (including any supplemental patent certificates) of any of the foregoing and any confirmation patent or registration patent or patent addition based on any such patent.

1.30 “Product” means a product in the Field (i) the manufacture, sale or use of which would but for the license granted herein, infringe a Valid Patent Claim of the Licensed Patents or (ii) that is developed, in whole or in part, by TMC employees or Third Party employees with access to or knowledge of any ALZA Know-How, ALZA Confidential Information, TMC Inventions, TMC Confidential Information, (as defined without reference to whether such TMC Confidential Information is disclosed to ALZA) or Derivative Information; provided, however, that in the case of subsection (ii), Product will not include (x) a product that TMC demonstrates by clear and convincing evidence was independently developed by TMC employees or Third Party employees without access to or knowledge of any ALZA Know-How, ALZA Confidential Information, TMC Inventions, TMC Confidential Information (as defined without reference to whether such TMC Confidential Information is disclosed to ALZA), or Derivative Information, and (y) a product that TMC acquires from a Third Party provided that such Third Party developed such product without access to or knowledge of any ALZA Know-How, ALZA Confidential Information, TMC Inventions, TMC Confidential Information (as defined without

 

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reference to whether such TMC Confidential Information is disclosed to ALZA) or Derivative Information.

1.31 “Product Payments” will have the meaning ascribed thereto in Section 5.2.

1.32 “PTH” means a peptide commonly known as parathyroid hormone or any analog or derivative thereof (including PTH (1-34) OH).

1.33 “PTH Product” means a Product incorporating PTH.

1.34 “Quarter” or “ Quarterly ” means each three month period ending March 31, June 30, September 30 or December 31 of each year during the term of this Agreement.

1.35 “Regulatory Approval” means in any country, written notice of required marketing approval (including pricing approval, if required) by the Regulatory Authority having jurisdiction in such country, which approval is required before a product may be commercially sold in such country for the marketing, sale and/or use of a product on a commercial basis in the applicable country.

1.36 “Regulatory Authority” means the national (e.g., the FDA) or supra-national (e.g., the European Commission, the Council of the European Union, or the EMEA) agency, if any, with which a pharmaceutical or biological product must be registered or by which a pharmaceutical or biological product must be approved prior to its manufacture, use or sale in a country.

1.37 “Regulatory Documents” means that certain IND No. 70,973 submitted to the FDA together with the associated Form FDA 1571 (IND Serial No. 0007) as well as all written communications between ALZA and the FDA and ALZA’s internal contact reports, in each case, relating to IND No. 70,973.

1.38 [**]

1.39 “Sublicensee” means, with respect to a particular Product, a Third Party to whom TMC has granted a license or sublicense under the License to make, have made, use, import, sell, offer for sale or have sold any and sell such Product.

1.40 “Term” will have the meaning ascribed thereto in Section 15.1.

1.41 “Territory” means the entire world.

1.42 “Third Party” means an individual, corporation or other entity other than a Party or any of its Affiliates.

 

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1.43 “Third Party Product” means any Product being developed by TMC for a Sublicensee that (a) incorporates the Sublicensee’s proprietary compound(s), or (b) is a vaccine. A compound is considered proprietary to a Sublicensee if there is no generic equivalent of the compound commercially available to the public or if the unauthorized manufacture, use or sale of the compound by a person or entity other than such Sublicensee would infringe one or more Patents owned or licensed by such Sublicensee.

1.44 “TMC Inventions” means any inventions conceived or reduced to practice and arising out of work conducted by or on behalf of TMC or any of its Affiliates or Sublicensees after the Effective Date and for so long as TMC holds a license to the ALZA Know-How under Section 2.1.2 that relate primarily to Microprojection Systems (including the use or manufacture thereof); provided, however, that TMC Inventions will not include (i) inventions arising out of work conducted independently by TMC’s Sublicensees or other Third Parties outside of any agreement with TMC or its Affiliates by employees of such Sublicensee or other Third Party without access to, use of or reference to any ALZA Know-How, ALZA confidential information (including ALZA Confidential Information), Future ALZA Inventions or other TMC Inventions, TMC Confidential Information (as defined without reference to whether such TMC Confidential Information is disclosed to ALZA), or Derivative Information, (ii) inventions developed by TMC’s (or its Affiliates’) Sublicensees to the extent made by employees of such Sublicensee without access to, use of or reference to any ALZA Know-How, ALZA confidential information (including ALZA Confidential Information), Future ALZA Inventions or other TMC Inventions or TMC Confidential Information (as defined without reference to whether such TMC Confidential Information is disclosed to ALZA), or Derivative Information, and (iii) inventions that TMC demonstrates by clear and convincing evidence were independently developed solely by TMC employees without access to or knowledge of any ALZA Know-How, ALZA Confidential Information, TMC Confidential Information (as defined without reference to whether such TMC Confidential Information is disclosed to ALZA) or TMC Inventions (as defined without reference to this subsection (iii)) or Derivative Information.

1.45 “TMC Patents” means Patents based on TMC Inventions.

1.46 “Trademark” means the trademark applications and registrations for the mark “MACROFLUX” as described in Attachment 1.46, including the goodwill associated therewith.

 

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1.47 “Transitional Services Agreement” means the transitional services agreement entered into between the Parties effective on the Effective Date.

1.48 “Valid Patent Claim” means a claim of an issued patent in a country of the Territory or a claim of a pending application filed in good faith for a patent in a country of the Territory, provided that such claim has not expired, or been determined to be invalid or unenforceable by a final unappealable decision of a court or other appropriate body of competent jurisdiction, and which has not been admitted to be invalid by the patent owner through public disclaimer or dedication to the public.

ARTICLE 2 — GRANT OF LICENSE RIGHTS.

2.1 License to TMC . Subject to the terms and conditions of this Agreement and contingent on and subject to TMC’s closing of the Financing Transaction, ALZA hereby grants to TMC:

(a) an exclusive license (even as to ALZA) under the Licensed Patents to make, have made, import, use, sell, offer for sale and have sold Products in the Field in the Territory, subject to rights already granted to [**] under the Development Agreement between ALZA and [**]; and

(b) a non-exclusive royalty-free license under the Future ALZA Patents to make, have made, import, use, sell, offer for sale and have sold Products in the Field in the Territory.

(c) Notwithstanding the foregoing license grant(s), ALZA reserves the right to use all Licensed Patents and Future ALZA Patents to the extent necessary to fulfill its obligations under this Agreement and the Transitional Services Agreement.

2.1.2 Subject to the terms and conditions of this Agreement and contingent on and subject to TMC’s closing of the Financing Transaction, ALZA hereby grants to TMC an exclusive license to the ALZA Know-How to make, have made, import, use, sell, offer for sale and have sold Products in the Field in the Territory, subject to rights already granted to [**] under the [**] Agreement.

2.1.3 To the extent the Licensed Patents, Future ALZA Patents or ALZA Know-How cover technologies or products outside the Field, or are otherwise useful outside the Field,

 

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ALZA grants no rights to TMC, and ALZA specifically retains any and all such rights, in each case to the extent outside the Field.

2.1.4 To the extent any Patents issue from the patent applications listed in Attachment 2.1.4 and such Patents have a Valid Patent Claim covering a Product or the use of a Product, ALZA hereby grants to TMC a non-exclusive royalty-free license under such Patents, to make, have made, use, import, sell, offer for sale and have sold Products in the Territory in the Field; provided, however, that any such Patents will not become Licensed Patents.

2.1.5 TMC will have the right to grant and authorize sublicenses to Third Parties and TMC Affiliates with respect to its rights under the License in accordance with the terms and conditions of this Agreement. Any sublicense granted to a Third Party will be on a Product-by-Product basis, or on a specific multi-Product basis (e.g., based on specified sets or classes of compounds or multiple vaccines), provided that TMC does not sublicense all (or substantially all) of TMC’s rights under this Agreement to any single Sublicensee (alone or together with such Sublicensee’s Affiliates). TMC will provide ALZA with notice of the identity of each Sublicensee and will ensure (i) that each such agreement with its Sublicensee will be subject and subordinate to, and consistent with, the terms and conditions of this Agreement and (ii) that the rights of ALZA under this Agreement are not prejudiced or in any way reduced or limited by such sublicensing arrangement; and (iii) that any Sublicensee will not further sublicense except on terms consistent with this Section 2.1.5. TMC will provide ALZA with a copy of each such sublicense agreement within thirty (30) days after the execution thereof. Such copy may be redacted to exclude any information not necessary for assessing TMC’s compliance with its obligations to ALZA under this Agreement.

2.1.6 TMC may carry out its obligations under this Agreement in whole or in part through its Affiliates, Sublicensees, consultants and contractors, provided that TMC will remain responsible to ALZA for the performance of each such obligation that it so delegates.

2.1.7 TMC will not permit any Sublicensees, Affiliates or delegated parties to use ALZA Confidential Information without provisions safeguarding confidentiality which are at least equivalent to those provided in this Agreement and TMC ensures the compliance by each of its Sublicensees, Affiliates and delegated parties with all such applicable provisions safeguarding confidentiality in accordance with the terms and conditions of this Agreement.

 

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2.2 License to ALZA . Subject to the terms and conditions of this Agreement, TMC hereby grants to ALZA an irrevocable, perpetual, royalty-free, worldwide, nonexclusive license, with the right to sublicense, under the TMC Patents to make, have made, use, import, sell, offer for sale and have sold products outside the Field. If the License is terminated on or prior to the third anniversary of the Effective Date and TMC has made all payments due under the [**] Agreement which accrued on or before the effective date of such termination and TMC is not then in material default under the [**] Agreement or which default is cured by TMC within the time frame set forth in the [**] Agreement, TMC hereby grants and ALZA will automatically receive an irrevocable, perpetual, worldwide, nonexclusive license, with the right to sublicense, under TMC Patents, to make, have made, use, import, sell, offer for sale and have sold products in the Field to the extent the License is so terminated, and on a product-by-product basis, and country-by-country basis, ALZA will pay TMC a royalty equal to [**] of ALZA’s (or its Affiliates or sublicensee’s) Net Sales (as such term is defined in this Agreement but with the terms TMC and ALZA being reversed for purposes of this Section 2.2) of each product covered by such TMC Patents so long as there is a Valid Patent Claim of a TMC Patent covering such product in such country and the Parties will negotiate in good faith an agreement regarding the timing and mode of such payments, the requirement for ALZA to maintain financial records related to such payments and the right of TMC to audit such financial records, on terms similar to those imposed on TMC herein. If the License is terminated on or prior to the third anniversary of the Effective Date and TMC has not made all payments due under the [**] Agreement and which default is not cured within the time frame set forth in the [**] Agreement or is in material default under the [**] Agreement and which default is not cured within the time frame set forth in the [**] Agreement or if the License is terminated at any time after the third anniversary of the Effective Date, TMC hereby grants and ALZA will automatically receive an irrevocable, perpetual, royalty-free, worldwide, nonexclusive license, with the right to sublicense, under the TMC Patents to make, have made, use, import, sell, offer for sale and have sold products in the Field. If the License is terminated at any time, and at ALZA’s request, the Parties will negotiate in good faith, on commercially reasonable terms, for ALZA to obtain an exclusive, royalty-bearing license under the TMC Patents to make, have made, use, import, sell, offer for sale and have sold products in the Field.

 

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ARTICLE 3 — DEVELOPMENT AND COMMERCIALIZATION.

3.1 Development Responsibility and Costs . TMC will have the sole responsibility and right to develop Products and will bear the cost of conducting development of Products (it being understood that TMC may satisfy such responsibilities and exercise such rights itself or through its Affiliates and Sublicensees); provided, however, ALZA will provide certain support services to TMC for a limited transition period pursuant to the Transitional Services Agreement.

3.2 Regulatory Responsibilities and Costs . TMC will have the sole responsibility for, and will bear the cost of preparing, all regulatory filings and related submissions with respect to Products (it being understood that TMC may satisfy such responsibilities itself or through its Affiliates and Sublicensees). Promptly after the Effective Date, the Parties will work together to transfer and assign to TMC the Regulatory Documents.

3.3 Existing Agreements .

3.3.1 The Parties acknowledge that prior to the Effective Date, ALZA made available to TMC all current agreements between ALZA and Third Parties relating to Microprojection Systems requested by TMC. For the agreements listed on Attachment 3.3.1 attached hereto, ALZA agrees that promptly after the Effective Date, it will assign such agreements to TMC, when possible, and, if required, will request the consent of the relevant Third Party to such assignment. TMC will assume all ongoing responsibilities and obligations under such agreements as of the Effective Date.

3.3.2 [**]

3.4 ALZA Know-How . The Parties acknowledge that prior to the Effective Date, except as otherwise noted in Attachment 1.6, ALZA made available to TMC the ALZA Know-How listed on Attachment 1.6 as well as (i) the contents of the office files of TMC employees (collectively, “Employee Office Files”), (ii) a copy of the contents of TMC employee’s folders on a shared hard drive designated for the Macroflux Internal Venture unit of ALZA (including a copy of each employee’s archived e-mail) (collectively, “H-Drive Files”), and (iii) a copy of the contents of the Macroflux Technology Development Folder (collectively, “Tech Dev Files”) (the Employee Office Files, H-Drive Files and Tech Dev Files, collectively the “Transferred Information”). The parties acknowledge that ALZA has retained an electronic copy of the H-Drive Files and Tech Dev Files and TMC will provide ALZA with a written inventory of the

 

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Employee Office Files prior to the Effective Date. Promptly after the Effective Date, TMC will use commercially reasonable efforts to review the Transferred Information to confirm that it does not contain ALZA documents or files that (A) do not relate to either the Microprojection Systems and Products or the business operations and plans of the Macroflux Internal Venture unit of ALZA, (B) are not otherwise necessary or useful for the development, manufacture, promotion or use of a Microprojection System or a Product, (C) relate solely to any compound proprietary to or Controlled by ALZA or any of its Affiliates (including but not limited to nesiritide), (D) include confidential information of a Third Party, (E) relate solely to technologies of ALZA or its Affiliates other than Microprojection Systems, or (F) include confidential information of ALZA or its Affiliates that applies generally to ALZA’s or its Affiliate’s businesses and not specifically to the Macroflux Internal Venture unit of ALZA or any Transferred Employee (as defined in the Series A Agreement) (including but not limited to worldwide policies, human resources forms and job descriptions, and financial policies) (any such documents or files, “Improperly Transferred Documents”). If any document or file in the Transferred Information contains both ALZA Know-How and any of the types of information described in clauses (A) through (F) of the preceding sentence, the parties will work together to separate such information or redact the improper portion of the information document or file to the extent practicable so that the document or file no longer contains the types of information described in clauses (A) through (F). In the event TMC discovers that it possesses any Improperly Transferred Documents, either during its review of the Transferred Information described above or at any point in the future, TMC shall promptly notify ALZA, provide a general description of such confidential or proprietary information, and either promptly return to ALZA or destroy, at ALZA’s option, all tangible materials that disclose or embody such confidential or proprietary information. Within seven (7) days of the Effective Date, TMC shall provide ALZA with (i) a list of any Improperly Transferred Documents identified by TMC in its review of the Transferred Information, and (ii) an index of all other written know-how, data, and reports remaining in the Transferred Information after the removal of such Improperly Transferred Documents (such index, the “Post-Closing List”). The parties acknowledge that other than the ALZA Know-How identified in Attachment 1.6 as remaining to be transferred (which know-how, data, and reports shall be transferred to TMC by the applicable transfer date specified for such item in Attachment 1.6), ALZA has no obligations to provide any additional

 

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Know-How generated prior to the Effective Date to allow TMC to practice under the License. Notwithstanding the foregoing, or anything in Section 18.2 to the contrary, for a period of six (6) months following the Effective Date, in the event that TMC identifies a particular item of ALZA Know-How that was not made available to TMC, and TMC would be materially impeded in the development of the Microprojection System or the development or Commercialization of Products by not having such item, ALZA will use commercially reasonable efforts to make such ALZA Know-How available to TMC in a timely manner. At the termination of the Transitional Services Agreement, ALZA will make available to TMC all ALZA Know-How generated in the performance of the transitional services. Any duplication of the ALZA Know-How for TMC will be at TMC’s sole cost and expense. If TMC identifies additional Improperly Transferred Documents or additional ALZA Know-How identified by TMC for a period of six (6) months following the Effective Date after the generation of the Post-Closing List, in either case, pursuant to this Section 3.4, TMC will amend the Post-Closing List to exclude or include such information and will provide such revised list to ALZA. Following the termination of the Transitional Services Agreement, TMC will amend the Post-Closing List to include ALZA Know-How generated in the performance of the transitional services, and will provide such revised list to ALZA. The parties will each maintain a copy of the most recent Post-Closing List. Notwithstanding anything in this Section 3.4 to the contrary, ALZA will not be required to transfer or make available any ALZA Know-How that would require ALZA to breach any obligation it may have to a Third Party or violate any law, statute, ordinance or regulation. For the avoidance of doubt, the transfer of any tangible manifestations of ALZA Know-How pursuant to this Section 3.4 will not alter the ownership or other rights of ALZA or its Affiliates with respect to such ALZA Know-How. In the event of a dispute between the Parties regarding the procedures in this Section 3.4, the Parties will use the dispute resolution procedures described in Section 17.1, provided that the first sixty (60) day period described therein will be reduced to ten (10) business days and the second sixty (60) day period will be reduced to thirty (30) days for such dispute.

3.5 Future Vendor Agreements . Neither TMC nor ALZA will enter into any agreement with any Third Party vendor that prohibits such Third Party from providing services to the other Party or its Affiliates related to Microprojection Systems or the components,

 

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manufacture, assembly or packaging thereof, for use in the Field, in the case of TMC, or for use outside the Field, in the case of ALZA.

3.6 TMC Diligence .

3.6.1 General Diligence Obligations. During the Term, TMC will use diligent efforts to continue development of Microprojection Systems in the Field and to develop and obtain Regulatory Approval for Products within the Territory in a manner consistent with the efforts United States-based, mid-sized, specialty pharmaceutical companies devote to products having similar market potential at a similar stage of development or life of such product based on conditions then prevailing with respect to the applicable product and the relevant market.

3.6.2 Specific Diligence Obligations. In addition to TMC’s general development diligence requirements set forth above, and in no way limiting them, at all times during the period of time beginning with the Effective Date and ending on the date of the First Sale of the second Product to be Commercialized, TMC will have at least two Products in a combination of Active Early Development and/or Active Clinical Development (it being understood that this obligation will be satisfied if TMC has (i) two or more Products in Active Early Development, (ii) two or more Products in Active Clinical Development, or (iii) one Product in Active Early Development and one Product in Active Clinical Development); provided, however, TMC will not be deemed to be in breach of this specific diligence obligation if TMC encounters an adverse technical, clinical or other condition/event regarding a particular Product (and not a condition/event that applies generally to TMC) which, in TMC’s reasonable judgment, requires the termination or suspension of development work on such particular Product, so long as TMC is engaged in Active Early Development on at least one additional Product within 6 months following the date TMC terminates or suspends such development program.

3.6.3 Consequences of Default. If TMC does not fulfill its general diligence obligations set forth in Section 3.6.1 above, ALZA will be entitled, but not obligated, to terminate the License and this Agreement, subject to the terms of Section 15.4 below. If TMC does not fulfill its specific diligence obligations set forth in Section 3.6.2 above, ALZA will be entitled, but not obligated, to terminate the License and this Agreement immediately upon written notice to TMC.

3.7 Annual Development Activity Report . Within ninety (90) days after the Effective Date, TMC will submit to ALZA a written development plan containing at least

 

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development timelines and milestones for the PTH Product and for at least one other Product. Thereafter, on or before February 28 th of each calendar year, TMC will submit to ALZA a written, non-confidential annual report summarizing in reasonable detail the development work conducted by TMC during the prior calendar year and TMC’s development plans for the then-current year. TMC will blind the identity of the active pharmaceutical ingredients in any Product that it is developing (or considering developing) that is not subject to the Exclusivity provisions of Article 14 below and which has not been previously publicly disclosed when describing such Product in such annual reports and will limit the information disclosed in such annual reports to non-confidential information regarding the Products being developed provided that the information contained in such reports is sufficiently detailed to allow ALZA to evaluate TMC’s compliance with the provisions of this Agreement. To the extent that TMC has entered into any agreements with Third Parties for the development or Commercialization of Third Party Products, TMC will include in the development report the status of such programs including the work conducted on such programs and any milestones achieved in the previous year. To the extent necessary for assessing TMC’s compliance with its obligations to ALZA under this Agreement, ALZA may request additional confidential information related to TMC’s development activities after receipt of such report, and, subject to the consent of any applicable Third Party, TMC will provide such requested information subject to the terms of this Agreement, including, but not limited to, Article 6. TMC will provide such reports unless and until an authorized corporate officer of ALZA requests TMC to terminate such reports in whole or in part and thereafter will provide such reports only to the extent requested.

3.8 Commercial Responsibilities . TMC agrees to use commercially reasonable efforts to Commercialize Products, which efforts are consistent with the efforts and resources that TMC or a United States-based, mid-sized, specialty pharmaceutical company devotes to products of similar market potential and in similar product lifecycle positions based on conditions then prevailing with respect to the applicable product and the relevant markets. If TMC does not fulfill its commercial diligence obligations set forth in this Article 3, ALZA will be entitled, but not obligated, to terminate the License and this Agreement, subject to the terms of Section 15.4 below.

 

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ARTICLE 4 — TRADEMARK RIGHTS TO TMC.

4.1 Trademark Assignment . ALZA will assign (and, if necessary, cause its Affiliates to assign) to TMC the Trademarks, including the goodwill associated therewith. In connection with and in furtherance of the transfer of the Trademarks, the Parties (and, if necessary, ALZA’s Affiliates) will execute the trademark assignments in the forms attached hereto as Attachment 4.1, or such equivalent form as may be required in any non-U.S. jurisdiction. As of the Effective Date, the costs of prosecution, issuance and maintenance of applications and registrations of the Trademarks incurred after the Effective Date will be paid by TMC.

4.2 Limited Continued Obligations . For a period of up to one year following the Effective Date, ALZA will provide (and, if necessary, cause its Affiliates to provide) the necessary information and original registration certificates, and will execute all reasonable documents necessary to permit TMC, at TMC’s expense, to effect and perfect the transfer of the registrations of the Trademarks. Notwithstanding Section 18.2 below, after such one year period, ALZA (and its Affiliates) will have no further obligations in respect thereof.

4.3 Trademark Maintenance . If TMC elects to abandon its use of the Trademarks then it will give at least 60 days advance notice to ALZA. In such case, ALZA (or its designated Affiliate) may elect in its own discretion to continue the prosecution, issuance and maintenance of any such Trademarks and require TMC to assign such Trademarks to ALZA (or its designated Affiliate) and any associated goodwill, without compensation to TMC.

4.4 Trademark Enforcement . For as long as TMC owns the Trademark in a country, TMC will have the right, but not the obligation, to defend or enforce the Trademark in such country.

4.5 Effect of Termination . In the event of termination under Sections 15.2, 15.3, 15.4 or 15.6: TMC will assign the Trademarks and any associated goodwill to ALZA (or its designated Affiliate), without compensation to TMC, and will execute a trademark assignment in the form attached hereto as Attachment 4.5; provided, however, that if the Agreement is terminated (i) by ALZA due to TMC’s failure to meet its specific diligence obligations described in Section 3.5, and the License to TMC is converted to a Product specific license in accordance with Section 15.7.3, or (ii) by either Party for any reason and one or more Sublicensees are

 

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entitled to have their sublicenses survive such termination in accordance with 15.7.3, then ALZA will grant to TMC, and its Sublicensees and Affiliates, as applicable, the royalty-free right to use the Trademarks in association with the Product developed and commercialized under the Product specific license, or with respect to the Products being developed under such surviving sublicense, as applicable, in the Territory in the Field under terms of a Trademark License Agreement that will be negotiated by the Parties and that will contain appropriate quality control provisions.

ARTICLE 5 — FINANCIAL PROVISIONS

5.1 [**]

5.2 [**]

5.3 [**]

5.4 Timing and Mode of Payment . All payments to ALZA hereunder will be in Dollars and will be made by wire transfer in the requisite amount to the account designated by ALZA. Product Payments pursuant to Sections 5.2.1(a)(i) and 5.2.1(b)(i) will be made within forty-five (45) days after the close of each Quarter. Product Payments pursuant to Sections 5.2.1(a)(ii), 5.2.1(b)(ii) and Section 5.2.2 will be made within thirty (30) days after the date the payments on which they are based are due to TMC.

5.5 Product Payment Reports .

5.5.1 During the Term, TMC will notify ALZA each time it enters into an agreement with a Sublicensee regarding the development or Commercialization of a Third Party Product pursuant to which TMC will receive Nonroyalty Revenue and/or royalties based on sales of such Third Party Product and will provide to ALZA a copy of such agreement within 30 days after the execution thereof. Such copy may be redacted to exclude any information that is not necessary for assessing TMC’s compliance with its obligations to ALZA under this Agreement. Thereafter, TMC will furnish to ALZA a written report regarding Product Payments due to ALZA pursuant to Section 5.2.2 within 30 days after the date the payment on which such Product Payment is based is due to TMC showing: (a) the amount due to TMC from such Third Party; (b) a description of the milestone or event on which such payment is based; (c) the Product Payments, payable in Dollars, in respect of such payment; and (d) the exchange rates

 

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used, if any, in converting into Dollars from the currencies in which the payments were made to TMC.

5.5.2 During the Term and commencing with the First Sale of each Product, TMC will furnish or cause to be furnished to ALZA on a Quarterly basis, a written report or reports covering each Quarter (each such Quarter being sometimes referred to herein as a “reporting period”) showing: (a) gross invoiced sales and total deductions used to calculate Net Sales of each Product sold by TMC and its Sublicensees during the reporting period on a country-by-country basis; (b) the Product Payments, payable in Dollars, which will have accrued hereunder in respect of such Net Sales; (c) the exchange rates used, if any, in converting into Dollars, from the currencies in which sales of Product were made; (d) dispositions of such Product other than pursuant to sale for cash; and (e) any withholding taxes required to be paid from such Product Payments. In addition, with each such report on a Quarterly basis, TMC will furnish to ALZA a statement of the total amount due from TMC to [**] pursuant to the [**] Agreement and evidence to ALZA’s reasonable satisfaction that such payment was made to [**].

5.6 Financial Records . TMC will keep accurate records for three (3) years from the end of each reporting period, including, without limitation, gross invoiced sales, Net Sales, and Product Payments, in accordance with United States generally accepted accounting principles, in sufficient detail to enable the amounts due hereunder to be determined and verified by ALZA (“Financial Records”).

5.7 Currency Exchange . In the case of sales of any Product outside the United States or payments received from Third Parties outside of the United States, for the purpose of calculating Net Sales and making Product Payments where the consideration is based in a currency other than Dollars, conversion from such foreign currency to Dollars will be at the average rate of exchange published in the New York edition of The Wall Street Journal (or, if The Wall Street Journal is not then published, such other financial periodical of general circulation in the United States) with respect to the currency of the country of origin of such Net Sales or other payments for the Quarter for which such Product Payments are being paid.

5.8 Audit . Financial Records under this Agreement will be available during reasonable business hours for a period of three (3) years from the end of the reporting period to which they relate for audit purposes. Upon the written request of ALZA but not more often than once each year, at ALZA’s expense, TMC will permit an independent public accounting firm of

 

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national prominence selected by ALZA and reasonably acceptable to TMC to have access during normal business hours to those records of TMC as may be reasonably necessary for the sole purpose of verifying the accuracy of the Net Sales report and Product Payment calculation conducted by TMC pursuant to this Agreement. The aforementioned independent public accountant will execute an appropriate and customary confidentiality agreement with TMC and its Sublicensees, as applicable.

5.8.1 TMC will include in each sublicense entered into by it pursuant to this Agreement; a provision requiring, among others, the Sublicensee or commercialization partner to keep and maintain adequate Financial Records pursuant to such sublicense agreement and will use commercially reasonable efforts to cause such Sublicensee to grant access to such Financial Records by the aforementioned independent public accountant for the reasons specified in this Agreement, provided that in the event that TMC is unable to obtain the consent of a Sublicensee to such an audit by ALZA’s auditors, TMC will obtain for itself such right and, at the request of ALZA, TMC will exercise such audit right with respect to Sublicensees and provide the results of such audit for inspection by ALZA pursuant to this Section 5.8.1. It is understood and agreed that this Section 5.8.1 shall not apply to Non-Stocking Distributors unless such Non-Stocking Distributor is maintaining Financial Records on behalf of TMC.

5.8.2 In order to initiate an audit for a particular calendar year, ALZA will provide written notice to TMC. ALZA will provide TMC with notice of one or more proposed dates of the audit not less than forty-five (45) days prior to the first proposed date and TMC will reasonably accommodate the scheduling of such audit.

5.8.3 The report prepared by such independent public accounting firm, a copy of which will be sent or otherwise provided to TMC by such independent public accountant at the same time as it is sent or otherwise provided to ALZA, will contain the conclusions of such independent public accountant regarding the audit and will specify that the amounts paid to ALZA pursuant thereto were correct or, if incorrect, the amount of any underpayment or overpayment.

5.8.4 If such independent public accounting firm’s report establishes any underpayment, TMC will remit to ALZA within 30 days after TMC’s receipt of such report, (i) the amount of such underpayment and (ii) if such underpayment exceeds [**] of the total amount owed for the calendar year then being audited, the reasonable and necessary fees and expenses of

 

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such independent public accountant performing the audit, subject to reasonable substantiation thereof. If such independent public accounting firm’s report establishes any overpayment, TMC will receive a credit equal to such overpayment against the Product Payment otherwise payable to ALZA.

5.9 Interest Due . In the case of any delay in payment by TMC to ALZA of any amounts due, interest on the overdue payment will accrue at an annual interest rate, compounded monthly, equal to the prime rate as reported in The Wall Street Journal, as determined for each month on the last business day of that month, plus [**], assessed from the day payment was initially due. The foregoing interest will be due from TMC without any special notice.

5.10 Tax Withholding . Any income or other taxes which TMC is required by law to pay or withhold on behalf of ALZA with respect to Product Payments, and any interest thereon, payable to ALZA under this Agreement will be deducted from the amount of such Product Payments and interest due and paid or withheld, as appropriate, by TMC on behalf of ALZA. Any such tax required to be paid or withheld will be an expense of, and be borne solely by, ALZA. TMC will furnish ALZA with reasonable evidence of such withholding payment in electronic or written form as soon as practicable after such payment is made. The Parties hereto will reasonably cooperate in completing and filing documents required under the provisions of any applicable tax laws or under any other applicable law in connection with the making of any required withholding payment, or any claim to a refund of any such payment.

ARTICLE 6 — CONFIDENTIAL INFORMATION.

6.1 Confidentiality Obligations . Each Party agrees that, for the Term of this Agreement and for ten (10) years thereafter, it will keep confidential and will not publish or otherwise disclose and will not use for any purpose (except as expressly permitted hereunder) Confidential Information of the other Party; provided, however, that TMC can use ALZA Know-How to the extent reasonably necessary to develop, manufacture or use Microprojection Systems in the Field and to develop and commercialize Products and TMC can disclose ALZA Know-How only to the extent relating primarily to Microprojection Systems (including the manufacture or use thereof) in the Field and to Products. For clarity, TMC may not disclose any specific information relating to any agents or compounds proprietary to or Controlled by ALZA or its

 

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Affiliates (including the identity or structure of such agents or compounds), in each case to the extent such information would not fall within any of exceptions (a)-(d) of Section 1.9.

6.2 Written Assurances and Permitted Uses of Confidential Information .

6.2.1 Each Party will inform its employees and consultants who perform work under this Agreement of the obligations of confidentiality specified in Section 6.1, and all such persons will be bound by obligations of confidentiality substantially similar to those set forth herein.

6.2.2 Each Party may disclose Confidential Information of the other Party to the extent necessary to comply with applicable governmental regulations and/or submitting information to tax or other governmental authorities, or to the extent the receiving Party is compelled to disclose such information by a court or other tribunal of competent jurisdiction, provided, however, that in such case the receiving Party will give prompt notice to the other Party so that the other Party may seek a protective order or other remedy from said court or tribunal. In any event, the receiving Party will disclose only that portion of the Confidential Information that, in the opinion of its legal counsel, is legally required to be disclosed and will exercise reasonable efforts to ensure that any such information so disclosed will be accorded confidential treatment by said court or tribunal.

6.2.3 To the extent it is reasonably necessary or appropriate to fulfill its obligations and exercise its rights under this Agreement, either Party may use the Confidential Information of the other Party and may disclose such Confidential Information to its Affiliates, officers, employees, consultants, outside contractors, agents, clinical investigators, Sublicensees, potential Sublicensees, financial investors, attorneys and others that have a need to know the Confidential Information in order for the receiving Party to exercise its rights and perform its obligations under this Agreement, on condition that those individuals and entities to whom the receiving Party discloses such Confidential Information agree to keep the Confidential Information confidential for the same time periods and to the same extent as such Party is required to keep the Confidential Information confidential under this Agreement, and to any regulatory authorities to the extent reasonably necessary to obtain Regulatory Approval.

6.2.4 The terms and conditions of this Agreement will be treated by each Party as Confidential Information of the other Party and may be disclosed solely as permitted under this Article 6. For clarity, either Party will have the right to disclose this Agreement to the extent

 

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required by applicable law or regulation, including filing this Agreement with the United States Securities and Exchange Commission. If a Party discloses this Agreement because it is required by law, it will give the other Party at least [**] advance notice, where possible, of the scope of the Agreement to be disclosed with any proposed redactions so that the other Party will have an opportunity to comment. To the extent the receiving Party reasonably requests the redaction of any information in the Agreement, the disclosing Party will delete such information unless, in the opinion of the disclosing Party’s legal counsel, such information is legally required to be fully disclosed.

6.3 Public Announcements . An initial press release will be agreed upon by the Parties promptly after the Effective Date. Otherwise, neither Party will originate any publicity, news release or public announcements, written or oral, whether to the public or press, stockholders or otherwise, relating to the terms of this Agreement, performance under it or any of its terms, to any amendment hereto or performances hereunder without the prior written consent of the other Party, save only such announcements that are required by law to be made or that are otherwise agreed to by the Parties. Such announcements will be brief and factual. If a Party decides to make an announcement required by law, it will give the other Party at least [**] advance notice, where possible, of the text of the announcement so that the other Party will have an opportunity to comment upon the announcement. To the extent that the receiving Party reasonably requests the deletion of any information in the materials, the disclosing Party will delete such information unless, in the opinion of the disclosing Party’s legal counsel, such Confidential Information is legally required to be fully disclosed. For purposes of clarity, disclosures which have already been approved and made public will be exempted from the foregoing restrictions.

6.4 Publications . Each Party recognizes that the publication of papers regarding the results of non-clinical scientific studies or clinical trials related to the Products in the Field, including oral presentations and abstracts, may be beneficial to both Parties provided such publications are subject to reasonable controls to protect ALZA Confidential Information. Accordingly, TMC will deliver to ALZA a complete copy of any proposed publication by TMC that relates to or discloses ALZA Confidential Information at least [**] prior to submitting such proposed publication. ALZA will review any such proposed publication and give its comments to TMC within [**] of the delivery of such proposed publication to ALZA. With respect to oral

 

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presentation materials, ALZA will make reasonable efforts to expedite review of such materials, and will return such items as soon as practicable to TMC with appropriate comments, if any, but in no event later than [**] from the date of delivery to ALZA. TMC will comply with ALZA’s request to delete references to ALZA’s Confidential Information in any such proposed publication. Notwithstanding anything to the contrary herein, TMC may publish information about clinical trials performed or to be performed on the Products in the Field, without the need to obtain ALZA’s prior written approval (provided, however, that TMC will use diligent efforts to inform ALZA and to allow ALZA to comment on the disclosure), to the extent that such disclosure is required, in TMC’s reasonable opinion, to comply with applicable laws and regulations.

ARTICLE 7 — PATENTS AND INTELLECTUAL PROPERTY.

7.1 Ownership; Inventions. ALZA will own and retain and will continue to own and retain, all rights, title and interest to (i) any inventions conceived and reduced to practice by employees of ALZA, or by or on behalf of ALZA by Third Parties, prior to the Effective Date, including the Licensed Patents, and (ii) all ALZA Inventions, even if conceived by or on behalf of ALZA, prior to the Effective Date and reduced to practice by TMC after the Effective Date. Any invention conceived and reduced to practice and arising out of work conducted by or on behalf of a Party after the Effective Date that relates primarily to Microprojection Systems (including the use or manufacture thereof), including, but not limited to, Future ALZA Inventions and TMC Inventions, will (i) be owned by that Party and that Party will retain all rights, title and interest to the invention subject to the terms of this Agreement, including the right to file patent applications based on the invention and to prosecute; issue and maintain Patents that issue based on such Party’s invention, or (ii) if owned by a Third Party, will be licensed to the applicable Party under terms permitting such Party to fulfill its obligations to the other Party under Sections 2.1.1(b) or 2.2, as applicable. For purposes of clarity, inventorship for patentable inventions will be determined in accordance with United States patent laws for determining inventorship. In the event of a dispute regarding inventorship, if the Parties are unable to resolve such inventorship dispute, the Parties will establish a procedure to resolve such dispute, which may include engaging a Third Party patent attorney jointly selected by the Parties to resolve such dispute.

 

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7.2 Disclosure of Patentable Invention s. ALZA will promptly notify TMC in writing of any Future ALZA Patents. TMC will promptly notify ALZA in writing of any TMC Patents.

7.3 Prosecution of Licensed Patents .

7.3.1 ALZA Prosecution and Enforcement of Future ALZA Patents. ALZA will own and retain all rights, title and interest to Future ALZA Patents, subject to this Agreement. ALZA will be responsible for, and will bear the expenses for all filing, prosecution, issuance and maintenance of Future ALZA Patents. ALZA retains all rights to defend and enforce Future ALZA Patents at ALZA’s sole cost and expense.

7.3.2 TMC Prosecution of Licensed Patents.

(a) As of the Effective Date, TMC will be responsible for and will bear the expenses for all filing, prosecution, issuance and maintenance of all Licensed Patents.

(b) TMC will use good faith efforts to file patent applications to protect and cover the ALZA Inventions. TMC will file the patent applications based on such ALZA Inventions, and any additional Patents claiming priority to Licensed Patents that are filed by TMC, in ALZA’s name. Such patent applications will be assigned to ALZA or an Affiliate of ALZA, will be approved in writing by ALZA prior to filing, and will be included in the Licensed Patents licensed hereunder, and TMC will bear all costs of preparation, filing, prosecution, issuance and maintenance thereof. TMC will use reasonable efforts to file initially all such patent applications in the United States and as a Patent Cooperation Treaty application with the Worldwide Intellectual Property Organization (“WIPO”) designating all countries, filing at the very least in the United States, France, Japan, United Kingdom, Germany, Italy and Spain. TMC agrees to use reasonable efforts to ensure that any such Patents filed outside of the United States prior to a United States filing will be in a form sufficient to establish the date of original filing as a priority date for the purposes of a subsequent United States filing. All such Patent filings will be made in accordance with local foreign filing license requirements. In furtherance of and not in limitation of the foregoing, TMC will provide ALZA with a draft copy of each United States, foreign and WIPO patent application to be filed by it relating to the ALZA Inventions or claiming priority to the Licensed Patents in order, and sufficiently in advance, to obtain comments from ALZA’s patent counsel, as well as a list of countries in which such applications will be filed at least [**] in advance of TMC’s estimated filing date. TMC will provide to ALZA

 

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as filed copies of all such United States and WIPO patent applications promptly after the filing of such applications.

(c) TMC will use good faith efforts to prosecute to allowance the Licensed Patents and to seek the broadest claims within and outside the Field for all inventions described in the Licensed Patents and defend against oppositions filed against the grant of the Licensed Patents, and upon and after the grant of any letters patent based on any such ALZA Inventions or Licensed Patents in any country where it files patent applications, maintain such letters patent in force by duly filing all necessary papers and paying any fees required for such purpose by the patent laws of the particular country in which such letters patent was granted. TMC will consult with ALZA on all such Licensed Patents, in a timely manner so that ALZA’s comments can be duly considered and incorporated by TMC, and will disclose to ALZA the complete text of all such Licensed Patents and provide ALZA with copies of all material correspondence with the applicable patent office and any agent working on TMC’s behalf that relate to such Licensed Patents. TMC will provide to ALZA a copy of each U.S. Patent and Trademark Office “Office Action,” or its foreign equivalent, sufficiently in advance of the response due date, to obtain substantive comment of ALZA’s patent counsel. TMC will consider in good faith ALZA’s suggestions and recommendations regarding any such ALZA Inventions and Licensed Patents (such suggestions and recommendations not to be unreasonably delayed) before any action is taken, and in any event will obtain ALZA’s prior approval for any filings, actions and decisions regarding such Licensed Patents listed in Category B (such approval not to be unreasonably withheld or delayed).

(d) (i) If, on a country by country basis in the Territory, TMC decides at any time to discontinue the prosecution or maintenance of any of the Licensed Patents, or has decided not to pursue the filing of any foreign counterpart of an existing Licensed Patent in a country where the Licensed Patents are not already filed in as of the Effective Date of this Agreement, in each case, TMC will promptly notify ALZA in writing and will take no action to file a replacement patent application thereof. Such notification will be given at least [**] prior to the date on which such patent application(s) or patent(s) will become abandoned. ALZA will then have the option to assume full responsibility, at its discretion and sole cost, for the filing, prosecution and maintenance of the affected patent applications(s) or patent(s) in such country or countries. TMC will provide such reasonable assistance as is reasonably necessary to allow

 

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ALZA to assume the filing, prosecution and maintenance of such affected patent application(s) or patent(s), including executing any documents to reflect ALZA’s interests therein. In the event TMC elects not to proceed with the filing, prosecution or maintenance of any such patent application or patent, then such affected patent application(s) or patent(s) and inventions embodied in such patent application(s) or patent(s) will be deemed to no longer be included as Licensed Patents with respect to those jurisdictions in which TMC has elected not to proceed with the filing, prosecution or maintenance of such patent application(s) or patent(s).

(ii) TMC will use good faith efforts to file patent applications based on ALZA Inventions in accordance with Section 7.3.2(b). In the event TMC elects not to proceed with the filing of any patent application for:

(A) any commercially significant patentable invention in the Field contained in any ALZA Invention(s), ALZA will have the right to file and prosecute patent application(s) or patent(s) in respect of such ALZA Invention(s), to the extent set forth in subsection (iv) below, and such patent application(s) or patent(s) will be deemed to no longer be included as Licensed Patents with respect to those jurisdictions in which ALZA has elected to proceed with the filing, prosecution or maintenance of such patent application(s) or patent(s).

(B) any patentable invention outside the Field contained in any ALZA Invention(s), ALZA will have the right to file and prosecute patent application(s) or patent(s) in respect of such ALZA Invention(s), and such patent application(s) or patent(s), to the extent not claiming inventions within the Field, will be deemed to no longer be included as Licensed Patents with respect to those jurisdictions in which ALZA has elected to proceed with the filing, prosecution or maintenance of such patent application(s) or patent(s).

(iii) Further, TMC will notify ALZA in writing prior to the issuance of any patent from the Licensed Patents and afford ALZA the opportunity to seek protection by filing patent applications for:

(A) any commercially significant patentable inventions in the Field that are embodied in the patent application from which the issued patent matures and for which TMC does not intend to seek protection, and any such ALZA-filed patent application will not be considered Licensed Patents to the extent set forth in subsection (iv) below with respect to those jurisdictions in which the ALZA-filed patent applications are filed.

 

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(B) any patentable inventions outside the Field that are embodied in the patent application from which the issued patent matures and for which TMC does not intend to seek protection, and any such ALZA-filed patent application, to the extent not claiming inventions within the Field, will not be considered Licensed Patents with respect to those jurisdictions in which the ALZA-filed patent applications are filed.

(iv) In the event that (A) ALZA believes that TMC has failed to file a patent application claiming any commercially significant ALZA Invention(s), or (B) ALZA believes there are additional commercially significant patentable inventions embodied in any patent application from which a patent is expected to issue and for which TMC has elected not to file a subsequent patent application claiming priority to said patent application, then ALZA will so inform TMC, specifying with reasonable particularity the commercially significant invention that it believes TMC has failed to file on. In the event that TMC agrees with ALZA’s assessment, TMC will proceed with the filing of a patent application claiming such invention and any resulting patent applications, and any patents issuing therefrom shall be included in the Licensed Patents. In the event that TMC disagrees with ALZA’s assessment and elects not to file a patent application with respect to such invention in a particular jurisdiction, then ALZA will have the right to file for patent protection with respect to such inventions in such jurisdiction, and any patent claims that issue in such jurisdiction for such invention shall not be included within the Licensed Patents.

(e) In the event that a declaratory judgment action alleging invalidity of any of the Licensed Patents is brought against either Party, ALZA will have the right, but not the obligation, to assume the sole defense of the action at its own expense.

7.3.3 TMC Prosecution of TMC Patents. TMC will own and retain all rights, title and interest to TMC Patents, subject to the terms of this Agreement. TMC will be responsible for, and will bear the expenses for all filing, prosecution, issuance and maintenance of TMC Patents. TMC retains all rights to defend and enforce TMC Patents at TMC’s sole cost and expense.

7.4 Infringement Claims by Third Parties .

7.4.1 Notice. If the manufacture, use or sale of any Product results in a claim or a threatened claim by a Third Party against a Party hereto for patent infringement or for inducing or contributing to patent infringement (“Infringement Claim”), the Party first having notice of an

 

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Infringement Claim will promptly notify the other in writing. The notice will set forth the facts of the Infringement Claim in reasonable detail.

7.4.2 Defense. TMC will have the right but not the obligation to defend any suit resulting from an Infringement Claim at its expense. Upon TMC’s request and in connection with TMC’s defense of any such Infringement Claim, ALZA will provide reasonable assistance to TMC at TMC’s cost for such defense. TMC will keep ALZA reasonably informed on a Quarterly basis, in person or by telephone, prior to and during the pendency of any such suit.

7.4.3 Settlement. In the event that the manufacture, use or sale of a Product in a country would infringe a Third Party Patent and a license to such Third Party Patent is available, and TMC in its sole discretion seeks such a license, the Parties agree that TMC will be responsible for all costs associated with acquiring such Third Party license.

7.5 Infringement Claims Against Third Parties .

7.5.1 Cooperation. ALZA and TMC each agree to take reasonable actions to protect Licensed Patents from infringement in the Field. If one Party brings any such action or proceeding, the other Party may be joined as a Party plaintiff if necessary for the action or proceeding to proceed and, in case of joining, the other Party agrees to give the first Party reasonable assistance (and to execute all necessary and appropriate documents) and authority to file and to prosecute such suit. In the case of any such joinder, the other Party will be reimbursed for any costs associated with its participation. - The Parties will keep each other informed of the status of their respective activities regarding any litigation or settlement thereof concerning Products in the Field.

7.5.2 Notice. If any Licensed Patent is infringed in the Field by a Third Party in any country in connection with the manufacture, use and/or sale of a Product in such country, the Party to this Agreement first having knowledge of such infringement, or knowledge of a reasonable probability of such infringement, will promptly notify the other in writing. The notice will set forth the known facts of such infringement in reasonable detail.

7.5.3 Institution of Proceedings.

(a) ALZA has the first right, but not the obligation, to bring and control an action to enforce Licensed Patents, whether the infringement has occurred in the Field or not; provided, however, that TMC will be entitled to join and participate in any such action to the extent the alleged infringement is in the Field, provided that ALZA will maintain control of

 

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and direction of such action. If ALZA does not bring an action against the alleged infringer within 60 days after written notice from TMC, TMC may bring and control such an action with respect to infringement in the Field; provided, however, that ALZA will be entitled to join and participate in any such action. If TMC enforces Licensed Patents, TMC will not enter into any settlement that diminishes the rights or interests of ALZA outside of the Field or has an adverse effect on any Licensed Patent without ALZA’s written consent. ALZA and TMC will each be represented by their own counsel at their own expense. The expense of the Parties in bringing suit will first be reimbursed out of any moneys recovered, with the Party bringing the suit being reimbursed first. The balance of any recovery for infringement in the Field will be distributed: (a) to TMC in an amount equal to its lost profits or a reasonable royalty on the sales of the infringer (whichever measure of damages were applied) with respect to the portion (percentage) of the total recovery that is reasonably related to infringement in the Field; provided, however, that TMC will pay to ALZA in an amount equal to the royalties and other fees due ALZA based on such sales (if a sales of the infringer measure of damages is applied) or a reasonable approximation of the royalties and other fees that TMC would have owed to ALZA on sales of products that TMC lost to the infringer (if a lost profits measure of damages is applied) based upon the recovery distributed to TMC; and then (b) [**] to ALZA with respect to the portion (percentage) of the total recovery that was reasonably related to infringement outside the Field. The balance, if any, remaining after TMC has been compensated for lost profits or lost sales within the Field and ALZA has been compensated for lost royalties in respect of infringement within the Field and ALZA has recovered all direct damages in respect of infringement outside the Field will be divided as follows: [**] to ALZA and [**] to TMC with respect to the portion (percentage) of the total recovery that is reasonably related to infringement in the Field and [**] to ALZA with respect to the portion (percentage) of the total recovery that is reasonably related to infringement outside the Field.

(b) ALZA will have the right, but not the obligation, to bring and control an action to enforce Licensed Patents outside the Field for ALZA’s sole recovery; provided, however, that to the extent the alleged infringement is due to a Third Party product comprising a Microprojection System utilizing one or more driving sources (including, but not limited to, delivery systems that utilize one or more driving sources such as electrical potential gradients, sound waves, heating systems, laser energy, hydraulic systems, radio waves) for

 

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delivery of a compound for which ALZA then has exclusivity obligations to TMC pursuant to Section 14.2, and at such time TMC is actively working on a Product for delivery of such compound utilizing a Microprojection System, TMC will have the right to request that ALZA initiate an enforcement action against the alleged infringer to halt such infringement. TMC will be entitled to join and participate in any such action against such alleged infringer provided that ALZA maintains control of and direction of such action. If ALZA does not bring an action against the alleged infringer within 60 days after a request by TMC to do so, TMC may bring and control such an action with respect to such infringement. ALZA will be entitled to join and participate in any such action against the alleged infringer. TMC will not enter into any settlement that diminishes the rights or interests of ALZA outside of the Field or has an adverse effect on any Licensed Patent without ALZA’s written consent. ALZA and TMC will each be represented by their own counsel at their own expense. The expense of the Parties in bringing suit against the alleged infringer will first be reimbursed out of any moneys recovered, with the Party bringing the suit being reimbursed first. The balance of any recovery will be distributed: (a) to TMC in an amount equal to its lost profits or a reasonable royalty on the sales of the infringer (whichever measure of damages is applied) with respect to the portion (percentage) of the total recovery that were reasonably related to the infringement; provided, however, that TMC would pay to ALZA an amount equal to the royalties and other fees due ALZA based on such sales (if a sales of the infringer measure of damages is applied) or a reasonable approximation of the royalties and other fees that TMC would have owed to ALZA on sales of products that TMC lost to the infringer (if a lost profits measure of damages is applied) based upon the recovery distributed to TMC; and then (b) [**] to ALZA with respect to the portion (percentage) of the total recovery that is reasonably related to the damages suffered by ALZA (i.e., lost sales of ALZA products outside the Field). Any amount remaining from the recovery would be divided as follows: [**] to ALZA and [**] to TMC.

(c) Notwithstanding anything in this Section 7.5.3 to the contrary, neither ALZA (or any of its licensees, Affiliates, or assignees) nor TMC (or any of its Sublicensees, Affiliates, or assignees) will bring an action or join in any action to enforce certain Licensed Patents against [**] to the extent ALZA is so contractually obligated; provided, however, that ALZA will use commercially reasonable efforts in its negotiations with [**] in connection with the agreement contemplated in Section 3.3.2 above to identify which Licensed

 

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Patents are subject to the obligations described in Section 4.6 of the [**] Agreement and ALZA will keep TMC reasonably informed (as reasonably requested by TMC) regarding the progress and substance of such negotiations with regard to such issue, and ALZA will consider in good faith TMC’s comments regarding the terms proposed for such issue but ALZA will not be obligated to incorporate TMC’s comments. If ALZA reaches agreement with [**], ALZA will promptly notify TMC of the identity of the Licensed Patents that are subject to Section 4.6 of the [**] Agreement, if any.

7.6 Regulatory Listings and Notices Relating to the Act . TMC will have the right to include the Licensed Patents in any list that TMC provides in any regulatory filing worldwide relating directly to a Product, such as an NDA or 505(b)(2) filing in the United States, or their foreign equivalent, after receiving ALZA’s prior written approval. TMC will immediately, and in no event later than five (5) business days, give written notice to ALZA of any certification filed under the “U.S. Drug Price Competition and Patent Term Restoration Act of 1984” (hereinafter the “Act”), including, but not necessarily limited to, notices pursuant to §§101 and 103 of the Act from persons who have filed an abbreviated NDA (“ANDA”) or a “paper” NDA, based on an NDA filed by TMC relating to a Product, claiming that a Licensed Patent is invalid or unenforceable or that infringement will not arise from the manufacture, use or sale of any Product by a Third Party. ALZA will have the first right, but not the obligation, to bring and control an action to enforce the Licensed Patent; provided, however, that TMC will be entitled to join and participate in any such action to the extent any alleged infringement were in the Field so long as ALZA maintains control of and direction of such action. ALZA and TMC will each be represented by their own counsel at their own expense. If ALZA does not bring an action against the alleged infringer within forty (40) days after written notice to TMC of the certification, then TMC will have the right to bring and control such an action with respect to infringement in the Field in accordance with Section 7.5.3(a)(1) above.

7.7 Patent Term Extensions . After filing an application for Regulatory Approval for a Product, TMC will provide to ALZA a written list specifying all Licensed Patents that it is in good faith considering to be the subject of a patent extension with respect to such Product. After receiving Regulatory Approval for the Product, TMC will identify one Licensed Patent in the country in the Territory where the Product was approved and will have the right to request that ALZA file, at TMC’s expense, an application and take all reasonable actions necessary to obtain

 

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a patent extension pursuant to 35 USC 156, or like foreign statutes such as for a Supplementary Certificate of Protection of the Member States of the European Union, for such Licensed Patent and ALZA agrees to respond to such request within ten (10) business days. If ALZA fails to respond to such request (or notifies TMC that it is declining to pursue such patent extension) within such ten (10) business day period, or if having notified TMC that it intends to pursue such patent extension, fails to promptly take such action, then TMC will have the right on behalf of ALZA to file such application and take all such actions necessary to obtain such patent extension. For purposes of clarity, TMC and ALZA agree that if such Licensed Patent selected by TMC for patent extension could be the subject of a patent extension with respect to a Product for which ALZA or any of its Affiliates has received Regulatory Approval then ALZA will have the sole right to determine whether such Licensed Patent will be used to obtain a patent extension for such ALZA Product or for TMC’s Product. TMC and ALZA agree to cooperate with one another in obtaining such extension and use reasonable efforts to take all such actions necessary to obtain such patent extension at TMC’s cost.

7.8 Marking . TMC, and its Sublicensees and Affiliates, will mark all Products made under this Agreement with a notice in accordance with 35 USC 287 and similar marking provisions in countries other than the United States in the Territory.

7.9 Entitlement Action .

[**]

ARTICLE 8 — INDEMNIFICATION.

8.1 Indemnification .

.

8.1.1 Indemnification by TMC. TMC will indemnify, defend and hold ALZA and its Affiliates and any of their agents, employees and directors (the “ALZA Indemnitees”) harmless from and against any and all liability, damage, claim, loss, cost or expense, including reasonable attorneys’ fees (“Losses”) arising out of claims by Third Parties: (i) relating to the design, development, manufacture, use, handling, storage, sale or other disposition of any Microprojection System or any Product in the Field if such claims arise from the use or application of Microprojection Systems or Products by or on behalf of TMC, its Affiliates or Sublicensees after the Effective Date; (ii) arising from TMC’s breach of the Agreement; (iii) arising from activities occurring on or after the Effective Date with respect to agreements entered

 

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into by ALZA and Third Parties (and transferred to TMC pursuant to this Agreement) regarding the development of any Microprojection System or Product; or (iv) arising from TMC’s negligence or willful misconduct, except, in each case, to the extent such Losses arise from claims by Third Parties covered by ALZA’s indemnification obligations specified in Section 8.1.2.

8.1.2 Indemnification by ALZA. ALZA will indemnify, defend and hold TMC and its Affiliates and any of their agents, employees and directors (“TMC Indemnitees”) harmless from and against any and all Losses arising out of claims by Third Parties: (i) based on activities occurring prior to the Effective Date with respect to ALZA’s development of Microprojection Systems or Products in the Field (other than claims relating to (x) product liability or patent infringement in the Field or (y) other matters relating to the design or development of Microprojection Systems or Products if in the case of either clause (x) or (y) such claims arise from the use or application of Microprojection Systems or Products after the Effective Date (“Excluded Claims”)), (ii) arising from ALZA’s breach of this Agreement; or (iii) arising from ALZA’s gross negligence or willful misconduct (other than Excluded Claims); except, in each case, to the extent such Losses arise from claims by Third Parties covered by TMC’s indemnification obligations specified in Section 8.1.1.

8.1.3 Indemnification Procedure.

(a) Whenever any Loss is asserted against or incurred by a TMC Indemnitee or ALZA Indemnitee (the “Indemnified Party”), the Indemnified Party will give written notice thereof (a “Claim”) to ALZA or TMC, respectively (the “Indemnifying Party”). The Indemnified Party will furnish to the Indemnifying Party in reasonable detail such information as the Indemnified Party may have with respect to the Claim. The failure to give such notice will not relieve the Indemnifying Party of its indemnification obligations under this Agreement, unless the failure to give such notice is materially prejudicial to an Indemnifying Party’s ability to defend such action.

(b) Within [**] after delivery of such notification, the Indemnifying Party may, upon written notice thereof to the Indemnified Party, and at its expense, undertake the defense of Claims with attorneys of its own choosing. In the event the Indemnifying Party does not assume control of such defense, the Indemnified Party may undertake the defense of the Claim.

 

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(c) The Party not controlling such defense may participate therein at its own expense; provided that if the Indemnifying Party assumes control of such defense and the Indemnified Party reasonably concludes, based on advice from counsel, that the Indemnifying Party and the Indemnified Party have conflicting interests with respect to such action, suit, proceeding or claim, the Indemnifying Party will be responsible for the reasonable fees and expenses of counsel to the Indemnified Party solely in connection therewith; provided further, however, that in no event will the Indemnifying Party be responsible for the fees and expenses of more than one counsel in any one jurisdiction for all Indemnified Parties.

(d) The Party controlling such defense will keep the other Party advised of the status of such action, suit, proceeding or claim and the defense thereof and will consider recommendations made by the other Party with respect thereto.

(e) The Indemnified Party will not agree to any settlement of such action, suit, proceeding or claim without the prior written consent of the Indemnifying Party, which will not be unreasonably withheld. The Indemnifying Party will not consent to entry of any judgment or enter into any settlement that admits fault on the party of the Indemnified Party, except with the consent of the Indemnified Party, which such consent will not be unreasonably withheld or delayed. In the event the Indemnified Party refuses to consent to the entry of a judgment or a settlement for which the Indemnifying Party is solely and entirely responsible and has indicated its sole and entire responsibility in writing to the Indemnified Party, following such refusal, the liability of the Indemnifying Party to the Indemnified Party will be fixed at the amount of any money damages provided in the proposed judgment or settlement.

8.2 Insurance Proceeds . Any indemnification hereunder will be made net of any insurance proceeds recovered by the Indemnified Party; provided, however, that if, following the payment to the Indemnified Party of any amount under this Article 8, such Indemnified Party recovers any insurance proceeds in respect of the claim for which such indemnification payment was made, the Indemnified Party will promptly pay an amount equal to the amount of such proceeds (but not exceeding the amount of such indemnification payment) to the Indemnifying Party.

8.3 Insurance . TMC will use all commercially reasonable efforts to maintain insurance, including product liability insurance, with respect to its activities hereunder. Such

 

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insurance will be in such amounts and subject to such deductibles as the Parties may agree, based upon standards prevailing in the industry at the time.

8.4 Future Litigation Regarding Development Agreements . In the event that any litigation arises with respect to any of the Development Agreements, at ALZA’s request, TMC will cause former ALZA employees or consultants that are then employed by or consulting for TMC or its Affiliates to provide reasonable assistance to ALZA in connection with such litigation, including giving testimony. ALZA will not be required to compensate TMC or such former employees or consultants for their time and expense in providing such assistance; provided, however, that ALZA will reimburse such employees or consultants for travel costs incurred in connection with the provision of such assistance at ALZA’s request in accordance with the then-current Johnson & Johnson travel reimbursement policy. ALZA will cover its own expenses regarding such litigation including meetings with and preparation of such TMC employees prior to such employees providing testimony. To the extent such employees want or require their own legal assistance, it will be at their sole cost and expense.

ARTICLE 9 — RIGHT OF FIRST NEGOTIATION FOR PTH PRODUCT

9.1 ALZA Rights Regarding PTH Product. On the terms set forth in this Article 9, ALZA (or its designated Affiliate) will have a right of first negotiation to an agreement whereby ALZA (or its designated Affiliate) would obtain from TMC, for mutually agreed consideration, an exclusive, worldwide license, with the right to sublicense, to make, have made, use, import, sell, offer for sale and have sold any PTH Product developed by or on behalf of TMC. TMC will not enter into, or enter into discussions or negotiations regarding, an agreement with a Third Party to make, have made, use, import, sell, offer for sale or have sold any PTH Product unless and until TMC has provided notice to ALZA pursuant to Section 9.2 and complied with the other procedures set forth in Sections 9.2 – 9.7.

9.2 TMC Notice Regarding PTH Product. At any time after the earlier of (i) TMC’s receipt of the FDA minutes from its End of Phase I Meeting with the FDA regarding the PTH Product or (ii) equivalent written communication from the FDA responding to questions submitted in the TMC End of Phase I Meeting request regarding the PTH Product or (iii) the expiration of thirty (30) days following the submission by TMC to the FDA of a protocol for the Phase II study of the PTH Product without a written response from the FDA (in the event that the

 

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FDA does not hold an End of Phase I Meeting and does not respond to questions submitted by TMC in its request for an End of Phase I Meeting); provided that in no event shall the time determined under Section 9.2(i)-(iv) be earlier than January 1, 2007, if TMC decides to seek a partner for further development or Commercialization of the PTH Product, TMC will provide notice in writing to ALZA of such intention. Together with such notice, TMC will deliver to ALZA all final study reports of all preclinical and clinical studies regarding the PTH Product conducted prior to such date, and (ii) such other data or information, if any, which is then Controlled by TMC or its Affiliates and which is, in TMC’s reasonable estimation, reasonably necessary to permit ALZA (or its Affiliates) to evaluate whether to enter into an agreement regarding the development or Commercialization of the PTH Product (the “PTH Product Notice Package”).

9.3 Decision Regarding PTH Product. Within 10 calendar days of its receipt of the PTH Product Notice Package, ALZA will inform TMC if it believes any additional information is required to reasonably evaluate the PTH Product opportunity. If ALZA believes additional information is required, it will provide TMC with a detailed list of such additional item(s) of information it is requesting, and in the event that TMC agrees that such additional item(s) of information are reasonably required to evaluate the PTH Product opportunity (such agreement not to be unreasonably withheld or delayed) and such additional items of information are reasonably accessible to TMC, TMC will promptly endeavor to provide such information to ALZA. Within 30 calendar days after ALZA’s receipt of the PTH Product Notice Package, or in the event TMC agrees to provide ALZA additional information, within 20 days of TMC’s delivery of such additional information to ALZA, ALZA will provide TMC with notice either that (i) ALZA would not like to negotiate an agreement regarding the PTH Product or (ii) ALZA would like to negotiate an agreement regarding the PTH Product. If ALZA fails to deliver any notice within such 30-day period, ALZA will be deemed to have provided notice that it would not like to negotiate an agreement regarding the PTH Product. Notwithstanding anything in Article 9 to the contrary, TMC may not provide any information regarding the PTH Product that was available at the time TMC provided the PTH Product Notice to ALZA (or became available during the period TMC was negotiating with ALZA pursuant to Section 9.5) and that was not included in the PTH Product Notice Package or provided to ALZA pursuant to Section 9.3 to any

 

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Third Party for the purpose of discussing an agreement with such Third Party for the continued development or Commercialization of the PTH Product.

9.4 No Negotiation of PTH Product. If ALZA notifies TMC that it would not like to negotiate with TMC for an agreement regarding the PTH Product (or is deemed to have done so), ALZA will have no further rights to the PTH Product and TMC will have no further obligations to ALZA with respect to such PTH Product, in each case, except as provided in Section 9.7.

9.5 Good Faith Negotiation Regarding PTH Product. If ALZA notifies TMC that ALZA or any of its Affiliates would like to negotiate with TMC, the Parties will negotiate exclusively with each other in good faith for a period of [**] following such notice for a letter of intent covering an arrangement pursuant to which ALZA or its Affiliate will obtain worldwide rights for further development, licensing and marketing of the PTH Product. The arrangement will include the transfer to ALZA or its Affiliate ownership of any and all data, results, regulatory filings or Regulatory Approvals relating to the PTH Product obtained or Controlled by TMC. The [**] negotiation period may be extended by mutual agreement of the Parties. During any period of time in which the Parties are negotiating in good faith, TMC will provide ALZA with any additional material data and information developed by or on behalf of TMC during such time pertaining to the PTH Product.

9.6 No Agreement Regarding PTH Product. If the Parties are unable to reach an agreement upon the terms of such letter of intent within such [**] period despite good faith negotiations during the [**] period or, if after reaching agreement upon a letter of intent the Parties are unable to enter into a definitive agreement regarding the PTH Product despite an additional [**] period of good faith negotiations (and any agreed extension thereof), TMC will have the right (i) to develop and market the PTH Product through its own in-house marketing and sales organization (or that of its Affiliates) on a worldwide basis, or (ii) to pursue an agreement with a Third Party for the continued development or Commercialization of the PTH Product so long as such Third Party agreement is not on terms which, when taken as a whole, are materially less favorable for TMC than the last proposal TMC made to ALZA (or its Affiliate) during the negotiation period (or any agreed extension thereof).

9.7 Additional Rights Regarding PTH Product. In the event that TMC decides not to seek a partner for further development or Commercialization of the PTH Product prior to the unblinding of data for the first Phase II clinical trial of the PTH Product, or in the event that

 

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ALZA (or its Affiliate) and TMC do not enter into an agreement regarding the PTH Product following ALZA’s receipt of the PTH Product Notice Package and TMC does not enter into an agreement with a Third Party for the continued development or Commercialization of the PTH Product prior to the unblinding of data for the first Phase II clinical trial of the PTH Product, then following completion of the first study report for the first Phase II clinical trial of the PTH Product that includes statistical analysis showing the positive statistical significance of the PTH Product against the primary endpoint established in the protocol for such trial, TMC will be obligated to provide to ALZA a PTH Product Notice Package, including all additional data developed regarding the PTH Product up to such date, and the provisions of this Article 9 will again apply to the PTH Product; provided that (i) if the final study report for such Phase II clinical trial is not materially different in its conclusions or the data presented from the initial draft report provided to ALZA, the 30-day time period specified in Section 9.3(i)-(ii) for ALZA to provide notice to TMC will be reduced to 15 days and will not commence with the receipt of such PTH Product Notice Package but will instead commence upon receipt by ALZA of the final study report for such Phase II clinical trial, or (ii) if the final study report for such Phase II clinical trial is materially different in its conclusions or the data presented from the initial draft report provided to ALZA, the 30-day time period specified in Section 9.3(i)-(ii) for ALZA to provide notice to TMC will remain 30 days and will not commence with the receipt of such PTH Product Notice Package but will instead commence upon receipt by ALZA of the final study report for such Phase II clinical trial. Similarly, in the event that TMC decides not to seek a partner for further development or Commercialization of the PTH Product prior to the unblinding of data for the first Phase III clinical trial of the PTH Product, or in the event that ALZA (or its Affiliate) and TMC do not enter into an agreement regarding the PTH Product following ALZA’s receipt of the PTH Product Notice Package and TMC does not enter into an agreement with a Third Party for the continued development or Commercialization of the PTH Product prior to the unblinding of data for the first Phase III clinical trial of the PTH Product, then following completion of the first study report for the first pivotal Phase III clinical trial of the PTH Product that includes statistical analysis showing the positive statistical significance of the PTH Product against the primary endpoint established in the protocol for such trial, TMC will be obligated to provide to ALZA a PTH Product Notice Package, including all additional data developed regarding the PTH Product up to such date, and the provisions of this Article 9 will again apply

 

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to the PTH Product; provided that (i) if the final study report for such Phase III clinical trial is not materially different in its conclusions or the data presented from the initial draft report provided to ALZA, the 30-day time period specified in Section 9.3(i)-(ii) for ALZA to provide notice to TMC will be reduced to 15 days and will not commence with the receipt of such PTH Product Notice Package but will instead commence upon receipt by ALZA of the final study report for such Phase III clinical trial, or (ii) if the final study report for such Phase III clinical trial is materially different in its conclusions or the data presented from the initial draft report provided to ALZA, the 30-day time period specified in Section 9.3(i)-(ii) for ALZA to provide notice to TMC will remain 30 days and will not commence with the receipt of such PTH Product Notice Package but will instead commence upon receipt by ALZA of the final study report for such Phase III clinical trial.

9.8 No Implied Rights. For purposes of clarity, it is acknowledged and agreed that TMC need only provide one such initial notice and PTH Product Notice Package under Section 9.2, and that TMC is not obligated to provide any further notice if TMC subsequently engages in discussions with more than one Third Party with respect to the PTH Product prior to the unblinding of data for the first Phase II clinical trial of the PTH Product. Similarly, it is acknowledged and agreed that in the event TMC is required to offer the PTH Product to ALZA pursuant to Section 9.7 above, TMC need only provide one such notice and PTH Product Notice Package at the end of the first Phase II clinical trial with respect thereto, if applicable, and one such notice and PTH Product Notice Package at the end of the first Phase III clinical trial with respect thereto, each as required under Section 9.7, and that TMC is not obligated to provide any further notice if TMC subsequently engages in discussions with more than one Third Party with respect to the PTH Product.

ARTICLE 10 — OPTION FOR NESIRITIDE PRODUCT.

10.1 Option for Nesiritide Product. On the terms set forth in this Article 10, TMC hereby grants to ALZA and its Affiliates an exclusive, irrevocable option for a period commencing on the Effective Date and ending on a date that is the third anniversary of the Effective Date (the “Option Period”), to enter into good faith negotiations with TMC for a separate development and commercialization agreement with TMC, upon the terms and conditions set forth in Attachment 10.1, and such additional reasonable terms and conditions as

 

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the Parties agree, covering the development, manufacture and commercialization of a Nesiritide Product.

10.2 Exercise Of Option. ALZA (or its Affiliates) may exercise its option by providing TMC with written notice within the Option Period of its desire to exercise such option. If ALZA (or its Affiliates) exercises its option within the Option Period described in Section 10.1, the Parties will commence good faith negotiations for a development and commercialization agreement upon the terms and conditions set forth in Attachment 10.1, and such additional reasonable terms and conditions as the Parties mutually agree, covering the development, manufacture and commercialization of a Nesiritide Product.

ARTICLE 11 — TMC’S RIGHT OF FIRST NEGOTIATION FOR EXPANDED LICENSE.

11.1 ALZA Notice Regarding Expanded License. Prior to entering into negotiations with or offering to any Third Party a license outside the Field under the Licensed Patents for delivery of therapeutic or prophylactic agents into or through the skin utilizing Microprojection Systems in combination with delivery systems that utilize a driving source (and such license were not related to a specific product or products or a specific energy based delivery system), ALZA will deliver notice to TMC of ALZA’s intent to offer such license together with a description of the rights it is proposing to license in sufficient detail, in ALZA’s reasonable estimation, to permit TMC to evaluate its interest in such opportunity.

11.2 Decision Regarding Expanded License Negotiations. Within 30 calendar days of TMC’s receipt of such notice and description of rights, TMC will provide ALZA with notice either that (i) TMC would not like to negotiate such license or (ii) TMC would like to negotiate for the rights to such license. If TMC fails to deliver any notice within such 30-day period, TMC will be deemed to have provided notice that it would not like to negotiate such license.

11.3 No Negotiation Regarding Expanded License. If TMC notifies ALZA that it would not like to negotiate with ALZA for an agreement regarding such license (or is deemed to have done so), TMC will have no further rights to such license and ALZA will have no further obligations to TMC with respect to such license.

11.4 Good Faith Negotiation Regarding Expanded License. If TMC notifies ALZA within the 30 calendar day period that it would like to negotiate with ALZA for such license, the Parties will negotiate exclusively with each other in good faith for a period of [**] following

 

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such notice for a letter of intent covering an arrangement pursuant to which TMC will obtain such license. The [**] negotiation period may be extended by mutual agreement of the Parties.

11.5 No Agreement Regarding Expanded License. If the Parties are unable to reach an agreement upon the terms of such letter of intent within such [**] period despite good faith negotiations during the [**] period or if after reaching agreement upon a letter of intent the Parties are unable to enter into a definitive license agreement despite an additional [**] period of good faith negotiations (or any agreed extension thereof), ALZA will have the right to pursue an agreement with a Third Party for such license so long as for a period of [**] following the termination of the negotiations between ALZA and TMC, such Third Party license is not on terms which, when taken as a whole, are materially less favorable for ALZA than the last proposal ALZA had made to TMC during the negotiation period (or any agreed extension thereof).

ARTICLE 12 — TMC’S RIGHT OF FIRST NEGOTIATION ON PRODUCTS UTILIZING MICROPROJECTION SYSTEMS OUTSIDE THE FIELD.

12.1 ALZA Notice Regarding Collaboration. Prior to entering into a collaboration with a Third Party to develop an ALZA product utilizing a Microprojection System in combination with any delivery system that utilizes an energy-based driving source, ALZA will deliver notice to TMC of its intent to enter into such collaboration together with a description of the proposed collaboration in sufficient detail, in ALZA’s reasonable estimation, to permit TMC to evaluate its interest in such opportunity. Notwithstanding the foregoing, if after consulting with TMC regarding the proposed collaboration, ALZA reasonably determines that TMC’s Microprojection Systems are not at such time suitable for ALZA’s intended application, ALZA will so inform TMC and will meet with TMC to discuss the basis of its decision. Thereafter, TMC will have no further rights regarding such collaboration and ALZA will have no further obligations to TMC with respect to such collaboration.

12.2 Decision Regarding Collaboration Negotiations. Within 30 calendar days of TMC’s receipt of such notice and written description of proposed collaboration, and if ALZA has not informed TMC that TMC’s Microprojection Systems are not suitable for ALZA’s intended application, TMC will provide ALZA with notice either that (i) TMC would not like to negotiate with ALZA for an agreement regarding such collaboration or (ii) TMC would like to negotiate with ALZA for an agreement regarding such collaboration. If TMC fails to deliver any notice

 

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within such 30-day period, TMC will be deemed to have provided notice that it would not like to negotiate for an agreement regarding such collaboration.

12.3 No Negotiation Regarding Collaboration. If TMC notifies ALZA that it would not like to negotiate with ALZA for an agreement regarding such collaboration (or is deemed to have done so), TMC will have no further rights regarding such collaboration and ALZA will have no further obligations to TMC with respect to such collaboration.

12.4 Good Faith Negotiations Regarding Collaboration. If TMC notifies ALZA within the 30 calendar day period that it would like to negotiate with ALZA for an agreement regarding such collaboration, the Parties will negotiate exclusively with each other in good faith for a period of [**] following such notice for a letter of intent covering such collaboration. The [**] negotiation period may be extended by mutual agreement of the Parties.

12.5 No Agreement Regarding Collaboration . If the Parties are unable to reach an agreement upon the terms of such letter of intent within such [**] period despite good faith negotiations during the [**] period or if after reaching agreement upon a letter of intent the Parties are unable to enter into a definitive collaboration agreement despite an additional [**] period of good faith negotiations (or any agreed extension thereof), ALZA will have the right to pursue an agreement with a Third Party for such collaboration so long as for a period of [**] following the termination of the negotiations between ALZA and TMC, such Third Party license is not on terms which, when taken as a whole, are materially less favorable for ALZA than the last proposal ALZA had made to TMC during the negotiation period (or any agreed extension thereof).

ARTICLE 13 — TMC’S RIGHT TO MEET.

13.1 TMC Proposal . Beginning on a date that is 18 months after the Effective Date, TMC may notify ALZA on a nonconfidential basis that TMC would like to initiate good faith negotiations with ALZA to obtain a nonexclusive license of the Licensed Patents for the delivery of a specific therapeutic or prophylactic agent into or through the skin utilizing a Microprojection System in combination with a delivery system that utilizes a driving source other than iontophoresis. ALZA and TMC will meet at ALZA’s facilities at a mutually agreeable time and date that is within 45 days of ALZA’s receipt of such notice. At the meeting, TMC may present its proposal for such arrangement to ALZA on a nonconfidential basis. ALZA will not have any

 

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additional obligations of any kind regarding such proposal or such product, including but not limited to, any obligation to negotiate in good faith or to respond in any way to such proposal or to agree to any form of additional license.

ARTICLE 14 — EXCLUSIVITY.

14.1 TMC Exclusivity . Notwithstanding anything in this Agreement to the contrary, beginning on the Effective Date and continuing until a date that is the later of (i) December 31, 2014, or (ii) the end of the period that ALZA, its Affiliates or sublicensees, have a Valid Patent Claim covering Natrecor ® (nesiritide) or regulatory exclusivity (including any data package or marketing exclusivity) from any Regulatory Authority regarding Natrecor ® (nesiritide) (collectively, the “Exclusivity Period”), or (iii) the date on which Natrecor ® (nesiritide) is no longer being sold by ALZA or any ALZA Affiliate, TMC will not conduct (itself or with an Affiliate or a Third Party) any material development or Commercialization activities with respect to any Product (other than the Nesiritide Product with ALZA or its Affiliate as described in Section 10.2) incorporating nesiritide or any analog or derivative thereof.

In addition, beginning on the Effective Date and continuing until a date that is the later of (i) December 31, 2014, or (ii) the end of the Exclusivity Period anywhere in the Territory, TMC will not conduct (itself or with an Affiliate or a Third Party) any material development or Commercialization activities with respect to any Product (other than the Nesiritide Product with ALZA or its Affiliate as described in Section 10.2) incorporating any natriuretic peptide, stresscopin, urocortin, or any analog or derivative of a natriuretic peptide, stresscopin or urocortin in the Field.

14.2 ALZA Exclusivity .

14.2.1 Notwithstanding anything in this Agreement to the contrary, during such time as TMC is actively working on a PTH Product, ALZA will not conduct any material development or Commercialization activities with respect to any product for delivery of PTH into or through the skin via a Microprojection System in combination with a driving source (including, but not limited to, delivery systems that utilize one or more driving sources such as electrical potential gradients, sound waves, heating systems, laser energy, hydraulic systems or

 

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radio waves), unless ALZA and TMC have entered into a separate agreement regarding such product.

14.2.2 Notwithstanding anything in this Agreement to the contrary, during the time beginning on the Effective Date and ending on the six month anniversary of the Effective Date (or such earlier date that TMC notifies ALZA of its selection of no more than two compounds as described below), ALZA will not conduct (itself or with an Affiliate or Third Party) any material development or Commercialization activities with respect to any product for delivery of human growth hormone (hGH), alpha-interferon (alpha-IFN), beta-interferon (beta-IFN), granulocyte colony stimulating factor (G-CSF), or desmopressin or any analog of any of the foregoing into or through the skin via a Microprojection System in combination with a driving source (including but not limited to, delivery systems that utilize one or more driving sources such as electrical potential gradients, sound waves, heating systems, laser energy, hydraulic systems or radio waves), unless ALZA and TMC have entered into a separate agreement regarding such product. On or prior to the six month anniversary of the Effective Date, TMC will notify ALZA that it has selected up to two compounds from the compounds listed above for which ALZA’s exclusivity obligations to TMC as described above will continue thereafter for a period of two years from the Effective Date provided that such obligations will only remain in effect with respect to each compound selected by TMC pursuant to this Section 14.2.2 during the period when TMC is actively working on a Product for delivery of such compound. ALZA will have no continuing exclusivity obligations to TMC for the compounds not so selected.

14.2.3 TMC will inform ALZA of the status of its development projects pursuant to the annual development reports described in Section 3.6. If TMC terminates the active development of the PTH Product, it will so notify ALZA within 30 days of the termination of such program. If TMC begins active work on a Product for delivery of any of the compounds listed in Section 14.2.2 or terminates active work on a Product for delivery of any of the compounds listed in Section 14.2.2, it will so notify ALZA within 30 days of such initiation or termination of such work. If, at any time, TMC is not actively working on a Product for delivery of any of PTH, or one of the compounds listed in Section 14.2.2 (or TMC has not notified ALZA that it has commenced active work on such compound) and ALZA begins work on a product outside the Field for the delivery of such compound, ALZA will no longer have any obligation

 

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under Section 14.2 regarding such compound, even if TMC later begins working on a Product for delivery of such compound in the Field.

ARTICLE 15 — TERM AND TERMINATION.

15.1 Term . This Agreement will commence on the Effective Date and will remain in effect until the expiration of TMC’s obligation to make Product Payments for all Products, unless earlier terminated as provided in this Article 15 (the “Term”). TMC’s license with respect to the ALZA Know-How will survive the expiration, (but not an earlier termination) of this Agreement.

15.2 Termination of this Agreement by TMC for any Reason . TMC may terminate this Agreement for any reason upon ninety (90) days advance written notice to ALZA.

15.3 Termination by ALZA. ALZA may terminate this Agreement if TMC or any of its Affiliates or Sublicensees initiates or voluntarily maintains, or participates in or, in the absence of a subpoena or other court order (a copy of which subpoena or court order will be promptly provided to ALZA if not prohibited under such subpoena or order), cooperates with any Third Party to initiate or maintain, any action or proceeding seeking a declaration or judgment of invalidity with respect to any of the Licensed Patents or to challenge the ownership or inventorship of any of the Licensed Patents. This clause is not intended to create any rights for TMC or any of its Affiliates or Sublicensees to participate in any actions not authorized by law.

15.4 Termination By Either Party for Breach . Either Party may terminate this Agreement in the event the other Party commits a material breach of any obligation of this Agreement. A material breach by TMC will include, but not be limited to, TMC’s failure to satisfy any of its diligence obligations described in Sections 3.5 and 3.7.

15.5 Effective Date of Termination . For any breach other than a failure by TMC to pay when due any amount due hereunder, termination will become effective either (i) sixty (60) calendar days after the date of such notice unless TMC cures such material breach or withdraws or terminates such action or proceeding described in Section 15.3 during such sixty (60) day period (or, if such material breach, by its nature, is a curable breach that is not curable within such 60 day period, such longer period as would be reasonably necessary for a diligent party to cure such material breach), or (ii) immediately if such material breach, by its nature, is incurable or if TMC has failed to engage in Active Early Development on at least one additional Product

 

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within 6 months following the date TMC terminates or suspends a development program, as described in Section 3.5.

For any breach consisting of a failure by TMC to pay when due any amount due hereunder, termination will become effective twenty (20) calendar days after the date of such notice unless ALZA receives all undisputed amounts due, together with all interest due and payable thereon, within such twenty (20) day period and, if any of the amount is in dispute, a notice specifying the disputed amount, together with a reasonably detailed explanation of the basis for such dispute.

15.6 Termination for Bankruptcy . This Agreement will terminate automatically without any notice to TMC in the event: (i) TMC is declared insolvent or bankrupt by a court of competent jurisdiction, (ii) a voluntary or involuntary petition in bankruptcy is filed in any court of competent jurisdiction against TMC and such petition is not dismissed within ninety (90) days after filing, or (iii) TMC makes or executes an assignment of substantially all of its assets for the benefit of creditors.

15.7 Effect of Termination.

15.7.1 Subject to Sections 15.7.2 and 15.7.3, in the event of termination under Section 15.2, Section 15.3, Section 15.4 or Section 15.6: all rights licensed herein will revert to ALZA and the license to ALZA in Section 2.2 will remain in full force and effect.

15.7.2 Notwithstanding Section 15.7.1, if the Agreement is terminated by ALZA due to TMC’s failure to meet its specific diligence obligations described in Section 3.6.2 prior to the First Sale of the second Product to be Commercialized, the License and Agreement will be terminated with respect to all Products except (i) any Product that, on the effective date of termination, TMC is diligently Commercializing or that TMC is diligently developing and that has been introduced into a patient in a human clinical study and (ii) any Third Party Product in Active Early Development, Active Clinical Development or any later stage of development or Commercialization by TMC or its Sublicensee.

15.7.3 Upon termination of this Agreement for any reason following the First Sale of the second Product, any sublicense granted by TMC to a Sublicensee will survive termination only if all of the following conditions are met: (a) the Sublicensee is not then in default under the terms of its sublicense agreement; (b) the Sublicensee has a sublicense which was not granted by TMC in violation of this Agreement; (c) the Sublicensee has, at the time this

 

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Agreement is terminated, at least one Third Party Product or other Product in Active Early Development, Active Clinical Development, or Commercialization and (d) the Sublicensee agrees in writing that: (i) ALZA will be entitled to enforce all relevant provisions of such sublicense agreement directly against such Sublicensee; (ii) ALZA will not assume, and will not be responsible to such Sublicensee for, any representations, warranties, or obligations of TMC to such Sublicensee (including, but not limited to, any obligations to manufacture for, or provide technology transfer to, the Sublicensee), other than to permit such Sublicensee to make, have made, import, use, sell, offer for sale and have sold Products under the Licensed Patents and ALZA Know-How to the extent such rights are sublicensed to such Sublicensee under the applicable sublicense agreement; (iii) ALZA will be responsible for the direction of the filing, prosecution, issuance and maintenance of all Licensed Patents and ALZA Inventions and the extension and maintenance of any such Patents, and the handling of such matters will be in ALZA’s reasonable discretion; (iv) the royalties and non-royalty payments to ALZA by such Sublicensee in respect of each applicable Product and Third Party Product will be the greater of (x) what ALZA would have received from TMC under this Agreement in respect of such Sublicensee’s activities with respect to such applicable Product or Third Party Product or (y) what such Sublicensee would have owed to TMC under its sublicense agreement; (v) the Sublicensee will pay its portion of ALZA’s patent filing, prosecution, issuance and maintenance expenses related to the Licensed Patents which would otherwise have been borne by TMC under Section 7.3.2(a) of this Agreement, which expenses will be apportioned pro rata among each surviving Sublicensee; (vi) the Sublicensee will be subject to the same diligence obligations as TMC under Sections 3.6.1 and 3.8 of this Agreement with respect to Sublicensee’s Product(s); and (vii) the Sublicensee may not exercise its rights to make, have made, import, use, sell, offer for sale and have sold Products under the Licensed Patents and ALZA Know-How (to the extent such rights are sublicensed to such Sublicensee under the applicable sublicense agreement) for any Products that are not in Active Early Development, Active Clinical Development or Commercialization at the time this Agreement is terminated. ALZA may require any Sublicensee that is a party to a sublicense agreement that survives termination of this Agreement pursuant to this Section 15.7.3 to enter into a direct license with ALZA to replace such sublicense agreement on terms that are substantially identical to the terms set forth in such sublicense agreement with such changes as are necessary to implement the standards set forth in this Section 15.7.3(c)(i)-

 

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(vii). If ALZA desires to enter into a direct license with a Sublicensee, ALZA will provide written notification to such Sublicensee and will, for a period of ninety (90) days after providing such notice, negotiate in good faith with such Sublicensee for a direct license under the Licensed Patents, Future ALZA Patents, and ALZA Know-How, in each case, to the extent such rights were sublicensed from TMC to such Sublicensee in the sublicensed field. It is understood and agreed that the sublicense agreements held by any such Sublicensee will survive commencing on termination of this Agreement and, should ALZA desire to enter into a direct license with such Sublicensee, end after the 90 day negotiation period described above.

15.7.4 Also in the event of termination under Section 15.2, Section 15.3, Section 15.4, or Section 15.6, for any Products (excluding Third Party Products and any Products sublicensed to Sublicensees whose sublicenses survive in accordance with Section 15.7.3) for which TMC’s rights have terminated, TMC will, at ALZA’s request, negotiate in good faith, on commercially reasonable terms, for ALZA to obtain (i) the right and license, with the right to sublicense, to use, cross-reference and access all regulatory submissions and Regulatory Approvals regarding such Products and all preclinical data, clinical data and regulatory information regarding such Products, and (ii) a worldwide, sublicensable exclusive license to TMC Patents and know-how, in each case, solely to the extent required by ALZA (or its designated Affiliate) to make, have made, use, sell, have sold, offer to sell and import such Products. TMC will execute and deliver further instruments and the Parties will take such other actions as may be reasonably required to carry out the intent and purposes of this Section 15.7.4, including assignment to ALZA (or its designated Affiliate).

15.8 No Waiver . The right of a Party to terminate this Agreement, as provided in this Article 15 will not be affected in any way by its waiver or failure to take action with respect to any prior default.

15.9 Consequences of Termination. Except as otherwise provided herein, upon expiration or termination of this Agreement, all remaining records and materials in its possession or control containing the other Party’s Confidential Information and to which the former Party does not retain rights hereunder, will promptly be returned or destroyed, at the other Party’s request. Notwithstanding the foregoing, (i) one copy of such records may be retained by legal counsel for the former Party solely for evidentiary purposes, (ii) TMC will have no obligation to return ALZA Confidential Information to the extent such information (x) is necessary to develop

 

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and Commercialize a Product for which TMC has a Product-specific license under this Agreement, or (y) TMC has previously sublicensed the right to develop and Commercialize a Product to a Sublicensee and such sublicense survives the termination of this Agreement pursuant to Section 15.7.3.

15.10 [**]

15.11 Survival of Obligations . The termination or expiration of this Agreement will not relieve the Parties of any obligations accruing prior to such termination, and any such termination will be without prejudice to the rights of either Party against the other. The provisions of Sections 2.2, 4.5, 5.6, 5.7, 5.8, 5.9, 7.5.3(a)-(b) (with respect solely to the allocation of any recovery and not with respect to the institution of proceedings for infringement actions (i) filed prior to termination or expiration of this Agreement or (ii) pertaining to the acts of infringement occurring during the Term), 15.7, 15.9 – 15.12, 16.5.2, 16.6 and Articles 1, 6, 8, 17 and 18 will survive any termination of this Agreement.

15.12 Termination Not Sole Remedy. Termination is not the sole remedy under this Agreement and, whether or not termination is effected, all other remedies will remain available except as expressly agreed to otherwise herein.

ARTICLE 16 — REPRESENTATIONS AND WARRANTIES.

 

16.1 Authority . Each Party represents and warrants that as of the Effective Date, it has the full right, power and authority to enter into this Agreement and that this Agreement has been duly executed by such Party and constitutes a legal, valid and binding obligation of such Party, enforceable in accordance with its terms.

16.2 No Conflicts . Each Party represents and warrants that the execution, delivery and performance of this Agreement by such Party does not conflict with any material agreement, instrument or understanding, oral or written, to which it is a party or by which it is bound, nor violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

16.3 ALZA Representations . TMC and ALZA acknowledge and agree that Pete Daddona, [**] (the “ Former ALZA Business Managers ”) were employees of ALZA or ALZA Affiliates and were closely involved in the management and operations of the Macroflux ® group at ALZA. Accordingly, ALZA will in no event be liable to TMC, TMC Indemnitees or any other

 

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party for any breach of ALZA’s representations and warranties contained in the Agreement to the extent that any such Former ALZA Business Managers had, or reasonably should have had as a result of their involvement with the Macroflux ® business prior to the Effective Date, knowledge of any material fact or facts which reasonably gives rise to such breach or knowledge, as of the Effective Date, that ALZA was making a material misstatement, omission, misrepresentation, or inaccuracy herein, or was in breach of any of the representations or warranties contained in the Agreement. The Parties agree that in any dispute or legal proceeding, TMC will bear the burden of proof that no such Former ALZA Business Manager had knowledge (or should not reasonably have had such knowledge) of such breach or of the material facts giving rise to such breach. Subject to the foregoing, ALZA hereby represents and warrants to TMC, as of the Effective Date.

16.3.1 ALZA has the lawful right to grant the License.

16.3.2 Except as disclosed in Attachment 1.10, ALZA has not previously assigned, transferred, conveyed or otherwise encumbered its rights, title and interest in the Licensed Patents and Trademarks and there are currently no existing license agreements for the Licensed Patents and Trademarks that are in conflict with the Licenses.

16.3.3 To ALZA’s actual knowledge as of the Effective Date (without any inference or duty of investigation), it owns and Controls all right, title and interest in and to the ALZA Know-How and the patents and patent applications listed on Attachment 1.22, subject to rights granted in the [**] Agreement.

16.3.4 Except for the matters disclosed in Attachment 16.3.4, ALZA has received no written notice of any claim by any Third Party that (a) such Third Party has any rights to the Licensed Patents in the Field that prevent ALZA from granting to TMC the License or (b) the Licensed Patents (to the extent representing issued Patents) are invalid or unenforceable.

16.3.5 To ALZA’s actual knowledge as of the Effective Date (without any inference or duty of investigation), ALZA has not received any written notice or other written communication from any Third Party regarding any breach by ALZA of its obligations under any of the agreements listed on Attachment 3.3.1.

16.3.6 Except for the matters disclosed in Attachment 16.3.4, to ALZA’s actual knowledge as of the Effective Date (without any inference or duty of investigation), there is no

 

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litigation threatened, impending or existing against ALZA or to which ALZA is a party relating to the Licensed Patents or Trademarks.

16.3.7 ALZA has made available to TMC true and correct copies of the Product Development Agreements and the [**] Agreement.

16.3.8 To ALZA’s actual knowledge as of the Effective Date (without any inference or duty of investigation) there have been no FDA inspections of clinical studies conducted by ALZA or manufacturing facilities for the manufacture of clinical supplies, in each case, regarding the PTH Product and ALZA’s activities regarding the PTH Product have been and are being conducted in substantial compliance with all applicable laws and regulations.

16.3.9 To ALZA’s actual knowledge as of the Effective Date (without any inference or duty of investigation), neither ALZA nor any of its officers, employees or agents has made an untrue statement of a material fact or fraudulent statement to the FDA or any other Regulatory Authority or failed to disclose a material fact required to be disclosed to the FDA or any other Regulatory Authority regarding the PTH Product.

16.3.10 To ALZA’s actual knowledge, in the course of the clinical development of the PTH Product over the past [**], ALZA has not used any employee or consultant who (at the time such employee or consultant provided services to ALZA with respect to such products) was debarred by the FDA or the subject of pending disbarment proceedings by the FDA.

16.4 No Implication By ALZA . Except as expressly stated herein, nothing in the Agreement will be construed as:

16.4.1 A warranty or representation by ALZA as to the validity or patentability or scope of any of the Licensed Patents or the ALZA Know-How;

16.4.2 A warranty or representation by ALZA that anything that has been or will be made, used, sold, offered for sale, or imported under the License provided herein is or will be free from infringement of patents of Third Parties;

16.4.3 An obligation on the part of ALZA to bring or prosecute actions or suits against Third Parties for infringement of any of the Licensed Patents or for entitlement of any patents or applications that relate to the [**]; or

 

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16.4.4 A grant by implication, estoppel, or otherwise, any licenses or rights under patents or other intellectual property of ALZA or an Affiliate of ALZA other than that expressly included in the License.

16.5 TMC Representations . During this Agreement, TMC will:

16.5.1 comply in all material respects with all applicable laws and regulations concerning the development, manufacture, use and sale of Microprojection Systems and Products;

16.5.2 comply with the terms and conditions of the [**] Agreement and will notify ALZA promptly of any claim or notice received by TMC asserting that TMC is in breach of the [**] Agreement; and

16.5.3 have adequate terms and conditions in its sublicense agreements to allow TMC to comply with all relevant terms and conditions of the Agreement.

16.6 Disclaimer of Warranties . ALZA MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE LICENSED PATENTS OR KNOW-HOW LICENSED HEREUNDER, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ANY INFORMATION PROVIDED BY ALZA TO TMC IS MADE AVAILABLE ON AN “AS IS” BASIS WITHOUT WARRANTY WITH RESPECT TO COMPLETENESS, COMPLIANCE WITH REGULATORY STANDARDS OR REGULATIONS OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER KIND OF WARRANTY WHETHER EXPRESS OR IMPLIED.

ARTICLE 17 — DISPUTE RESOLUTION

17.1 Dispute Resolution and Arbitration . In the case of any disputes between the Parties arising from this Agreement, and in case this Agreement does not provide a solution for how to resolve such disputes, the Parties will discuss and negotiate in good faith a solution acceptable to both Parties and in the spirit of this Agreement. If, after negotiating in good faith pursuant to the foregoing sentence, the Parties fail to reach agreement within [**], then the President of ALZA and the Chief Executive Officer of TMC will discuss in good faith an appropriate resolution to the dispute. If these executives fail, after good faith discussions, to

 

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reach an amicable agreement within [**], then either Party may upon written notice to the other submit the dispute to binding arbitration pursuant to Section 17.2.

17.2 Arbitration . Any claim, dispute or controversy arising out of or in connection with or relating to this Agreement (including, without limitation, disputes with respect to the rights and obligations of the Parties following termination) not settled by the procedures set forth in Section 17.1 above, or the breach or alleged breach of a material provision of this Agreement, will be adjudicated by arbitration in accordance with the Arbitration Proceedings as set forth in Attachment 17.2.

ARTICLE 18 — MISCELLANEOUS PROVISIONS.

18.1 Entire Agreement . This Agreement and each of the Attachments hereto constitute and contain the entire understanding and agreement of the Parties respecting the subject matter of this Agreement and cancels and supersedes any and all prior or contemporaneous negotiations, correspondence, understandings and agreements between the Parties, whether oral or written, regarding such subject matter.

18.2 Further Actions . Each Party agrees to execute, acknowledge and deliver such further instruments and to do all such other acts as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

18.3 Binding Effect . This Agreement and the rights granted herein will be binding upon, and will inure to the benefit of, ALZA, TMC and their respective lawful successors and permitted assigns.

18.4 Assignment . Neither Party will assign this Agreement without the prior written consent of the other Party (such consent not to be unreasonably withheld) except that a Party may assign this Agreement to an Affiliate or to a successor in connection with the merger, consolidation or sale of all or substantially all of its assets or that portion of its business pertaining to the subject matter of this Agreement. The sublicense of all (or substantially all) of TMC’s rights under this Agreement will be deemed to be an assignment under this Section 18.4. Any permitted assignee will assume all obligations of its assignor under this Agreement. No assignment will have the effect of relieving any Party to this Agreement of any of its obligations hereunder. It is understood and agreed that any Third Party excluding any “person” or “group” (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as

 

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amended) that is controlled directly or indirectly by ALZA or TMC or such Party’s present officers or directors, (a) that directly or indirectly acquires all or substantially all of the stock or assets of ALZA or TMC or (b) into which ALZA or TMC is consolidated or merged, shall not be required to provide the other Party with rights under Section 2.1.1(b) or Section 2.2, as the case may be, in the event and to the extent that those provisions would require such acquiring Third Party to grant licenses to the other Party covering inventions conceived and reduced to practice by such Third Party prior to the date it acquires ALZA or TMC, without access to or knowledge of any ALZA Know-How, ALZA Confidential Information, TMC Confidential Information (as defined without reference to whether such TMC Confidential Information is disclosed to ALZA), TMC Inventions or Derivative Information (unless such access to or knowledge of was provided to such Third Party by the non-acquired Party). In each case, the burden of establishing such exception to the Section 2.1.1(b) or Section 2.2 license will fall upon the acquiring Third Party.

18.5 No Implied Licenses . No rights to any other patents, know-how or technical information, or other intellectual property rights, other than as explicitly identified herein, are granted or deemed granted by this. Agreement. No right, expressed or implied, is granted by this Agreement to a Party to use in any manner the name or any other trade name or trademark of the other Party or its Affiliates in connection with the performance of this Agreement.

18.6 No Waiver . No waiver, modification or amendment of any provision of this Agreement will be valid or effective unless made in writing and signed by a duly authorized officer of each Party. The failure of either Party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement will not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition.

18.7 Force Majeure . The failure of a Party to perform any obligation under this Agreement by reason of force majeure, limited to acts of God, acts of governments, riots, wars, strikes, accidents or deficiencies in materials or transportation or other causes of a similar magnitude beyond its control, will not be deemed to be a breach of this Agreement, for so long as the affected Party is using diligent efforts to remedy the force majeure event and perform its obligations as soon as practicable. The Party which is affected by any force majeure will contact the other Party for discussion of possible emergency measures.

18.8 Independent Contractors . Both Parties are independent contractors and not agents or employees of the other Party under this Agreement. Nothing contained in this

 

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Agreement is intended nor is to be construed so as to constitute ALZA or TMC as partners or joint venturers with respect to this Agreement. Neither Party will have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any other contract, agreement or undertaking with any Third Party except as may be explicitly provided for herein or authorized in writing.

18.9 Notices and Deliveries . Any notices, request, delivery, approval or consent required or permitted to be given under this Agreement will be in writing and will be deemed to have been sufficiently given when it is received, whether delivered in person, transmitted by facsimile with contemporaneous confirmation, or delivery by registered letter (or its equivalent) or delivery by certified overnight courier service, to the Party to which it is directed at its address shown below or such other address as such Party will have last given by notice to the other Parties.

If to TMC:

The Macroflux Corporation

2000 Charleston Road, M12-2A

Mountain View, CA 94043

Attention: Chief Executive Officer

Facsimile: [**]

With a copy to:

Wilson Sonsini Goodrich & Rosati

650 Page Mill Road

Palo Alto, CA 94304

Attention: [**]

Facsimile: [**]

If to ALZA:

ALZA Corporation

1900 Charleston Road

Mountain View, CA 94043

Attention: Legal Department

Facsimile: [**]

with a copy to:

Office of General Counsel

Johnson & Johnson

 

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One Johnson & Johnson Plaza

New Brunswick, NJ 08933

Facsimile: [**]

18.10 Headings . The captions to the sections and articles in this Agreement are not a part of this Agreement, and are included merely for convenience of reference only and will not affect its meaning or interpretation.

18.11 Severability . In the event that any provision of this Agreement will, for any reason, be held to be invalid or unenforceable in any respect, such invalidity or unenforceability will not affect any other provision hereof, and this Agreement will be construed as if such invalid or unenforceable provision had not been included herein.

18.12 Applicable Law . This Agreement will be governed by and interpreted in accordance with the laws of the State of Delaware without reference to its choice of laws or conflicts of laws provisions.

18.13 Advice of Counsel . TMC and ALZA have each consulted with counsel of their choice regarding this Agreement, and each acknowledges and agrees that this Agreement will not be deemed to have been drafted by one Party or another and will be construed accordingly.

18.14 Counterparts. This Agreement may be executed in two or more counterparts, or facsimile versions, each of which will be deemed to be an original, and all of which together will be deemed to be one and the same agreement.

18.15 Waiver . Except as specifically provided for herein, the waiver from time to time by either of the Parties of any of their rights or their failure to exercise any remedy will not operate or be construed as a continuing waiver of same or of any other of such Party’s rights or remedies provided in this Agreement.

18.16 Bankruptcy . All rights and licenses granted under or pursuant to this Agreement by TMC or ALZA are, and will otherwise be deemed to be, for purposes of Section 365(n) of Title II, U.S. Code (the “Bankruptcy Code”), licenses of right to “Intellectual Property” as defined under Section 101(35A) of the Bankruptcy Code. The Parties agree that the Parties as licensees of such rights under this Agreement, will retain and may fully exercise all of their rights and elections they would have in the case of a licensor bankruptcy under the Bankruptcy Code. Each Party agrees during the term of this Agreement to create or maintain current copies,

 

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or if not amenable to copying, detailed descriptions or other appropriate embodiments, of all such intellectual property licensed to the other Party.

18.17 Compliance with Laws . The Parties will comply with all applicable laws, rules, regulations and orders of the United States and applicable European countries and supra-governmental organizations and all jurisdictions and any agency or court thereof in connection with this Agreement and the transactions contemplated thereby.

18.18 Certain Tax Matters . The Parties will, for all federal, state and local income tax purposes, treat the exchange of Licenses for Series A Preferred and Product Payments as part of the transaction under Section 351 of the Code described in Section 7.4 of the Series A Agreement and will not take any position or action contrary thereto or inconsistent therewith. For the avoidance of doubt, the parties agree to treat the Product Payments as boot pursuant to Section 351 of the Code.

IN WITNESS WHEREOF , the Parties have caused this Agreement to be executed by their respective duly authorized officers as of the Effective Date, each copy of which will for all purposes be deemed to be an original.

 

ALZA CORPORATION
By:   /s/ Erik Wiberg
Name:   Erik Wiberg
Title:   VP Pharmaceuticals Group
    Business Development

 

THE MACROFLUX CORPORATION
By:   /s/ Peter Daddona
Name:   Peter Daddona

 

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Title:   Chief Scientific Officer

 

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Attachment 1.5 - Certain ALZA Inventions

[**]

 

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Attachment 1.6 - ALZA Know-How

 

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Attachment 1.6 - ALZA Know-How Index

Note: ALZA Know-How will also include data and documents that will be generated under the Transitional Services Agreement. These data and documents will be transferred at the end of the Transition Period. Requirements:

 

(1) Electronic copies of all documents

 

(2) Controlled copies must have a hardcopy that is updated per GPSG - Macroflux ® Corporation Agreement

# denotes data and documents that will be transferred to TMC after the Effective Date

 

Document Type

  

Schedule

Regulatory Documents   

IND No. 70,973, Form FDA 1571 (IND Serial No.

0007), as well as all written communications between ALZA and the FDA and ALZA’s internal contact reports, in each case, relating to IND No.

70,973

Laboratory Notebooks    Schedule A
Employee Training Records    Schedule B
SOPs    Schedules C-1 and C-2
Forms    Schedule D
Technical reports    Schedule E
Toxicology Reports    Schedule F
Design History Files    Schedule G
Training Modules    Schedule H
ALZA Analytical Methods (AAM)    Schedule I
ALZA Quality Specification (AQS)    Schedule J
Clinical Production Record (CPR)    Schedule K
Packaging Material Specifications (PMS)    Schedule L
Clinical Files    Schedule M
Bioanalytical CRO documentation    Schedule N
Vendor Fifes    Schedule 0
Completed Batch Records    Schedule P
Equipment Files   
Equipment Manuals   
Drawing files (CAD)   

 

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Attachment 1.6 – ALZA Know-How Index

Schedule A: Lab Notebooks

Note: transfer of Notebooks to be completed by October 31, 2006

 

[**]    8953#       6156    [**]    7220
[**]    7136#       6580    [**]    3890
   7188#       7144       7256
   7312#       7737       7219
   7405#    [**]    8805    [**]    8743
   7528#    [**]    8301    [**]    5097
   7679#       8409    [**]    8380
   7929#       8593    [**]    6586
[**]    8415#    [**]    7739       6675
   8414#       8060       6796
   8422#       8067       6960
   8484#       8066       7190
   8485#       8304       7290
[**]    6844#       8305       7374
   7344#       8335       7537
   8157#       8334       7650
[**]    7304#       8421       7667
   7425#       8423       7668
   7456#       8580       7922
   7457#       8647       8138
   7641#       8694       8507
   7822#    [**]    6055       8644
   8144#       6995       8645
   8269#       7488       8646
   8520#    [**]    8381    [**]    7182
   8702#       8549    [**]    8705
   8952#       8554       8591
[**]    7577#       8797    [**]    7533
   8052#    [**]    7261       7619
[**]    8248#       7262       8136
[**]    5128#       7263       8331
   5129#       8972    [**]    7646

 

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   5756#    [**]    8607       7647

 

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[**]    7648#    [**]    6830       7876
   7649#    [**]    7901       7913
[**]    8980#       8234       8013
[**]    8456#       8827       8010
   8629#    [**]    6709    [**]    6435
   8786#       7410       6824
   8806#    [**]    7814       7993
   8961#       8065       8468
[**]    8729#       8495       8552
[**]    7771#       8870    [**]    8253
[**]    5585#    [**]    7639       7429
   7826#       7671       8137
   8007#       7704    [**]    7421
   8673#       7777       7422
[**]    8804#       7811      

 

- 66 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule B; Employee Training Records

 

        Employee Name        

   WWID     

 

[**]

     701089503      

[**]

     332708      

[**]

     128009636      

[**]

     181837      

[**]

     128009768      

[**]

     701090331      

[**]

     341136      

[**]

     180920      

[**]

     333305      

[**]

     191935      

[**]

     365850      

        Daddona, Pete        

     180405      

[**]

     340710      

[**]

     128009326      

[**]

     104759      

[**]

     128008889      

[**]

     366617      

[**]

     701084297      

[**]

     701093113      

[**]

     174510      

[**]

     701085092      

[**]

     701084298      

[**]

     701088378      

[**]

     128005057      

[**]

     197229      

[**]

     128011652      

[**]

     128005078      

[**]

     182026      

[**]

     181643      

[**]

     332715      

[**]

     701077855      

 

- 67 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


[**]                             

   194628   

[**]

   181971   

 

- 68 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


[**]                             

   701091650   

[**]

   180601   

[**]

   333306   

[**]

   180442   

[**]

   701086157   

[**]

   332717   

 

- 69 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule B: Employee Training Records

 

        Employee Name    

   WWID     

[**]

   358707   

[**]

   195876   

[**]

   366468   

[**]

   332726    .

[**]

   180233   

[**]

   701086391   

[**]

   104560   

[**]

   701085629   

[**]

   83251   

[**]

   357636   

[**]

   180060   

[**]

   161600   

[**]

   330872   

[**]

   191534   

[**]

   701087267   

[**]

   701091073   

[**]

   172542   

[**]

   336464   

[**]

   701084448   

[**]

   104528   

[**]

   337092   

[**]

   334826   

[**]

   338021   

[**]

   128005503   

[**]

   128005055   

[**]

   201135   

[**]

   198594   

[**]

   103974   

[**]

   701085359   

[**]

   701091773   

[**]

   180181   

 

- 70 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


[**]                        

   181545]  

 

- 71 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule C-1: Controlled SOPs

 

SOP Number

  

SOP Title

  

 

Manufacturing

  
0-005    ALZA Corporate Document Control   
0-006    Document Change Order Procedure   
0-017    Guidelines For Cleaning Manufacturing Equipment and Cleaning Validation   
0-018    Employee Training   
0-103    First Article Inspection Procedure   
0-301    Facility, Equipment, and System Qualification   
0-302    Guidelines for Determining if a Computer System Requires Computer Validation   
0-500    Quality Organization and Scope of Responsibilities   
0-501    Line Sign-Off and Materials Verification   
0-502    ALZA Quality Specifications   
0-503    Dispositioning Materials   
0-550    Clinical Packaging Sample Retains Handling   
0-551    Periodic Review of Quality Standards   
0-554    Process Change Request   
0-704    Facility Equipment Logbook Procedures   
22-000                [**]   
22-001    [**]   
22-002    Operating and Cleaning Procedures for the Allegra 6 Beckman Centrifuge   
22-003    Operating and Cleaning the Glas-Col Rotator   
22-004    [**]   
22-005    Operating and Cleaning of Mettler Toledo Balances   
22-006    Cleaning, Sanitization, and Operation Procedure for Unidirectional Air Flow Hoods   
22-007    Operating and Cleaning Procedure for the Van der Sthal Heat Sealer   
22-009    [**]   
22-010    REVCO Refrigerator Model REL 404   
22-011    REVCO Freezer Model ULT350-3-A31   
22-012    [**]   

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule C-1: Controlled SOPS

 

SOP Number

  

SOP Title

    
22-013                [**]   
22-014    Operating and Cleaning Procedures for the Bransonic Sonicators (Model 5510-MT and 8510-MT)   
22-015    Gowning Requirements and Personnel Practices in the Macroflux ® Pilot Plant   
22-016    Personnel, Equipment, and Material Flow for the Macroflux ® Pilot Plant   
22-017    Sanitization and Use of the M-12 Macroflux ® Pilot Plant Pass Through   
22-018    Cleaning and Sanitization of the Macroflux ® Pilot Plant   
22-021    Operation of the Vortex Genie 2 Mixer   
22-022    Operating and Cleaning Procedure for the Despatch SDC2-30 Oven   
22-026    Setup, Operation, and Cleaning Procedures for Macroflux ® Dew Point Control System (DPCS)   
22-027    Setup, Operation, and Cleaning of the Macroflux ® Tangential Flow Filtration System   
22-028    Setup, Operation, and Cleaning of the Fuji Heat Sealer (MS-350NP)   
22-029    Operation and Cleaning of the Macroflux ® Applicator Test Stand   
22-030    Operation and Cleaning for the Macroflux ® Leica L2 Microscope   
22-031    Operation of MANOSTAT Peristaltic Pump for Macroflux ® Manufacturing   
22-032    Operating and Cleaning Procedure for Macroflux ® Labconco Freeze Drying Equipment   
22-033    Operation and Cleaning of Hudson Clicker Press   
22-034    Operation and Cleaning of Chaffee Rotor Sealer   
22-035    Operation and Cleaning Procedure for the Blue M Mechanical Convection Oven   
22-037    Vacuum Chamber for Pouch Seal Integrity   
22-041    Operating and Cleaning Procedures for the Multivac C-400 Heat Sealer   
22-043   

Calibration and Operation of 10 Scientific Instrument

(Model miniLab 1Q125) pH Meter

  
22-044    Personnel Flow within the Macroflux ® Pilot Plant   
22-045    Setup, Cleaning and Operation of the Macroflux ® Resistance Cutter   
22-046    Operating and Cleaning Procedures for the Macroflux ® Subassembly & Outer Ring Tube Loader   

 

- 73 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


22-049                Issuance and Control of Parts Production Record for Macroflux ® Aseptic Manufacturing   

 

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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule C-1: Controlled SOPs

 

SOP Number

  

SOP Title

    
22-050                Procedure For Sanitization of Carts in Macroflux ® Pilot Plant   
5-005    QED Line Audits   
5-039    Retain Sample File In Mountain View   
7-001    Guidelines for the Preparation, Review and Approval of Master Clinical Production and Control Records   
7-002    Audit of Clinical Production Records for Disposition   
7-003    Guidelines For The Preparation Of A Clinical Batch Record For Clinical Production   
7-004    Guidelines for the Preparation and Approval of Phase I Clinical Supplies used in IND or Ex-US, IND Exempt, or Non-Drug Demonstrator Placebo Studies    ,
7-009    Accountability of Materials in Clinical Production   
7-013    Guidelines For Two Or More Operations In A Manufacturing Area At The Same Time   
7-019    Handling and Flow of Material In Clinical Production   
7-034    Mountain View Research Inventory Control Shipping Procedure   
7-048    Material Dispensing from Mountain View Research Inventory   
7-049    Approval, Preparation and Use of Clinical and Non-Clinical Labels   
7-053    Solvent Handling And Dispensing   
7-056    In-Process Inspections for Pouching/Labeling Operations in Clinical Production   
7-057    Cleaning Supply Solvents   
7-061    Controlled Substances Accountability   
7-064    Review and Release Procedures for Incoming Materials Used in Clinical Manufacture   
7-086    Clinical Packaging Record Review and Release Checklist   
7-095    Guidelines for Completing Clinical Production Paperwork   
7-096    Guidelines For The Preparation Of Aseptic Process Simulation Test Protocol   
7-097    Evaluation of Drug Actives for Dispensing in M5 Warehouse   
7-099    M5 Weighing and Dispensing Isolator Operating and Cleaning Procedure   
7-100    Lot Characterization For Clinical Products   

 

- 75 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


7-101                  Mountain View-inventory Cycle Counting Program   

 

- 76 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule C4: Controlled SOPs

 

SOP Number

  

SOP Title

    
Formulation & Analytical   
0-005    ALZA Corporate Document Control   
0-006    Document Change Order Procedure   
0-018    Employee Training   
0-047    GMP Training Program   
0-053    Guidance for Using Plateau Training Management System   
0-109    Departure Notice Procedure   
10-212    Good Laboratory Practices Audit Program   
10-213    GLP Internal Facility and Process-based Inspections   
130-0000    Calibration, Test Equipment and Work Orders   
14-005    Bioanalytical Method Validation   
14-006    Method Validation Requirements for Transferring LC/MS/MS Assays   
14-008    Bioanalytical Sample Analysis   
150-0010    HPLC Systems   
150-1007            Waters 2690/2695 HPLC and GPC Separations Module   
150-1011    ALZA Metrology HPLC Systems   
150-1115    HPLC Column Heaters   
150-1117    Preventive Maintenance, Performance Verification, and Performance Qualification SOP for HPLC System Vacuum Degasser   
150-1122    Beckman Coulter Capillary Electrophoresis   
150-1202    Preventive Maintenance, Performance Verification, and Performance Qualification SOPs for HP 1100 HPLC Autosampler G1313A   
150-1402    Preventive Maintenance, Performance Verification, and Performance Qualification SOPs for the HP1100 HPLC Column Heater G1316A   
150-1601    Preventive Maintenance, Performance Verification, and Performance Qualification SOPs for the HP/Agilent 1100 Vacuum Degasser G1322A, G1379A   
151-1010    Thermo-Nicolet FT-IR   
151-2003    Agilent 8452A and 8453 Diode Array UV-VIS Spectrophotometers   
151-2010    Molecular Devices SPECTRAmax Plus Microplate Spectrophotometers   
151-3202    Waters Micromass Mass Spectrometer System   

 

- 77 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule C-1: Controlled SOPs

 

SOP Number

  

SOP Title

    
152-0011    Calibration of Scales and Balances   
154-0022    Simple Measurement Instruments   
154-0050    Liquid Volume Dispensers   
154-0080    Procedure for pH and Conductivity Meters   
154-0091    Haake RheoStress RS100 Rheometer   
154-0098    Simple Laboratory Equipment   
154-0101    Thermometers   
154-0102    Reference Standard Laboratory Desiccators   
154-0105    WESCOR 5520 Vapor Pressure Osmometer   
155-1103    Brookfield Viscometers   
155-3101    Differential Scanning Calorimeter 2920 and Thermogravimetric Analyzer 2950   
156-0025    General Purpose Water, Steam, and Oil Temperature Baths   
156-0031    Refrigerators and Freezers   
156-0051    Ovens   
156-0062    Dessicators   
156-0067    Temperature and Humidity Environmental Test Chambers   
158-0010    Purified Water Systems in the Laboratory   
158-1002    Millipore Academic and Synthesis Purified Water Systems   
159-0020            Preventive Maintenance, Performance Verification, Calibration and Performance Qualification of Centrifuges   
159-0032    Qualification of Shakers   
159-1008    Analytical Laboratory Glassware Washers/Dryers   
16-0013    Differential Scanning Calorimeter 2920 and Thermogravimetric Analyzer 2950   
16-0023    Amersham Biosciences Personal Densitometer SI Laser Densitometer   
16-0024    Amersham Personal Densitometer SI System Software   
16-01105    HP 1100 Binary Pump   
16-01202    HP 1100 Autosampler   
16-01306    HP 1100 Diode Array Detector   
16-01402    HP 1100 Thermostatted Column Compartment   

 

- 78 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule C-1: Controlled SOPs

 

SOP Number

  

SOP Title

    
16-01601    HP 1100 Vacuum Degasser   
16-12011    Operation of Agilent 8453 UV-visible Spectrophotometer   
16-40080    Radiometer/Copenhagen PHM220 Lab pH Meter   
16-48001          Operation Manual for Benchtop pH/ISE Meters Model 420A   
2-016    Hazardous Waste Disposal   
9-003    cGMP Operations in Analytical Laboratories   
9-004    Content of Analytical Data Set   
9-012    Procedures For Sample Documentation Log-in, and Handling   
9-016    Validation of Analytical Methods For Drug Analysis From Swabs of Cleaned Equipment   
9-028    Worksheet Tracking Forms   
9-030    Format of Laboratory Instrument Specific Operation Manual   
9-038    ALZA Analytical Laboratory Training/Retraining Procedures   
9-040    Archive and Restoration of Electronic Test Data In Analytical Sciences   
9-041    Laboratory Procedures for Handling Controlled Substances   
9-042    Procedures for the Issuance and Use of Instrument Usage Logbooks   
9-043    Laboratory Reagent Preparation and Maintenance   
9-047    Procedure for Certification, Handling, and Distribution of Analytical Reference Standards   
9-048    Qualification for Laboratory Analytical Instrument/Equipment Hardware   
9-049    Handling Hazardous Chemicals and Solvents in Analytical Testing Laboratories   
9-050    Qualification of IR Reference Spectra   
9-051    Determination of Stability of Solutions   
9-402    Laboratory Data Documentation, Review, and Approval Procedures in Analytical Sciences   
9-406    NDA-Level Method Validation Protocols for Chromatographic and UV-Spectroscopic Quantitative Analytical Methods for Small Molecules   
9-407    Analytical Method Documentation System   
9-408    Analytical Method Transfer   
9-409    Validation of Quantitative Analytical Methods   

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule C-1: Controlled SOPs

 

SOP Number

  

SOP Title

  

 

9-410    Preparation, Labeling and Expiration Dating for Laboratory Solutions, Samples and Standards   
9-412    Procedure for Calculating, Recording and Reporting Impurities and Degradation Products   
9-413    Handling “Lost” Samples   
9-417    Validation of Qualitative Analytical Methods   
9-418    Validation of Instrumental Measurement Analytical Methods   
9-419    IND-Phase 11 and Phase III Clinical Studies Method Validation Protocols for Chromatographic and UV-Spectroscopic Quantitative Analytical Methods for Small Molecules   
9-423    Access Control for Computerized Systems in Analytical Sciences   
9-424               

Audit Trail Requirements for Computerized Laboratory Instruments

in Analytical Sciences

  
9-425    Changing Date and Time Stamps for Computerized Systems in Analytical Sciences   
9-426    Definition of Electronic Records for Computerized Systems in Analytical Sciences   
9-427    Resetting Forgotten Passwords for Computerized Systems in Analytical Sciences   
9-429    Data Record and Signature Linking for Hybrid Systems in Analytical Sciences   
9-430    Use of Electronic Signatures in Analytical Sciences   
9-431    Daily Calibration Procedure for pH meters   
9-432    Daily Temperature Check for Refrigerators/Freezers   
9-433    Analytical Sciences Area Policy   
9-439    Validation of Qualitative Near Infrared Spectroscopy Methods   
9-440    NIR Test Procedure   
9-441    Investigations for Laboratory Testing in Analytical Sciences   
9-442    Procedural Deviation Investigation for Analytical Sciences   
9-443    Computer System Validation of Analytical Laboratory Instruments   
9-445    Analytical Sciences LIMS Policy   
9-446    Day Of Use Balance Verification in Analytical Sciences   

 

- 80 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


9-448                Daily Use Verification of Milli-Q Water System   

 

- 81 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule C-1: Controlled SOPs

 

SOP Number

  

SOP Title

  

 

9-449    Analytical Sciences Empower CDS - System Security   
9-450    Analytical Sciences Empower CDS - System Administration   
9-451    Analytical Sciences Empower CDS - General Use   
9-452    Analytical Sciences Empower CDS - Empower Change Requests   
9-453    Analytical Sciences Empower Chromatography Data System Development and Validation of Custom Fields   
9-454    Administration of the ExRx Origin for Analytical Sciences Investigations   
9-455    HIAC Royco Particle Counter with PharmSpec Software   
9-466    Analytical Sciences Document Control Process   
9-468    ALZA R&D LabWare LIMS System Security   
9-469    ALZA R&D LIMS Configuration Control within a Validated Database   
Design Control              
0-15001    Design and Development Planning (D&DP)   
0-15002    Design Input (User/Stakeholder Needs)   
0-15003    Product Design Risk Management   
0-15004    Design Output   
0-15005    Design Review   
0-15006    Design Verification   
0-15007    Design Validation   
0-15008    Design Change   
0-15009    Design History File   
0-15010    Manufacturing Risk Assessment   
0-15011    Manufacturing Launch Strategy   
0-15013    Design Transfer   
0-15014    Design Master Record (DMR)   

 

- 82 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule C-2: Additional SOPs

 

SOP Number

  

SOP Title

    
Scientific Writing   
0-054    Procedure for Completing and Amending Clinical Study Reports   
0-055    Procedure for Completing and Updating Investigator’s Brochures   
Clinical Operations           
11-002    Central Files   
11-003    Training Program   
11-100    Preparation and Approval of Protocols and Protocol Amendments   
11-101    Informed Consent   
11-106    Monitoring Clinical Trials   
11-107    Planning, Documenting and Conducting a Pre-study Visit   
11-108    Preparing for Study Initiation   
11-109    Planning, Documenting and Conducting a Initiation Visit   
11-110    Planning, Documenting and Conducting a In Progress Visit   
11-111    Planning, Documenting and Conducting a Termination Visit   
11-114    Accountability and Reconciliation of Investigational Drug Supplies   
11-115    Contract Manufacture and Packaging of Clinical Supplies   
11-117    Procurement of Clinical Packaging Components   
11-210    Shipment of Clinical Materials from 3rd Party Contractor to an Investigational Site   
11-211    Retrieval of Investigational Drug Product from Clinical Sites   
11-212    Reassignment of Marketed Product for Clinical Use   
11-213    Reporting Serious Adverse Events Originating from Pharmaceutical Clinical Trials   
11-214    Procedures for Handling Complaints for Clinical Trial Material at Clinical Study Sites   
11-216    [**]   
11-217    Guidelines for the Development, Review and Approval of Clinical Development Plans   
11-218    Mapping Adverse Events   
Statistics and Data Management      
23-001    Volume Structure of Clinical Studies and Access Rights   
23-002    Creation of Study Case Report Forms within DataFax for Clinical Pharmacology Studies   

 

- 83 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


23-003                DataFax Database Setup and Testing   

 

- 84 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule C-2: Additional SOPs

 

SOP Number

  

SOP Title

23-004    Study Edit Checks: Document, Programs and Processing
23-005    Validation of DataFax Records
23-006    Query Process for DataFax Database Data
23-007    DataFax Router Management
23-008    Quality Assurance Procedure Performed on Clinical Databases
23-009    DataFax Training
23-010    Access Restrictions to DataFax Databases
23-011    Electronic Transfer of Data
23-012    Employee Training for Computerized Systems Within the Clinical Division
23-017    Physical Security for Clinical Computer System Servers
23-027    Study Randomizations
23-030    Guidelines for SAS Coding Conventions
23-031    Guideline for SAS Log Review
23-032    Guideline for Volume Structure and Access Rights
23-037    Study Data Access Restriction and Finalization
23-039    Use of Statistics and Data management Study Process Checklist
23-040    Guidelines for Quality Assurance Sampling and Auditing
23-041    Guidelines for Quality Assurance Error Number Calculation
23-042    Guidelines for Randomization Programs
23-042    Guidelines for Making CRF Changes
23-044    Guidelines for Emergency Shutdown Procedure for the DataFax Server
23-048    Guideline for Exporting Electronic Data From DataFax
23-050    Guideline for SAS Names
23-052    Guideline for SAS Volume Directories
23-053    Guideline for the Production of Quality Assurance of Case Report Form Tabulations
23-056    Security Access and Control of dsNavigator
539-000    DataFax User Study Access Form
539-001    DataFax Database Change Control Form
539-002    Clinical Systems Hardware and Software Change Control Documentation

 

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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


539-003    [**]

 

- 86 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule C-2: Additional SOPs

 

SOP Number

  

SOP Title

539-004    Study Volume Access Form
539-006    Security Questionnaire
539-007    Event Qualification Form
539-008    Study Volume Freeze Form
539-009    dsNavigator User Access Form
539-011    dsNavigator Database Change Control Form
Preclinical   
0-018    Employee Training
0-027    Records Retention
8-108    Toxicology Department Training
8-109    Animal Welfare/USDA Employee Training
8-202    Protocol Approval Procedures
8-203    Protocol Amendments and Protocol Deviations for Nonclinical Good Laboratory Practice Studies
8-205    Raw Data Procedures
8-212    Biological Research (BIO) Studies: Protocols, Study Conduct, and Reports
8-300    Documenting Animal Orders and Receipt
8-301    Husbandry of Rats and Mice
8-302    Husbandry of Rabbits and Guinea Pigs
8-303    Animal Husbandry of Dogs and Pigs
8-305    Laboratory Animal Identification Procedures
8-307    Verifying Animal Identification Upon Cage Transfer and Manipulation
8-311    Daily Animal Health Evaluations and Documentation
8-312    Euthanasia and Disposal of Laboratory Animals
8-314    Environmental Conditions of Animal Rooms and Support Areas
8-315    Cage Cleaning and Room Maintenance
8-316    Animal Feed, Water, and Bedding
8-320    Animal Vendor and Intermediate Handler Qualification
8-338    Veterinary Resource Center Dress and Protection Procedures
8-405    Controlled Substances

 

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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


8-500    Skin Irritation Evaluations

 

- 88 -

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule C-2: Additional SOPs

 

SOP Number

  

SOP Title

8-509    Blood Collection from Rats and Mice
8-510    Blood Collection in Rabbits and Guinea Pigs
8-515    Administration of Fluids Via Hypodermic Syringe
8-517    Disposal of Sharps, and Biohazardous, Drug, Chemical, and Radioactive Waste
8-518    Anesthesia and Analgesia of Laboratory Animals
8-543    Gross Pathology Procedure
8-547    Animal Randomization
8-555    Implantation of Catheters in Laboratory Rodents
8-564    Blood Collection — Swine
8-571    Clinical Observations
8-572    Survival Surgery and Perioperative Care
8-573    Delivery of Inhalation Agents to Laboratory Animals
9-041    Laboratory Procedures for Handling Controlled Substances

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule D: Forms

 

Form Number

  

Form Title

Process Development and Manufacturing
05-001-007    Supplement material and Equipment Received and In Process Data Sheet
231-502    Screening Study Plan Approval and Release
531-1039    Microbiology Report for Test for indicator Organisms .
531-1041    Microbiology Report
531-1075    Micro Report for LAL
531-1230    Microbiology Report for Microbial Content Assay
531-1251    Microbiology Report for Final Rinse Water Bioburden Assay
531-1305    Macroflux ® Cleaning In Process Sheet
531-1306    Macroflux ® Forming In Process Sheet
531-507    ALZA Clinical Batch Review
531-514    Pre Production Checklist
531-524    Label Accountability Log
531-796    Macroflux ® Housing In Process Sheet

 

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Attachment 1.6 - ALZA Know-How Index

Schedule E: Technical Reports

 

Report No.

  

Report Title

Preclinical
TR-1340    [**]
TR-1347    [**]
TR-1364    [**]
TR-1367    [**]
TR-1379    [**]
TR-1380    [**]
TR-1409    [**]
TR-1547    [**]
TR-1557    [**]
TR-1583    [**]
TR-1607    Determination of Transdermal Delivery of human Parathyroid Hormone (hPTH) 1-34 in [**].
TR-1635    [**]
TR-1636    Pharmacokinetic Profiles of hPTH (1-34) (TH0229) and Forteo Administered in [**]
TR-2191    [**]
TR-2205    [**]
TR-2236    [**]
TR-2332    Optimization of Commercial Human PTH (1-34) EIA From Peninsula Laboratories For Use with [**] Plasma

 

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TR-2405    Transdermal Delivery of hPTH 1-34 with Macroflux ® in [**]

 

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Attachment 1.6 - ALZA Know-How Index

Schedule E: Technical Reports

 

Report No.

  

Report Title

TR-2467    [**]
TR-2702    Testing of Physical Stability of Macroflux ® PTH Systems in [**] Model
TR-2703    Effect of Patch Wearing Time of Macroflux ® PTH Systems In Vivo Using [**] Model
Formulation & Analytical
TR-1331    Formulation Development Report
TR-1348    Oxidation of PTH(1-34) in the solid state
TR-1349    Solution Stability of PTH(1-34)
TR-1350    Solid State Stability of PTH
TR-1479    [**]
TR-1483    [**]
TR-1511    [**]
TR-1512    [**]
TR-1531    hPTH(1-34) Macroflux ® formulation development report
TR-1584    Determination of Coating Variability
TR-1709    [**]
TR-2192    Macroflux ® Human B-type Naturetic Peptide (hBNP) Formulation Development Report
TR-2326    IVP-1 Packaging Configuration Long Term Stability: 6 Month Data Summary
TR-2510    Determination of Residual Human Parathyroid Hormone (hPTH) 1-34 on [**] Skin
Process Development and Manufacturing
TR-1454    Identification and Handling of Dedicated Equipment for PDP-1 In Phase I Clinical Builds
TR-1555    PDP-09: Macroflux ® hPTH (1-34) Phase I Process Development Report
TR-1568    PDP-09 (hPTH) Coating Process Development

 

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Attachment 1.6 - ALZA Know-How Index

Schedule F: Toxicology Reports

 

Study Number

  

Toxicology Study Title

    

TR-06-0576-

003#

   4-Week Subcutaneous Injection Toxicity and Toxicokinetic Study with Teriparatide (Human Parathyroid Hormone, 1-34) in Rats    transfer to occur by 12/31/06

TR-05-7106-

021#

   Chromosomal Aberrations in Chinese Hamster Ovary (CHO) Cells    transfer to occur by 12/31/06

TR-05-7106-

022#

   Salmonella-Escherichia coli/Mammalian-Microsome Reverse Mutation Assay with a Confirmatory Assay    transfer to occur by 12/31/06
TR-05-016    A Primary and Cumulative Irritation Study of Macroflux ® (hPTH) [**]   
TR-05-003    A Primary and Cumulative Irritation Study of Macroflux ® (hBNP) [**]   
TR-03-035    [**]   
TR-03-026    A Primary Skin Irritation Study of Macroflux ® (Parathyroid Hormone) in [**]   
TR-02-034    A Primary Skin Irritation Study of Macroflux ® (desmopressin) in [**]   
TR-02-031    In Vitro Evaluation of Macroflux ® Circular Array, 2B200LS, 2cm2, 321/cm2, Unformed, Code No. 0012734, Control No. MV0214344: ISO Cytotoxicity Testing   
TR-02-029    A Primary Skin Irritation Study of Macroflux ® (Desmopressin) Systems in [**]   
   [**]   
TR-02-027      
   [**]   
TR-02-026      
   [**]   
TR-02-003      

 

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TR-02-002    [**]

 

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Attachment 1.6 ALZA Know-How Index

Schedule G: Design History Files

 

Report Number

  

Report Title

DHF - Applicator - All Sections
TR-1510-DHF    Macroflux ® Gen 3i Applicator (code no. 0013490) Design and Development Plan
TR-1525-DHF    Development Team and Approval Matrix for the Macroflux ® Applicator (Code No. 0013490)
TR-1292-DHF    Macroflux ® Applicator (Code No. 0011864) User / Stakeholder Needs
TR-1294-DHF    Hold-down Force Criterion
TR-1295-DHF    Impact Criterion
TR-1497-DHF    Macroflux ® Applicator (Code No. 0013490) User/Stakeholder Needs
TR-1511-DHF    Macroflux ® Gen 3i Applicator (Code No. 0013490) System Requirements
TR-1293-DHF    Process Validation
TR-1296-DHF    Macroflux ® Applicator Code No. 0011864 Technical File
TR-1297-DHF   

Evaluation of the Conformity with the Essential Requirements

(Directive 93/42/EEC, Annex 1)

TR-1454-DHF -    Macroflux ® Identification and Handling of Dedicated Equipment for PDP-1 in Phase I Clinical Builds
TR-1508-DHF    Macroflux ® Gen3i Applicator (Code No. 0013490) Material Selection
TR-1509-DHF    Macroflux ® Gen3i Applicator (Code No. 0013490) FEA Report
TR-1513-DHF    Macroflux ® Gen3i Applicator (Code No. 0013490) Tooling
TR-1519-DHF    Macroflux ® Gen3i Applicator Tolerance Analysis and Geometry Check
TR-1769-DHF    Macroflux ® Gen3i Applicator Component First Article Inspection Report (Code No. 0013490)
TR-1795-DHF    Hold Down Force Generation and Tolerability Measurements in Healthy Elderly Volunteers for Macroflux ® Applicator Design (C-2003-014)
TR-2039-DHF    Biocompatibility Assessment of Macroflux ® Applicator (code no. 0013490) and Retainer (code no. 0013491)
TR-2041-DHF    Clinical Performance of the Gen. 3 Macroflux ® Applicator (Code No. 0011864)
TR-2046-DHF    Macroflux ® Gen4 Applicator Market Research by Timely Data Resources in 2003
TR-2074-DH F    The Effect of Applicator Piston Angle on Macroflux ® System Performance
TR-1505-DHF    Macroflux ® Gen3i Applicator - Technical Development Review
TR-1774-DHF    Macroflux ® Gen3i Applicator

 

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Attachment 1.6 - ALZA Know-How Index

Schedule G: Design History Files

 

Report Number

  

Report Title

TR-1284-DHF    Macroflux ® Applicator (Code No. 0011864) Impact Energy
TR-1285-DHF    Macroflux ® Applicator (Code No. 0011864) Hold-down Force
TR-1286-DHF    Macroflux ® Applicator (Code No. 0011864) Cycle Life
TR-1287-DHF    Macroflux ® Applicator (Code No. 0011864) Retainer Attachment Cycle Life
TR-1288-DHF    Macroflux ® Applicator (Code No. 0011864) Retainer Detachment Force
TR-1289-DHF    Macroflux ® Applicator (Code No. 0011864) Temperature Cycling
TR-1290-DHF    Macroflux ® Applicator (Code no 0011864) Chemical Resistance
TR-1291-DHF    Macroflux ® Applicator (Code No. 0011864) Shipping
TR-1299-DHF    Declaration of Conformity - Macroflux ® Applicator
TR-1780-DHF    Macroflux ® Gen3i Applicator (Code No. 0013490) Design Verification Testing General Tests
TR-1781-DHF    Macroflux ® Gen3i Applicator (Code No. 0013490) Design Verification Testing Environmental Tests
TR-1782-DHF    Macroflux ® Gen3i Applicator (Code No. 0013490) Design Verification Testing Life Cycle Tests
TR-1794-DHF    Macroflux ® Gen3i Applicator (Code No. 0013490) Design Verification Testing Video Protocol
TR-1796-DHF    Macroflux ® Gen3i Applicator Design Verification Report Code No. 0013490
TR-1797-DHF    Macroflux ® Gen3i Applicator Design Verification Matrix Code No. 0013490
TR-2049-DHF    Macroflux ® Gen4 Applicator (0013490) Design for the Environment
TR-2058-DHF    Macroflux ® Gen3i Applicator (Code No. 0013490) Design Verification Testing Audible and Tactile
TR-1418-DHF    Non-Drug Macroflux ® Manufacturing
TR-2050-DHF    Macroflux ® Applicator Code No. 0011864 Design History File Index
TR-1300-DHF    Risk Analysis Worksheet (RAW) Form
TR-1504-DHF    Risk Analysis for Macroflux ® Applicator (Code 0013490)
TR-1770-DHF    Macroflux ® Gen3i Applicator (Code No. 0013490) Risk Analysis Meeting Minutes
DHF Array - Design Output
TR-1503-DHF    The Effect of Number of Passes on Coating of 0012907
TR-1507-DHF    Evaluation of 2cm2 Macroflux ® Array Designs: MF1004, MF1033, MF1034, MF1035, MF1037, MF1039, MF1040, S250

 

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Attachment 1.6 - ALZA Know-Haw Index

Schedule G: Design History Files

 

Report Number

  

Report Title

TR-1783    Coating Linearity to Array Size
TR-1814-DHF    MF1035 Depth of Penetration Sensitivity to Coating
TR-1815-DHF    Acceptability of Tecomet as a Macroflux ® Array Supplier
DHF - Housing - Design Output
TR-1536-DHF    Identification of Macroflux ® Product Contacting Equipment
TR-1537-DH F    Process Parameters that Effect Film Thickness on the Macroflux ® Center
DHF - IVP-1   
TR-2598-DHF    Film Thickness Measurement Using the Keyence LT-900, LS-7030
TO-1205-DHF    [**]
TR-2529-DHF    [**]
TO-1208-DHF    [**]
TD-1212-DHF    [**]
TR-2299-DHF    [**]
TR-2314-TR    Macroflux ® Identification and Handling of Dedicated Equipment for IVP-1 (hBNP) in Phase I Clinical Builds
TR-2530-TR    Macroflux ® IVP-1 Package. Integrity Protocol
TD-1223-DHF    [**]
TD-1226-TR    [**]
TR-2192-DHF    [**]
TR-2321-DHF    Macroflux ® Forming Elastomer Life Expectancy
TR-2326-DHF    IVP-1 Final Product Packaging Configuration Long Term Stability - 6 Month Data Summary
TR-2538-DHF    Macroflux ® IVP-1 Package Integrity Report
TR-2539-DHF    [**]
TR-2595-DHF    RAM Optical Formed Length/Angle Inspection Gage R&R
TR-2629-DHF    Film Thickness Measurement Using the Keyence LT-900, LS-7030

 

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TR-2598-DHF    [**]

 

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Attachment 1.6 - ALZA Know-How Index

Schedule G: Design History Files

 

Report Number

  

Report Title

TD-1209-DHF    [**]
TD-1215-DHF    [**]
TD-1227-DHF    [**]
DHF - IVP-6   
TD-1302-DHF    Dose Mapping Protocol for Irradiated Macroflux ® Aseptic Processing Components—Equipment
TD-1303-DHF    Mapping Protocol for Irradiated Macroflux ® Aseptic Processing Components—Product Components
TR-2871-DHF    Dose Mapping Report for Irradiated Macroflux ® Aseptic Processing Components—Equipment
TR-2332-DHF    [**]
TR-2510-DHF    [**]
TR-2874-DHF    RAM Optical Sprint CNC 200 Formed Length/Angle Inspection Gage R&R
DHF - PDP-1   
03102000-060702    Change Document No. 31020000-060702, Amendment No. 1
03102000-101503    Change Document 31020000-101503, Amendment #3
03102000-112603    Change Document 3102000-112603, Amendment 4
PDP-1, 2/16/01    [**]
TR-1340-DHF    [**]
TR-1347-DH F    [**]
TR-1364-DHF    [**]
TR-1367-DHF    [**]
TR-1379-DHF    [**]

 

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Attachment 1.6 - ALZA Know-How Index

Schedule G: Design History Files

 

Report Number

  

Report Title

TR-1380-DHF    [**]
TR-1409-DHF    [**]
TR-1523-DHF    Formulation and Macroflux ® Delivery System Development
TR-1547-DHF    [**]
TR-1557-DHF    [**]
TR-1583-DHF    [**]
TR-1635-DHF    [**]
DHF - PDP-9   
5112-121102    Change Document 5112-121102, Amendment 1
PDP-9, 10/12/01    Macroflux ® PTH Analog Delivery System
TR-1573    PDP-09: Macroflux ® hPTH (1-34) Phase I Process Development Report
TR-1791-DHF    Macroflux ® PDP-9 Human Parathyroid hormone (1-34) User/Stakeholder Needs
TR-2042-DHF    Penetration of hPTH Coated Macroflux ® Systems in Excised [**]
TR-1348-DHF    Oxidation of PTH(1-34) in the Solid State
TR-1349-DHF    Solution Stability of PTH(1-34)
TR-1350-DHF    Solid State Stability of PTH
TR-1351-DHF    hPTH(1-34) Macroflux ® Formulation Development Report
TR-1803-DHF    Macroflux ® hPTH Microbiological Control Program

 

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Attachment 1.6 ALZA Know-How Index

Schedule H: Training Modules

 

TM Number

  

TM Title

02-012-004    ExRx Reporting System Training Module: Overview
03-032-017    ExRx ANA Investigation Origin for Laboratory Testing and Procedural Deviation
03-032-018    Laboratory Glassware and Utensils Pre-cleaning Procedure in Analytical Sciences
03-032-019    Cleaning Procedure for Analytical Sciences Laboratory Glassware and Lab Ware
03-032-020    Analytical Laboratory Safety Orientation
03-032-022    Analytical Sciences Empower CDS - Getting Started
03-032-023    Analytical Sciences Empower CDS - Creating a New Project
03-032-024    Analytical Sciences Empower CDS - The Instrument Method
03-032-025    Analytical Sciences Empower CDS - The Processing Method
03-032-026    Analytical Sciences Empower CDS - The Method Set
03-032-027    Analytical Sciences Empower CDS - The Sample Set Method
03-032-028    Analytical Sciences Empower CDS - Running Samples
03-032-029    Analytical Sciences Empower CDS - Viewing Data and Optimizing Methods
03-032-030    Analytical Sciences Empower CDS - Data Processing
03-032-031    Analytical Sciences Empower CDS - Reports and Electronic Signatures
03-032-037    Operation of Advanced Software for the Agilent ChemStation with Security Pack for UV-visible Spectroscopy
03-032-039    Administration of The Analytical Sciences Reference Standard Program
03-032-045    Handling Analytical Records in Analytical Sciences Document Control Center

 

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Attachment 1.6 - ALZA Know-How Index

Schedule I: ALZA Analytical Methods (AAM)

 

AAM No.

  

AAM Title

1.710    identity and Purity of Parathyroid Hormone (PTH 1-34) by Reversed Phase High Performance Liquid Chromatography (RP-HPLC)
1,760    [**]
1.775    Determination of Parathyroid Hormone (hPTH 1-34) Content of Macroflux ® Finished Product and In-Process Control Sample by Liquid Chromatography
3.305    Identification by IR Spectroscopy (ATR Technique)
3.307    Identification by Infrared Spectroscopy—Film from Chlorinated Solvent Solution
3.339    Determination of PTH (1-34) in Swabbing Material by Micro BCA
3.340    Determination of (1-34) Human Parathyroid Hormone Content of Macroflux ® hPTH In-Process Samples by UV Spectrophotometry
5.102    Physical Dimensions
5.104    Thickness
5.141    Appearance of Injection Molded Parts
5.639    Activation Force Measurement of Macroflux ® Applicator
5.640    Impact Peak Force and Duration Measurement of Macroflux ® Applicator
5.719    Dimensional Inspection of Macroflux ® Arrays with View Voyager
6.441    USP Microbial Content Assay for Polysorbate 20
6.443    Kinetic LAL Bacterial Endotoxins Test for Polysorbate 20
6.444    USP Test for Staphylococcus aureus and Pseudomonas aeruginosa from Polysorbate 20
6.483    Kinetic LAL Bacterial Endotoxins Test for Sucrose
6.484    USP Microbial Content Assay for Sucrose
6.523    USP Test for Staphylococcus aureus and Pseudomonas aeruginosa from Sucrose
6.550    USP Microbial Content Assay for Edetate Disodium
6.552    Kinetic LAL Bacterial Endotoxins Test for Edetate Disodium

 

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6.553    USP Test for Staphylococcus aureus and Pseudomonas aeruginosa from Edetate Disodium

 

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Attachment 1.6 - ALZA Know-How Index

Schedule I: ALZA Analytical Methods (AAM)

 

AAM No.

  

AAM Title

    

6.576

   USP Microbial Content Assay for Human Parathyroid Hormone   

6.577

   Kinetic LAL Bacterial Endotoxins Test for Human Parathyroid Hormone   

6.578

   USP Test for Staphylococcus aureus and Pseudomonas aeruginosa from Human Parathyroid Hormone   

6.586

   USP Microbial Content Assay for Macroflux ® Sucrose Placebo   

6.587

   Kinetic LAL Bacterial Endotoxins Test for Macroflux ® Sucrose Placebo   

6.588

   USP Test for Staphylococcus aureus and Pseudomonas aeruginosa from Macroflux ® Sucrose Placebo   

6.589

   [**]   

6.591

   Bioburden Testing of Final Rinse Water   

6.592

   USP Microbial Content Assay for Macroflux ® Human Parathyroid Hormone   

6.593

   Kinetic LAL Bacterial Endotoxins Test for Macroflux ® Human Parathyroid Hormone   

6.594

   USP Test for Staphylococcus aureus and Pseudomonas aeruginosa from Macroflux ® Human Parathyroid Hormone   

6.595

   [**]   

6.596

   [**]   

6.597

   [**]   

6.599

   USP Microbial Content Assay for Macroflux ® Adhesive Patch   

6.600

   USP Microbial Content Assay for Macroflux ® Polyurethane Disk   

6.601

   Kinetic LAL Bacterial Endotoxins Test for Macroflux ® Polyurethane Disk   

6.602

   USP Test for Staphylococcus aureus and Pseudomonas aeruginosa from Macroflux ® Polyurethane Disk   

8.001

   Amino Acid Composition Analysis of Proteins and Peptides   

8.003

   Molecular Weight Determination of Peptides by Electrospray Mass Spectrometry .   

8.010

   [**]   

8.016

   [**]   

9.001

   Appearance   

9.002

   Certificate Verification   

9.003

   Attribute Verification   

 

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Attachment 1.6 - ALZA Know-How Index

Schedule I: ALZA Analytical Methods (AAM)

 

AAM No.

  

AAM Title

    

9.004

   Document Review   

9.030

   Certificate Verification for Reference Standards   

9.038

   Appearance of Components   

9.045

   Appearance of Raw Material Powders or Granules   

 

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Attachment 1.6 - ALZA Know-How Index

Schedule J: ALZA Quality Specification (AQS)

 

AQS Number

  

AQS Title

    

0002654

   [**]   

0008541

   [**]   

0009083

   Hydrochloric Acid, NF, Ph Eur   

0009895

   Water for Injection, USP, (Bulk Package)   

0011513

   [**]   

0012191

   [**]   

0012490

   [**]   

0012512

   [**]   

0012514

   [**]   

0012602

   Centrifuge Tubes, 250 mL, Polypropylene   

0012608

   Pipette tip, 1000uL, positive displacement, sterile   

0012636

   Centrifuge tube, 15 ml, Sterile   

0012663

   Pipette tip, 10mL, sterile   

0012664

   Pipette tip, 100uL, positive displacement, sterile   

0013359

   [**]   

0013379

   Edetate Disodium, USP, Ph Eur, Dihydrate, (Low Endotoxin)   

0013429

   [**]   

0013430

   [**]   

0013431

   [**]   

0013490

   [**]   

0013652

   Parathyroid Hormone (1-34) Human, Acetate Salt   

0013673

   Detergent CIP-100 (1 gallon)   

0013712

   [**]   

0013854

   Pipette Tip, 10uL, Positive Displacement, Steri   

0013882

   [**]   

0013889

   Centrifuge Tubes, 2.0mL sterile/non-pyrogenic   

0013911

   [**]   

0013933

   Tubing, Polypropylene, 1/8 in ID x 1/4 in OD   

 

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Attachment 1.6 - ALZA Know-How Index

Schedule J: ALZA Quality Specification (AQS)

 

AQS Number

  

AQS Title

    

0014056

   [**]   

0014360

   [**]   

0014793

   [**]   

0014859

   [**]   

0014860

   [**]   

0014889

   [**]   

0014941

   Sucrose, NF (low endotoxin), Beet Derived   

0015010

   [**]   

0015011

   [**]   

0015029

   [**]   

0015081

   HOPE, Separator   

0015186

   [**]   

0015187

   [**]   

0015188

   [**]   

0015189

   [**]   

0015207

   [**]   

0015340

   [**]   

0015346

   [**]   

0015403

   [**]   

0015540

   [**]   

0015594

   [**]   

0015618

   Bag, Unprinted, Nylon/LLDPE 14.5 x 7”   

0015619

   Bag, Unprinted, Tyvek/film 15 x 19.5   

0015620

   Shipper, Corrugated, RSC, 16 x 10 x 8”   

0015621

   Bag, Unprinted, Tyvek/film, 15.5 x 13.25”   

0015634

   [**]   

0015662

   [**]   

 

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Attachment L6 - ALZA Know-How Index

Schedule J: ALZA Quality Specification (AQS)

 

AQS Number

  

AQS Title

    

0015663

   Bag, Unprinted, Nylon/LLDPE, 9 x 14”   

0015664

   Shipper, Corrugated, RSC, 22 x 15 x 10”   

0015665

   Bag, Unprinted, Nylon/LLDPE, 7 x 6.5”   

0015666

   Bag, Unprinted, Nylon/LLDPE, 19 x 16 “   

0015667

   Shipper, Corrugated, RSC, 20 x 12 x 8”   

0015668

   Bag, Unprinted, Tyvek/film, 12 x 8.75”   

0015669

   Bag, Unprinted, Tyvek/film 16 x 37”   

0015670

   Bag, Unprinted, Nylon/LLDPE 16 x 8.5”   

0015671

   Shipper, Corrugated, RSC, 36 x 16 x 7”   

0015672

   Label, Identification, Process 3” x 2”   

0015691

   Polypropylene filter disk, 7.5”   

0015692

   Autoclave Indicator, 1/2” Circle   

0015693

   Polyethylene Foam Cushioning and Mailer   

0015694

   Poly Cushion/Shipper Macroflux ® Reservoir   

0015695

   Poly Cushion/Shipper 16x10x8”   

0015696

   Carton, Folding, Plastic, 5 Side   

0015697

   Indicator, Irradiation, 1/2” Circle   

0015698

   Poly Cushion/Shipper,Macroflux ® Filters   

0015699

   Poly Cushion/Shipper for Macroflux ® Tubes   

0015708

   [**]   

0015712

   [**]   

0015713

   [**]   

0015781

   Cap, Protective, Plastisol, Black 1/2” x 1 3/4”   

0015782

   Tray, Thermoformed, PETG   

0015783

   Poly Cushion/Shipper, MFL Metal Tube   

0015803

   Bag, Unprinted, Tyvek/Film, 6 1/4 x 9 5/8 inch   

0015804

   Lid, Tyvek, 13 1/2 x 7 1/4 inch   

0015805

   Bag, Unprinted, Tyvek/Film, 18 x 23 1/2 inch   

0015806

   Pouch, Unprinted, Tyvek 3 7/8 x 5 7/8”   

 

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CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule J: ALZA Quality Specification (AQS)

 

AQS Number

  

AQS Title

    

0015819

   Bag, Unprinted, Tyvek/film, 4 3/4 x 6 1/4 inch   

0015820

   Pouch, Unprinted, 5 1/4 x 8 1/2 inch   

0015821

   Letter Opener, White   

0015860

   Tubing, Silicone 0.030 I.D. x 0.066 O.D.   

0015863

   [**]   

0015864

   Syringe, 3mI Sterile   

0015865

   Syringe, 10 ml Sterile   

0015866

   Syringe, 5 ml Sterile   

0015868

   Gasket, Viton   

0015884

   [**]   

0015885

   Shipper, Corrugated, RSC, 14 1/2 x 11x110”   

0015886

   Bag, Unprinted, Nylon/LLDPE, 20 1/2 x 18”   

0015887

   Poly Cushion/Shipper, Media Filter   

0015888

   Shipper, Corrugated, RSC 27 x 7 1/2 x 5”   

0015889

   Bag, Unprinted, Nylon/LLDPE, 8 1/2 x 12”   

0015890

   Bag, Unprinted, Nylon/LLDPE, 8 x 27”   

0015891

   Bag, Unprinted, Nylon/LLDPE, 12 1/2 x 17”   

0016086

   Tapered Y Connector   

0016109

   Cable Tie, Nylon, 5 1/2”   

0016162

   [**]   

0016163

   [**]   

0016164

   [**]   

0016165

   [**]   

0016166

   [**]   

0016167

   [**]   

0016180

   Bag, Unprinted, Tyvek/Film, 22 x 29-1/2”   

0016181

   Poly Cushion/Mailer/Shipper   

0016182

   Bag, Unprinted, Tyvek/Film, 15.5 x 10.625”   

0016256

   [**]   

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule J: ALZA Quality Specification (AQS)

 

AQS Number

  

AQS Title

    

0016262

   Argon   

0016397

   Pouch, Unprinted, Foil Pouch, 5.50 x 8.50”   

0016404

   Plastic Box, PS, Hinged 5 1/8“x 3 1/8 “x 1 5/16”   

0016497

   Tip Cap, Sterile   

0016498

   Tube, PETG 1 1/2 x 9 inch   

0016524

   Sodium Hydroxide Pellets, NF   

0016527

   Pouch, Printed, Tyvek 3 7/8” x 5 7/8”   

0016528

   Syringe Filter Connector, Stainless Steel   

0016536

   MFL Subassemblies in MACAP Infeed Tube   

0016545

   Needle, 16 gauge x 1.5 inch Sterile   

0016668

   Tyvek Pouch, Irr 3 7/8 inch x 5 7/8 inch   

0016669

   [**]   

0016670

   [**]   

0016671

   [**]   

0016707

   [**]   

00319

   Nitrogen, NF (liquid)   

009895

   Water for Injection, USP, (Bulk Package)   

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule K: CPR

 

CPR Number

  

CPR Title

    

0002654

   Foil Pouch, 3 718 x 5 7/8 inch   

0012191

   [**]   

0012514

   Polyurethane Disk, 70A, 5/8” Diameter, 1/8” Thick, Amber   

0013359

   [**]   

0013372

   [**]   

0013432

   [**]   

0013433

   [**]   

0013434

   [**]   

0013911

   [**]   

0015186

   Polyurethane DiSk, 54A, 0.8 inch diameter   

0015634

   Polyurethane Disk, 54A 5/8 inch Diameter   

0015708

   [**]   

0016536

   [**]   

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule L: Packaging Material Specifications (PMS)

 

PMS Number

  

PMS Title

      

0015692

   Autoclave Indicator, 1/2” Circle   

0015891

   Bag, Unprinted, Nylon/LLDPE, 12 1/2 x 17”   

0015886

   Bag, Unprinted, Nylon/LLDPE, 20 1/2.x 18”   

0015889

   Bag, Unprinted, Nylon/LLDPE, 8 1/2 x 12”   

0015890

   Bag, Unprinted, Nylon/LLDPE, 8 x 27”   

0016182

   Bag, Unprinted, Tyvek/Film, 15.5 x 10.625”   

0016180

   Bag, Unprinted, Tyvek/Film, 22 x 29-1/2’   

0015803

   Bag, Unprinted, Tyvek/Film, 6 1/4 x 9 5/8 inch   

0015805

   Bag, Unprinted, Tyvek/Film, 18 x 23 1/2 inch   

0015819

   Bag, Unprinted, Tyvek/Film, 4 3/4 x 6 1/4 inch   

0013164

   Box, Polystyrene, Hinged   

0016109

   Cable Tie, Nylon, 5 1/2”   

0015781

   Cap, Protective, Plastisol, Black 1/2” x 1 3/4”   

0015696

   Carton, Folding, Plastic, 5 Side   

0015697

   Indicator, Irradiation, 1/2” Circle   

0013163

   Interleaving, High Impact Polystyrene   

0015821

   Letter Opener, White   

0015804

   Lid, Tyvek, 13 1/2 x 7 1/4 inch   

0016181

   Poly Cushion/Mailer/Shipper   

0015695

   Poly Cushion/Shipper 16x10x8”   

0015699

   Poly Cushion/Shipper for Macroflux ® Tubes   

0015694

   [**]   

0015884

   [**]   

0015887

   Poly Cushion/Shipper, Media Filter   

0015783

   Poly Cushion/Shipper, MFL Metal Tube   

0015698

   Poly Cushion/Shipper, Macroflux ® Filters   

0015693

   Polyethylene Foam Cushioning and Mailer   

0015691

   Polypropylene filter disk, 7.5”      ,   

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule L: Packaging Material Specifications (PMS)

 

PMS Number

  

PMS Title

    

0015820

   Pouch, Unprinted, 5 1/4 x 8 112 inch   

0015806

   Pouch, Unprinted, Tyvek 3 7/8 x 5 718”   

0015888

   Shipper, Corrugated, RSC, 27 x 7 1/2 x 5”   

0015885

   Shipper, Corrugated, RSC, 14 1/2 x 11x110”   

0016497

   Tip Cap, Sterile   

0015782

   Tray, Thermoformed, PETG   

0016498

   Tube, PETG 1 1/2 x 9 inch   

000783

   Pouch Stock, Unprinted, 12”   

0016527

   Pouch, Printed, Tyvek 3 7/8” x 5 7/8”   

0016397

   Pouch, Unprinted, Foil Pouch, 5.50 x 8.50”   

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

 

Schedule M: Clinical Files

Clinical Study Number and Title

  

[**] - Tolerability of Skin Interface Technology Designs and Application Methods in Healthy Volunteers

  

[**] - Assessment of Tolerability and Penetration of Macroflux ® Non-Drug Systems in Healthy Volunteers

  

[**] - Assessment of Penetration and Tolerability of Macroflux ® Non-Drug Systems in Healthy Volunteers

  

[**] - Assessment of Safety and Bioavailability of Macroflux ® TH0229 in Healthy Volunteers

  

[**] # - Pharmacokinetics, Pharmacodynamics and Tolerability of Macroflux ® hPTH via Three Application Sites in Healthy, Postmenopausal Women

   [**]

[**] # - Dose-Finding Study of Macroflux ® hPTH in Healthy Postmenopausal Women

   [**]

[**]

  

The documents from each clinical study must, at a minimum, include the following (except as noted for study [**] above:

 

Raw data
Final study report
Approved Final Protocol
All Protocol Amendments
Protocol Signature Pages
All Protocol Amendment(s) Signature Pages
If not included in protocol, a document describing unblinding procedure in case of an emergency, (if applicable)
Institutional Review Board (IRB)/ Independent Ethics Committee (IEC) approved Informed Consent Forms (original and amended versions)
Signed FDA Form 1572 (and all updated 1572s)
Curricula vitae (CV) for the principal investigator, subinvestigators, and others listed on the 1572.

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


One page CV summaries for investigator and sub investigators

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule M: Clinical Files

The documents from each clinical study must, at a minimum, include the following (except as noted for study [**] above):

 

Financial Disclosure Forms (if applicable)
Insurance statement (if applicable)
Declaration of Helsinki, (if applicable)
DEA forms (if applicable)
IRB/IEC membership list or Department of Health and Human Services (DHHS) ID number
Initial IRB/IEC approval letter for the protocol, consent form and any subsequent amendments
IRB/IEC approval for advertisements and copy of advertisement (if applicable)
IRB/IEC approval for any other written information given to subjects and copy of information (if applicable)
IRB/IEC continuing review and reapproval (if applicable)
Each edition of the Investigator’s Brochure
Package Insert/Summary of Product Characteristics, (if applicable)
Clinical laboratory information (certifications, accreditation, normal ranges, CV of laboratory director)
Documents concerning investigational drug shipments and accountability
Documentation concerning disposition of any unused investigational drug at study termination
Monitoring Log
Subject Screening/Enrollment Log
Signature Verification Form/Staff Delegation Log
Contact reports, correspondence, monitoring reports
Serious Adverse Event Report Form (if applicable)
Notification to investigators of IND safety reports (if applicable)
IRB/IEC notification of IND safety reports (if applicable)
Clinical Safety Team Checklist
Approved version of Case Report Forms (CRFs)
DataFax QC reports (returned by sites) documenting CRF corrections
Subjects’ completed signed and dated CRFs
Case Reports
Clinical Research Organization (CRO) file, (if applicable)
CRO Audit reports
Protocol specific training manuals, (if applicable)

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Any other study related documents except for financial records

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule N: Bioanalytical - CRO documents

 

Per provision 3.4 of the License Agreement, ALZA will not be required to transfer or make available any ALZA Know-How that would require ALZA to breach any obligation it may have to a Third Party or violate any law, statute, ordinance or regulation.

 

Note: Audit reports and quotes required for all CROs listed

 

Data and documents in this Section N to be transferred at the end of the transition services period

 

CRO Name

 

[**]

 

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Attachment 1.6 - ALZA Know-How Index

Schedule O: Vendor Files

Per provision 3.4 of the License Agreement, ALZA will not be required to transfer or make available any ALZA Know-How that would require ALZA to breach any obligation it may have to a Third Party or violate any law, statute, ordinance or regulation. ALZA agrees to transfer to TMC any equipment files, equipment manuals; drawing files and vendor audit files in its possession for the vendors listed in this Schedule O at the end of the transition services period provided that TMC has obtained any permission required from such vendors for such transfers.

 

Item Number(s)

  

Vendor Name

  

GMP PO Number

  

 

11696

   [**]    None   

None

   [**]    None   

None

   [**]    None   

None

   [**]    None   

15708

   [**]    Various (4)   

12512

   [**]    70110457   

None

   [**]    None   

13164

   [**]    Various (2)   

13712

   [**]    70110041   

14793

   [**]    70110604   

15863, 16669, 16670

   [**]    70110687   

15010 & 15011

   [**]    Various (3)   

15340

   [**]    Various (2)   

15619 & 15621

   [**]    None   

13827

   [**]    Pending   

16523

   [**]    70110650   

13163 & 15081

   [**]    70110546   

14941

   [**]    Various   

None

   [**]    Pending   

14889

   [**]    70110631   

13827

   [**]    None   

13827

   [**]    Various   

15618, 15663, 15665, 15666,

15670, 15886, 15889, 15891

   [**]    Various (2)   

15699, 15693, 15694, 15695

15696, 15698, 15884, 15887

   [**]    70110494   

 

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15696

   [**]    Various (3)   

 

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15668, 15669, 15804, 16527

   [**]    Various (8)   

4657, 4661, 8556, 9083

9895, 13673, 14977, 15403

   [**]    Various (11)   

 

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.6 - ALZA Know-How Index

Schedule P: Completed Batch Records

Requirements: Completed Batch Records for the following programs listed below.

 

 

Program name

    
Macroflux ® PTH   
Macroflux ® Desmopressin   
[**]   

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.12 - Development Agreements

 

1. Interim Development Agreement between ALZA Corporation and [**].

 

2. Interim Development Agreement between ALZA Corporation and [**].

 

3. Interim Development Agreement between ALZA Corporation and [**].

 

4. Termination Agreement between ALZA Corporation and [**] terminating all three of the above [**].

 

5. Interim Development Agreement between ALZA Corporation and [**].

 

6. Material Evaluation Agreement between ALZA Corporation and [**].

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


Attachment 1.23 - Licensed Patents

 

CATEGORY A

    

6,050,988 ARC2758R1

AU, CA, CN, EP, JP, KR, MX

   Device for Enhancing Transdermal Agent Flux

6,230,051 ARC2466CIP1

CA, EP, JP, KR

   Device and Method for Enhancing Transdermal Sampling
6,855,372 ARC3116R1    Method and Apparatus for Coating Skin Piercing Microprojections

6,855,131 ARC3014R1

AU, BR, CA, CZ, EP, HU, HK, IL, IN, JP, KR, MA, MX, NO,

NZ, PL, RU, VN, ZA

   Microprotrusion Member Retainer for Impact Applicator
6,953,589 ARC2685N1    Device For Enhancing Transdermal Agent Flux

09/733,305 ARC2864R1

AU, CA, CN, EP, HK, HU, IL, JP, KR, MX, NO, NZ, ZA

   Skin Treatment Method and Apparatus for Sustained Transdermal Drug Delivery
10/794,637 ARC2864N1    Skin Treatment Method and Apparatus for Sustained Transdermal Drug Delivery

09/733,506 ARC2877R1

EP, HK

   Device and Method for Enhancing skin Piercing by Microprotrusions
10/984,499 ARC2877DIV I    Device and Method for Enhancing skin Piercing by Microprotrusions

09/976,763 ARC2972R1

AU, BR, CA, CN, CZ, EP, HK, HU, IL, IN, JP, KR, MA, MX,

NO, NZ, PL, RU, VN, ZA

   Microblade Array Impact Applicator
11/251,488 ARC2972USCNT    Microblade Array Impact Applicator
10/978,807 ARC3014CON1    Microprotrusion Member Retainer for Impact Applicator

10/045,842 ARC3036R1

AU, BR, CA, CN, CZ, EP, HK, HU, IL, IN, JP, KR, MA, MX,

NO, NZ, PL, RU, VN, ZA

   Transdermal Drug Delivery Devices Having Coated Microprotrusions
11/347,779 ARC3036USD1V    Transdermal Drug Delivery Devices Having Coated Microprotrusions
10/984,510 ARC3116D1V1    Method and Apparatus for Coating Skin Piercing Microprojections

10/127,171 ARC3092R1

AU, BR, CA, CN. EP, IL, JP, KR, MX, NO, NZ, ZA

   Microprojection Array Immunization Patch and Method

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


11/267,563 ARC3092USCNT    Microprojection Array Immunization Patch and Method

10/127,108 ARC3056R1

AU, BR, CA, CN, EP, EP DIV, IL, JP, KR, MX, NO, NZ, NZ DIV, ZA

   Microprojection Array Having a Beneficial agent Containing Coating

10/305,641 ARC3089R1

EP

   Method and Apparatus for Forming Microprojection Arrays
10/327,330 ARC2909R1 AU, EP, HU, IN, NO, RU, ZA    Skin-Piercing Microprojections Having Piercing Depth Control
10/674,626 ARC3061R1 CA, EP    Drug Delivery Device and Method Having Coated Microprojections Incorporating Vasoconstrictors

10/608,304 ARC3074R1

AR, AU, BR, CA, CN, EP, JP, KR, MX, SG, TW

   Transdermal Drug Delivery Devices Having Coated Microprotrusions

10/637,909 ARC3149R1

AR, AU, BR, CA, CN, EP, HK, JP, KR, MX, SG, TW

   Transdermal Vaccine Delivery Device Having Coated Microprotrusions

10/745,995 ALZ5103R1

AR, AU, BR, CA, CL, CN, EP, HK, JP, KR, MX, SG, TW, VE

   Active Agent Delivery Device Having Composite Members

10/884,603 ARC3077USANP

AR, AU, BR, CA, CL, CN, EP, JP, KR, MX, MY, NZ, PE, PK, SG, TH, TW, UY, VE

   Microprojection Array Immunization Patch and Method

10/880,702 ALZ5049USNP

AR, AU, BR, CA, CN, EP, JP, KR, TH, MX, MY, NZ, SG, TW, VE

   Formulations for Coated Microprotrusions Containing Non-Volatile Counterions

11/034,891 ALZ5049CIP1

WO, AR, MY, TH, TW, VE

   Formulations for Coated Microprojections Having Controlled Solubility

10/880,701 ALZ5050USANP

AR, AU, BR, CA, CN, EP, JP, KR, MX, MY, NZ, SG, TH, TW, VE

   Method for Coating Skin Piercing Microprojections

10/925,518 ALZ5056USANP

AR, AU, BR, CA, CN, EP, JP, KR, MX, MY, NZ, SG, TW, TH, VE

   Device and Method For Intradermal cell Implantation

10/910,889 ALZ5037USANP

AR, AU, BR, CA, CN, EP, JP, KR, MY, MX, NZ, SG, TH, TW, VE

   Device For Enhancing Transdermal Agent Flux

10/910,915 ALZ5037USANP2

AR, AU, BR, CA, CN, EP, JP, KR, MY, MX, NZ, SG, TH, TW, VE

   Device For Enhancing Transdermal Agent Flux
10/911,299 ALZ5037USANP3    Device For Enhancing Transdermal Agent Flux

10/972,230 ALZ5074NP

AR, MY, TH, TW, VE, AU, BR, CA, CN, EP, JP, KR, MX, SG

   Compositions of Stabilized DNA for Coating Microprojections

10/971,224 ALZ5075NP

AR, MY, TH, TW, VE, AU, BR, CA, CN, EP, JP, KR, MX, SG

   Method and Apparatus for Reducing the Incidence of Tobacco Use

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


10/972,231 ALZ5076NP

AR, MY, TH, TW, VE, AU, BR, CA, CN, EP, KR JP, MX, SG

   Delivery of Polymer Conjugates of Therapeutic Peptides and Proteins via a Microprojection Apparatus

10/971,871 ALZ5084NP

AR, MY, TH, VE, AU, BR, CA, CN, EP, KR, JP, MX, SG

   Self-Actuating Applicator for Microprojection Array

10/970,890 ALZ5095NP

AR, MY, TH, TW, VE, AU, BR, CA, CN, EP, KR, JP, MX, SG

   Composition and Apparatus for Transdermal Delivery

11/084,631 ALZ5123NP

AR, AU, BR, CA, CN, EP, JP, KR, MY, MX, SG, TH, TW, VE

   Apparatus and Method for Transdermal delivery of Influenza Vaccine

11/084,635 ALZ5 I 24NP

WO, AR, MY, TH, TW, VE

   Apparatus and Method for Transdermal Delivery of Multiple Vaccines

11/084,634 ALZ5133NP

WO, AR, MY, TH, TW, VE

   Method and Apparatus for Transdermal Delivery of hPTH(1-34)

11/222,297 ALZ5154USNP

WO, AR, MY, TH, TW, VE

   Microprojection Array with Improved Skin Adhesion and Compliance
11/259,010 ALZ5159USNP    Method and Apparatus for Transdermal Delivery of Desmopressin

11/341,832 ALZ5170USNP

WO, AR, MY, TH, TW, VE

   Coated Microprojections Having Reduced Variability and Method for Producing Same

11/391,609 ALZ5171USNP

WO

   Microprojections with Capillary Control Features and Method

11/446,530 ALZ5 I 93USANP

WO

   Method for Terminal Sterilization of Transdermal Delivery Devices

11/446,487 ALZ5194USANP

WO

   Method for Terminal Sterilization of Transdermal Delivery Devices

11/472,165 ALZ5173USANP

WO

   Method And Device for Coating a Continuous Strip of Microprojections Members
11/ ALZ5216USAPSP    Coatable Transdermal Delivery Microprojection Assembly
WO   
60/754,948 ALZ5234USPSP    Therapeutic Formulations With Improved Stability
60/781,049 ALZ5237USPSP    Microprojection Array Application with High Barrier Retainer
60/782,939 ALZ5240USPSP    Apparatus and Methods for Transdermal Delivery of Parathyroid Hormone Agents to Prevent or Treat Osteopenia
60/784,883 ALZ5243USPSP    Apparatus and Methods for Transdermal Delivery of a Triptan Agonist

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


60/784,743 ALZ5244USPSP    Apparatus and Methods for Transdermal Delivery of a 5-Hydroxytritamine Antagonist
60/784,850 ALZ5245USPSP    Apparatus and Methods for Transdermal Delivery of a Benzodiazepine
60/817,499 ALZ5259USPSP    Apparatus and Methods for Transdermal Delivery of Insulin
60/817,563 ALZ5260USPSP    Apparatus and Methods for Transdermal Delivery of Gonadotropins
60/795,009 ALZ5247USPSP    Microprojection Array Application with Sculptured Microprojections for High Drug Loading
60/794,941 ALZ5251 U SPSP    Microprojection Array Application with Grouped Microprojections for High Drug Loading
60/794,960 ALZ5252USPSP    Microprojection Array Application with Multilayered Microprojection Member for High Drug Loading
11/477,045 ALZ5084USCNT    Self-Actuating Applicator for Microprojection Array

 

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EXCHANGE COMMISSION. DOUBLE ASTERISKS [**] DENOTE OMISSIONS.


CATEGORY B

    

6083196 ARC2685R2 AU,

CA, CN, EP, JP, KR, MX

   Device for Enhancing Transdermal Agent Flux

6322808 ARC2685RI

AU, CA, CN, EP, JP, MX DIV, KR, MX

   Device for Enhancing Transdermal Agent Flux

08/877,155 ARC2466R1

AR, AR DIV, CA, EP, JP, KR, TW

   Device and Method for Enhancing Transdermal Flux

6,918.901 ARC2600R1

AU, CA, CN, EP, JP, KR, MX

   Device and Method for Enhancing Transdermal Agent Flux
10/881,440 ARC2600N1    Device and Method for Enhancing Transdermal Agent Flux

09/950,436 ARC2911

AU, BR, CA, CN, CZ, EP, IL, JP, KR, MA, MX, NO, NZ, RU, VN, ZA

   Methods for Inhibiting Decrease in Transdermal Drug Flux by Inhibition of Pathway Closure

09/976,798 ARC3043R1

AU, BR, CA, CN, CZ, EP, HK, HU, IL, IN, JP, KR, MA, MX, NO, NZ,

PL, RU, VN, ZA

   Apparatus and Method for Piercing Skin with Microprotrusions
11/092,800 ARC3043CIP    Apparatus and Method for Piercing Skin with Microprotrusions
11/092,202 ARC3043DIV1    Apparatus and Method for Piercing Skin with Microprotrusions

10/971,430 ALZ5070NP

IAR, MY, TH, TW, VE, AU, BR, CA, CN, EP, KR, JP, MX, SG

   Apparatus and Method for Enhancing Transdermal Drug Delivery

10/970,901 ALZ5071NP

AR, MY, TH, TW, VE, AU, BR, CA, CN, EP, KR, JP, MX, SG

   Pretreatment Method and System for Enhancing Transdermal Drug Delivery

11/084,636 ALZ5125NP

WO, AR, MY, TH, TW, VE

   Apparatus and Method for Transdermal Delivery of FentanylBased Agents

11/201,617 ALZ5150NP

WO, AR, MY, TH, TW, VE

   Microprojection Apparatus and System with Low Infection Potential

I 1/237,200 ALZ5156NP

WO, AR, MY, TH, TW, VE

   Method and Formulation for Stabilizing Alum-Adsorbed Vaccines

11/336,134 ALZ5169NP

WO, AR, MY, TH, TW, VE

   Therapeutic Peptide Formulations With Improved Stability

11/355,729 ALZ5174NP

WO, AR, MY, TH, TW, VE

   Microprojection Arrays with Improved Biocompatibilty

11/112,311 ALZ5134NP

WO, AR, MY, TH, TW, VE

   Method and formulation for Transdermal Delivery of Immunologically Active Agents

 

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Attachment 1.46 - Trademark

 

TRADEMARK

  

COUNTRY

  

FILING NO,

  

REGISTRATION NO.

MACROFLUX    ARGENTINA    2648182   
MACROFLUX    ARGENTINA    2648183   
MACROFLUX    ARGENTINA    2648184   
MACROFLUX    AUSTRALIA    1050824   
MACROFLUX    AUSTRALIA    1099430   
MACROFLUX    BENELUX    1102532    790811
MACROFLUX    BRAZIL    828132097   
MACROFLUX    BRAZIL    828132062   
MACROFLUX    BRAZIL    828132070   
MACROFLUX    BULGARIA    880221    880221
MACROFLUX    CANADA    875880   
MACROFLUX    EUROPEAN COMMUNITY (EUROPEAN UNION)    819730    819730
MACROFLUX    HONG KONG    300572751   
MACROFLUX    INDIA    1419150   
MACROFLUX    INDIA    1419151   
MACROFLUX    INDIA    1419152   
MACROFLUX    - ISRAEL    187772   
MACROFLUX    ISRAEL    187773   
MACROFLUX    ISRAEL    187774   
MACROFLUX    JAPAN    52553/98    4410279
MACROFLUX    KOREA (NORTH)    880221    880221
MACROFLUX    KOREA (SOUTH)    0450   
MACROFLUX    MALAYSIA    04863   
MACROFLUX    MALAYSIA    04864   
MACROFLUX    MALAYSIA    04865   
MACROFLUX    MEXICO    768540   
MACROFLUX    NEW ZEALAND    741896   
MACROFLUX    NORWAY    01277   
MACROFLUX    NORWAY    02451   
MACROFLUX    RUSSIAN FEDERATION (formerly USSR)    880221    880221
MACROFLUX    SINGAPORE    028591   
MACROFLUX    SINGAPORE    02858J    02858J

 

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MACROFLUX    SINGAPORE    02860B   
MACROFLUX    SOUTH AFRICA    02108   
MACROFLUX    SOUTH AFRICA    02109   
MACROFLUX    SOUTH AFRICA    02110   
MACROFLUX    SWITZERLAND    880221    880221
MACROFLUX    TAIWAN    5192   
MACROFLUX    TAIWAN    5193   
MACROFLUX    TAIWAN    5194   
MA CROFLUX    THAILAND    624920   
MACROFLUX    THAILAND    616583   
MACROFLUX    THAILAND    616584   
MACROFLUX    UNITED STATES OF AMERICA    76/232982    2872091
MACROFLUX    VENEZUELA    01523   
MACROFLUX    VENEZUELA    01522   
MACROFLUX    VENEZUELA    01524   
MACROFLUX    VIETNAM    01518   

www.macroflux.com and www.macroflux.info

 

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Attachment 2.1.4 — Non-Field Patents/Applications

 

[**]    [**]
[**]    [**]
[**]    [**]
[**]    [**]
[**]    [**]
[**]    [**]
[**]    [**]
[**]    [**]
[**]    [**]
[**]    [**]

 

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Attachment 3.3.1 — Existing Agreements

Service and Consulting Agreements

 

1. Service Agreement between ALZA Corporation and [**] regarding Contract #20060455, dated July 25, 2006

 

2. Service Agreement between ALZA Corporation and [**] regarding Contract #20060120, dated March 9, 2006

 

3. Service Agreement between ALZA Corporation and [**] regarding Contract #20050611, dated September 6, 2005

 

4. Service Agreement between ALZA Corporation and [**] regarding Contract #20060046 and Purchase Order #991532361, dated February 2, 2006

 

5. Service Agreement between ALZA Corporation and [**] regarding Contract #20060215 and Purchase Order #991595923, dated April 20, 2006

 

6. Service Agreement between ALZA Corporation and [**] regarding Contract #20060353, dated May 22, 2006.

 

7. Service Agreement between ALZA Corporation and [**] regarding Contract #20060192, dated April 21, 2006

 

8. Master Services Agreement between ALZA Corporation and [**] , regarding Contract #20060346, dated May 2, 2006; Clinical Agreement Request dated May 9, 2006; Work Order regarding Work Order #20060346-1, dated May 9, 2006

 

9. Service Agreement between ALZA Corporation and [**] regarding Contract #20050949 and Purchase Order #991520371, dated December 20, 2005

 

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Attachment 3.3.1 — Agreements Transferring to TMC

 

10. Service Agreement between ALZA Corporation and [**] regarding Contract #20060365, and Purchase Order #991618313, dated May 25, 2006

 

11. Consultant Agreement between ALZA Corporation and Lane, Nancy E., M.D. regarding Contract #20050556, dated August 25, 2005, as amended on August 24, 2006.

 

12. Consultant Agreement between ALZA Corporation and [**] regarding Contract #20060330 and Purchase Order #991622895, dated May 22, 2006

 

13. Service Agreement between ALZA Corporation and [**] regarding Contract #20060191, dated March 30, 2006

 

14. Service Agreement between ALZA Corporation and [**] regarding Contract #20060108, dated May 3, 2006

 

15. Service Agreement between ALZA Corporation and [**] regarding Contract #20060034, dated January 23, 2006

 

16. Service Agreement between ALZA Corporation and [**] regarding Contract #20050869, dated December 12, 2005, as amended on September 14, 2006

 

17. Service Agreement between ALZA Corporation and [**] regarding Contract #20060388 and Purchase Order #991638161, dated June 7, 2006

 

18. Service Agreement between ALZA Corporation and [**] regarding Contract #20050858 and Purchase Order #991489623, dated November 18, 2005, as amended on February 16, 2006

 

19. Service Agreement between ALZA Corporation and [**] regarding Contract #20060467, dated August 8, 2006

 

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Attachment 3.3.1 — Agreements Transferring to TMC

Secrecy/Confidentiality Agreements

 

1. Confidentiality Agreement between ALZA Corporation and ACE USA regarding Contract #20060382, dated June 12, 2006

 

2. Secrecy Agreement between ALZA Corporation and Alliance Capital Ventures regarding Contract #20060234, dated April 11, 2006

 

3. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060422, dated June 22, 2006

 

4. Secrecy Agreement between ALZA Corporation and Babington Consulting, LLC regarding Contract #20060538 dated September 6, 2006.

 

5. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20050444, dated August 1, 2005

 

6, Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060172, dated May 2, 2006

 

7. Secrecy Agreement between ALZA Corporation and Continental Casualty Company regarding Contract #20060381, dated June 19, 2006

 

8. Secrecy Agreement between ALZA Corporation and CRESA Partners, LLC regarding Contract #20060390, dated June 12, 2006

 

9. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060516, dated September 1, 2006.

 

10. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060077, dated February 14, 2006

 

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Attachment 3.3.1— Agreements Transferring to TMC

 

11. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060497, dated August 18, 2006

 

12. Secrecy Agreement between ALZA Corporation and Frazier Management LLC regarding Contract # 20060071, dated January 31, 2006

 

13. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20050960, dated March 10, 2006

 

14. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060479, dated August 9, 2006

 

15. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060424, dated June 22, 2006

 

16. Secrecy Agreement between ALZA Corporation and [**]regarding Contract #20060341, dated May 17, 2006

 

17. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060533, dated September 6, 2006.

 

18. Secrecy Agreement between ALZA Corporation and Kleiner Perkins Caufield & Byers regarding Contract #20060075, dated March 6, 2006

 

19. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060344, dated May 17, 2006

 

20. Secrecy Agreement between ALZA Corporation and Marsh Risk and Insurance, Inc. regarding Contract #20060354, dated May 22, 2006

 

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Attachment 3.3.1 — Agreements Transferring to TMC

 

21. Mutual Non-Disclosure Agreement between ALZA Corporation and [**], regarding Contract #20060379, dated September 16, 2004

 

22. Secrecy Agreement between ALZA Corporation and Mercer Health Resource Consulting , Inc. regarding Contract #20060235, dated April 12, 2006, as amended on May 9, 2006

 

23. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060039, dated February 10, 2006

 

24. Secrecy Agreement between ALZA Corporation and National Union Fire Insurance Company regarding Contract #20060425, dated June 21, 2006

 

25. Secrecy Agreement between ALZA Corporation and New Enterprise Associates regarding Contract #20060460, dated July 24, 2006

 

26. Secrecy Agreement between ALZA Corporation and Nomura Phase 4 Ventures LP regarding Contract #20060076, dated February 7, 2006

 

27. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060036, dated January 18, 2006

 

28. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060271, dated May 3, 2006

 

29, Secrecy Agreement between ALZA Corporation and OrbiMed Advisors, LLC regarding Contract #20060095, dated February 16, 2006

 

30. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060366, dated May 2006

 

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Attachment 3.3.1 — Agreements Transferring to TMC

 

31. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20040368, dated May 4, 2004

 

32. Secrecy Agreement between ALZA Corporation and [**] regarding Contract # 20050053, dated January 27, 2005

 

33. Secrecy Agreement between ALZA Corporation and Robust Network Solutions regarding Contract #20060378, dated June 6, 2006

 

34. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20060302, dated May 17, 2006

 

35. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20050929, dated January 9, 2006

 

36. Confidentiality Agreement between ALZA Corporation and St. Paul Travelers regarding Contract #20060395, dated June 7, 2006

 

37. Secrecy Agreement between ALZA Corporation and The Tech Group regarding Contract #20060423, dated June 22, 2006

 

38. Secrecy Agreement between ALZA Corporation and [**] regarding Contract #20050430, dated August 10, 2005

 

39. Secrecy Agreement between ALZA Corporation and Warburg Pincus, LLC regarding Contract #20060088, dated February 28, 2006

 

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Attachment 4.1 - GENERAL TRADEMARK ASSIGNMENT

WHEREAS, ALZA CORPORATION, a Delaware corporation, having its place of business at 1900 Charleston Road, Mountain View, California 94043 (hereinafter called “Assignor”), has established certain rights in various countries in and to the trademarks identified in the attached Exhibit A (together with any registrations and applications for registration therefor, hereinafter “Trademarks”); and

WHEREAS, THE MACROFLUX CORPORATION, a Delaware Corporation, (hereinafter called “Assignee”), desires to acquire all of Assignor’s right, title and interest in and to the Trademarks; and

NOW THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Assignor does hereby assign and transfer unto Assignee, and Assignee does hereby accept, all of Assignor’s rights, title and interest in and to the Trademarks in all countries where such rights exist together with the goodwill of the business symbolized by the Trademarks, Assignor undertakes within two years hereof to duly execute, or have duly executed by its subsidiaries, any further documents reasonably necessary to record the transfer of title effected hereby, as prepared by Assignee.

IN WITNESS WHEREOF, Assignor and Assignee have caused these presents to be executed by their duly authorized officers or agents on this             day of             , 2006.

 

ASSIGNOR: ALZA CORPORATION
BY:                                                                                            
TITLE:                                                                                     
NOTARIZATION

 

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ASSIGNEE:  THE MACROFLUX CORPORATION
BY:                                                                                                    
TITLE:                                                                                              
NOTARIZATION

 

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EXHIBIT A

 

Mark

   Class    Country    App./Reg. No.    App./Reg. Date

MACROFLUX

   05    ARGENTINA    2648182    May 17, 2006

MACROFLUX

   10    ARGENTINA    2648183    May 18, 2006

MACROFLUX

   42    ARGENTINA    2648184    May 19, 2006

MACROFLUX

   05,10,42    AUSTRALIA    1099430    February 16, 2006

MACROFLUX

   05,10    AUSTRALIA    1050824    February 16, 2006

MACROFLUX

   05    BRAZIL    828132097    February 07, 2006

MACROFLUX

   10    BRAZIL    828132070    February 07, 2006

MACROFLUX

   42    BRAZIL    828132062    February 07, 2006

MACROFLUX

      CANADA    875880    April 22, 1998

MACROFLUX

   05,10,42    E.U.    819730    April 19, 2006

MACROFLUX

   05,10,42    HONG KONG    300572751    January 26, 2006

MACROFLUX

   05    INDIA    1419150    February 06, 2006

MACROFLUX

   42    INDIA    1419152    February 06, 2006

MACROFLUX

   10    INDIA    1419151    February 06, 2006

MACROFLUX

   05    ISRAEL    187772    February 22, 2006

MACROFLUX

   10    ISRAEL    187773    February 22, 2006

MACROFLUX

   42    ISRAEL    187774    February 22, 2006

MACROFLUX

   05,10,42    JAPAN    4410279    August 01, 2000

MACROFLUX

   05,10,42    S. KOREA    0450    February 08, 2006

MACROFLUX

   05    MALAYSIA    04863    March 28, 2006

MACROFLUX

   42    MALAYSIA    04865    March 28, 2006

MACROFLUX

   10    MALAYSIA    04864    March 28, 2006

 

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MACROFLUX

   42    MEXICO    924368    February 28, 2006

MACROFLUX

   05,10,42    NEW ZEALAND    741896    January 25, 2006

MACROFLUX

   05,10,42    NORWAY    01277    February 7, 2006

MACROFLUX

   05,10,42    NORWAY    02451    March 9, 2006

MACROFLUX

   05    SINGAPORE    02858J    February 14, 2006

MACROFLUX

   10    SINGAPORE    028591    February 14, 2006

MACROFLUX

   42    SINGAPORE    02860B    February 14, 2006

MACROFLUX

   05    SOUTH AFRICA    02108    February 01, 2006

MACROFLUX

   10    SOUTH AFRICA    02109    February 01, 2006

MACROFLUX

   42    SOUTH AFRICA    02110    February 01, 2006

MACROFLUX

   05    TAIWAN    5192    February 03, 2006

MACROFLUX

   10    TAIWAN    5193    February 03, 2006

MACROFLUX

   42    TAIWAN    5194    February 03, 2006

MACROFLUX

   05    THAILAND    624920    March 28, 2006

MACROFLUX

   10    THAILAND    616583    January 31, 2006

MACROFLUX

   42    THAILAND    616584    January 31, 2006

MACROFLUX

   05,10    U.S.    2872091    August 10, 2004

MACROFLUX

   05    VENEZUELA    01523    January 30, 2006

MACROFLUX

   10    VENEZUELA    01524    January 30, 2006

MACROFLUX

   42    VENEZUELA    01522    January 30, 2006

MACROFLUX

   05,10,42    VIETNAM    01518    February 06, 2006

 

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TRADEMARK ASSIGNMENT

WHEREAS, JANSSEN PHARMACEUTICA N.V., a Belgium corporation, having its place of business at Turnhoutseweg 30 B-2340 Beerse, Belgium (hereinafter called “Assignor”), has established certain rights in various countries in and to the trademarks identified in the attached Exhibit A (together with any registrations and applications for registration therefor, hereinafter “Trademarks”); and

WHEREAS, THE MACROFLUX CORPORATION , a Delaware Corporation, (hereinafter called “Assignee”), desires to acquire all of Assignor’s right, title and interest in and to the Trademarks; and

NOW THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Assignor does hereby assign and transfer unto Assignee, and Assignee does hereby accept, all of Assignor’s rights, title and interest in and to the Trademarks in all countries where such rights exist together with the goodwill of the business symbolized by the Trademarks. Assignor undertakes within two years hereof to duly execute, or have duly executed by its subsidiaries, any further documents reasonably necessary to record the transfer of title effected hereby, as prepared by Assignee.

IN WITNESS WHEREOF, Assignor and Assignee have caused these presents to be executed by their duly authorized officers or agents on this              day of                     , 2006.

 

ASSIGNOR:  JANSSEN PHARMACEUTICA N.V.
BY:                                                                                                 
TITLE:                                                                                           
NOTARIZATION:

 

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ASSIGNEE:  THE MACROFLUX CORPORATION
BY:                                                                                                    
TITLE:                                                                                              
NOTARIZATION:

 

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EXHIBIT A

 

Mark

  

Class

  

Country

  

App./Reg. No.

  

App./Reg. Date

MACROFLUX

   05, 10, 42    BENELUX    1102532   

February 1,

2006

MACROFLUX

   05, 10, 42    INTERNATIONAL    880221    March 1, 2006
      REGISTRATION      
      (Valid in Bulgaria,
N. Korea, Russia,
Switzerland)
     

 

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Attachment 4.5 - Trademark Assignment Form

THIS TRADEMARK ASSIGNMENT (the “Assignment”) is made and entered into as of this              day of                      , 2006 and is made effective as of                      , 2006 (“Effective Date”, from ASSIGNOR NAME AND ADDRESS (“Assignor”) to ASSIGNEE NAME AND ADDRESS (“Assignee”).

WHEREAS, Assignor is the sole and exclusive owner of the entire right, title and interest in, to and under the trademarks and the trademark registration set forth on the Exhibit A (collectively, the “Trademark”), and the goodwill of the business associated therewith;

WHEREAS, Assignee wishes to acquire and Assignor wishes to assign all right, title and interest in and to the Trademark, together with the goodwill of the business in connection with which the Trademark is used;

NOW, THEREFORE, for the good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the Assignor hereby sells, assigns and transfers to Assignee, all of the Assignor’s right, title and interest in and to said Trademark, together with the good will of the business symbolized by said Trademark, and the Assignor’s entire right, title and interest in and to any and all claims and demands it may have, at law or in equity, for past infringement of Trademark.

 

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IN WITNESS WHEREOF, the Assignor and Assignee have caused this Assignment of Trademarks to be executed and sealed by their respective duly authorized officers as of the dates noted below.

 

ASSIGNOR
By:  

 

Name:  

 

Title:  

 

Date:  

 

ASSIGNEE
By:  

 

Name:  

 

Title:  

 

Date:  

 

 

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EXHIBIT A — TRADEMARKS

 

Title

   Issue Date    Registration
No.
     

 

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Attachment 10.1 - Key Terms for a

Product Development and Commercialization Agreement

Macroflux ® Nesiritide

 

Parties:    ALZA Corporation or its affiliated company designated by ALZA (“ALZA”) and NewCo (“NewCo”).
Agreement:                                                             A Product Development and Commercialization Agreement (the “Agreement”) incorporating the terms and conditions set forth herein, and other terms and conditions as the parties may agree, governing the development and commercialization of a Macroflux ® nesiritide product.
Drug:    Nesiritide, or any analog or derivative thereof, in its pure form or in the formulation(s) provided to NewCo by ALZA.
System:    NewCo’s proprietary system for the passive, diffusion-mediated delivery of therapeutic or prophylactic agents into or through the skin from a microprojection array having a plurality of microprojections which pierce at least through the outmost layer (i.e., the stratum corneum layer) of the skin (a “Microprojection System”), which array is coated with such therapeutic or prophylactic agents; or (b) NewCo’s proprietary system for diffusion-mediated delivery of therapeutic or prophylactic agents into or through the skin by way of pathways formed by a Microprojection System.
Product:    A product combining the Drug with the System developed by NewCo pursuant to the Agreement.
License Grant:    NewCo would grant ALZA an exclusive license under any and all intellectual property, patents, trade secrets and know-how now or hereafter owned or controlled by NewCo which are reasonably necessary or useful to make, have made, use, import, offer for sale and sell the Product, solely for purposes of making, having made, using (including performing development work), importing, offering for sale and selling the Product in the Territory during the term of, and in accordance with, the Agreement.
Territory:    Worldwide.

 

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Product Development:

NewCo would undertake the technical development of the Product in accordance with work plans and cost estimates prepared by NewCo and pre-approved by ALZA. ALZA would supply Drug to NewCo at no cost, and would reimburse NewCo on a monthly basis for its internal development costs at the NewCo FTE Rate plus [**] of any out-of-pocket costs incurred by NewCo in connection with such development activities.

 

  “NewCo FTE Rate” would mean an annual FTE rate of [**] (which would be adjusted on an annual basis in accordance with the U.S. Department of Labor, Bureau of Labor Statistics Consumer Price Index-Urban Wage Earners and Clerical Workers for the San Francisco-Oakland-San Jose, CA metropolitan area).

 

  ALZA would be responsible for clinical development and regulatory activities for the Product in the Territory, and would bear related expenses. ALZA would use commercially reasonable efforts to perform the Product development activities consistent with the efforts ALZA devotes to products of similar market potential and in similar product lifecycle positions and based on conditions then prevailing with respect to the applicable Product and the relevant markets.

Commercialization

Rights and Term:

ALZA would be granted the exclusive right (including the right to sublicense such right to a third party) to market the Product in the Territory. Upon receipt of regulatory approvals, ALZA would use commercially reasonable efforts (consistent with the efforts ALZA devotes to products of similar market potential and in similar product lifecycle positions and based on conditions then prevailing with respect to the applicable Product and the relevant markets) to commence and continue diligent commercialization of the Product during the term of the Agreement. The term of the Agreement would be for the commercial life of the Product.

 

Exclusivity:

During the term of the Agreement, NewCo would not conduct (itself or with a third party) any material development or commercialization activities with respect to any product (other than the Product) incorporating a natriuretic peptide, stresscopin, urocortin, or any analog or derivative of a natriuretic peptide, stresscopin, or urocortin, into any System.

 

Upfront Payment:

None.

 

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Milestone Payments:

ALZA would pay NewCo the following one-time Milestone Payments within forty five (45) days of each noted occurrence:

 

  [**]

 

* “Net Sales” would mean the total amount billed or invoiced in United States dollars (or converted thereto in accordance with the Agreement) on sales of the Product by ALZA, its affiliates or sublicensees to independent, unrelated third parties (other than sublicensees) such as wholesalers in bona fide arm’s length transactions, less the following deductions, in each case related specifically to the Product and actually allowed and taken by such third parties or accrued in accordance with generally accepted accounting principles as consistently applied across ALZA’s and its

 

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Product Payments:

ALZA would make quarterly payments (“Product Payments”) to NewCo within 45 days after the end of each calendar quarter, until, on a country-by-country basis, the date of expiry of the last to expire of patents owned or licensed by NewCo having a valid claim covering the Product in such country, at which point ALZA would have a fully paid-up license in such country. Product Payments would be determined by multiplying the aggregate worldwide Net Sales of the Product during each calendar year by the applicable percentage rates, determined based on the cumulative, aggregate worldwide Net Sales of the Product for the then current calendar year as follows:

 

For cumulative, aggregate

worldwide Net Sales of the

Product in the then current

calendar year within the

respective intervals below

($U.S. Million):

   The Product Payment Rate as a
percentage of worldwide,
aggregate Net Sales within
such intervals during the then
current calendar year would
be:
 

[**]

     [ **] 

[**]

     [ **] 

[**]

     [ **] 

 

  The total Product Payment for each calendar quarter would be the sum of the amounts calculated in each interval set forth above. For example, if in the first quarter in a calendar year, aggregate worldwide Net Sales were [**], the Product Payment percentage rate for such quarter would be [**], resulting in a quarterly Product Payment of [**]. If in the second quarter of such calendar year,

affiliates’ products (as adjusted from time to time to reflect amounts actually incurred) and not otherwise recovered by or reimbursed to ALZA: [**] In the case of any sale or other disposal for value, such as barter or counter-trade, of any Product other than in an arm’s length transaction exclusively for money, Net Sales would be calculated as above on a fair market price of the Product in the country of sale or disposal. For clarity, Net Sales would not include the value of Product provided by ALZA for clinical trials, or donations.

 

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  aggregate worldwide Net Sales were [**], the Product Payment percentage rates for such quarter would be as follows: [**] for [**] of such Net Sales, and [**] for [**] of such Net Sales, resulting in a quarterly Product Payment of [**]. If in the third quarter of such calendar year, aggregate worldwide Net Sales were [**], the Product Payment percentage rates for such quarter would be as follows: [**] for [**] of such Net Sales, and [**] for [**] of such Net Sales, resulting in a quarterly Product Payment of [**].

 

  Net Sales of the Product would be excluded from the aggregate worldwide net sales of products used to calculate the product payments paid to ALZA by NewCo under the terms of the Macroflux ® technology licensing agreement.

 

Manufacture and Supply:

NewCo would use commercially reasonable efforts to manufacture ALZA’s requirements of the Product through completion of Phase II clinical studies. ALZA would supply Drug to NewCo at no cost, and would reimburse NewCo on a monthly basis for NewCo’s costs associated with manufacture of ALZA’s Preclinical, and Phase I and Phase II clinical requirements of the Product with such costs calculated as the sum of the NewCo FTE Rate plus [**] of any out-of-pocket costs plus [**] of the cost of any new capital assets acquired by NewCo specifically for, and exclusively dedicated to the manufacture of Product (collectively, the “Manufacturing Costs”). Any capital assets (i) acquired by NewCo specifically for, and exclusively dedicated to the manufacture of Product, and (ii) for which ALZA had reimbursed NewCo would be owned by ALZA.

 

  At ALZA’s request, NewCo also would be responsible for manufacturing ALZA’s Phase III clinical requirements of the Product, provided that such manufacturing could be accomplished using NewCo’s existing manufacturing facilities and without compromising NewCo’s ability to manufacture its existing requirements of its own products or to satisfy its prior manufacturing obligations to third parties (if any). ALZA would supply Drug to NewCo at no cost, and would reimburse NewCo on a monthly basis for its Manufacturing Costs associated with manufacture of ALZA’s Phase III clinical requirements of the Product. In the event that manufacture of ALZA’s Phase III clinical requirements of Product could not be accomplished using NewCo’s existing manufacturing facilities, the parties would discuss in good faith commercially reasonable alternative

 

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arrangements for manufacturing the Product including the following options:

 

  (A) NewCo would be responsible for development and scale-up of manufacturing processes for the Product and would transfer to a third party contract manufacturing organization (“CMO”) selected by ALZA and reasonably acceptable to NewCo, such manufacturing technology and know-how as would be necessary or reasonably useful to enable such CMO to manufacture ALZA’s Phase III clinical requirements and commercial requirements of the Product. ALZA would be responsible for all costs associated with the manufacture of its Phase III clinical requirements of the Product and its commercial requirements of the Product by such CMO and would reimburse NewCo for all internal costs incurred by NewCo in connection with the transfer of manufacturing technology and know-how to such CMO at the NewCo FTE Rate plus [**] of any out-of-pocket costs incurred by NewCo in connection with such activities; and,

 

  (B) ALZA would provide capital and infrastructure investments required for any necessary incremental expansion of NewCo’s existing Phase III and/or commercial-scale manufacturing facilities, and NewCo would be responsible for manufacturing ALZA’s Phase III clinical and/or commercial requirements of the Product. ALZA would supply Drug to NewCo at no cost, and would reimburse NewCo on a monthly basis for its Manufacturing Costs associated with manufacture of Phase III clinical requirements of the Product. The parties would negotiate in good faith commercially reasonable terms for the manufacture and supply of ALZA’s commercial requirements of the Product. Until the parties agreed upon fixed supply prices (which would be negotiated promptly after the manufacture and acceptance of three ICH batches of the Product, and which would include annual price increases in accordance with the U.S. Producers’ Price Index), the supply price would be [**] of NewCo’s fully allocated manufacturing cost. ALZA would supply Drug to NewCo at no cost.

Proprietary

Rights:

Inventions arising out of the Agreement would be the property of ALZA if and to the extent related to the Drug itself, or the manufacture

 

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  or use thereof (including the use of the Drug with the System). All other inventions arising out of the Agreement would be the property of NewCo, including those related to the System, or the manufacture or use thereof without the Drug (including the use of the System with drugs other than the Drug).

 

Indemnification:

ALZA would indemnify NewCo for claims arising from the manufacture, use or sale of the Product, except to the extent due to NewCo’s negligence or intentional misconduct. NewCo would warrant that, at the time of shipment, Product manufactured by NewCo would meet the then agreed-upon specifications, would be manufactured in accordance with cGMP, and would not be adulterated or misbranded due to any action, or failure to act, of NewCo. NewCo would indemnify ALZA for breach of this warranty; provided, however, that NewCo would not be liable for (i) misbranding with respect to any Product labeling or package insert text provided or used by ALZA or its Affiliates, subcontractors or agents, or any translation thereof; or (ii) any adulteration, misbranding, failure to meet agreed-upon specifications or GMP violation due to handling or packaging of the Product by ALZA or its Affiliates, subcontractors or agents. NewCo’s warranty would not apply to or cover any Product that had not been stored under the required conditions after leaving NewCo or to any product handling by anyone other than NewCo, or any adulteration occurring after the Product leaves NewCo.

 

Termination:

ALZA would be able to terminate the Agreement at any time upon 90 days’ written notice to NewCo. NewCo would be able to terminate the Agreement on 30 days’ written notice to ALZA for ALZA’s material breach of the Agreement. If NewCo notified ALZA that it was terminating the Agreement due to breach, ALZA would have the rights to cure the breach or, if such breach could not be cured within such notification period, such additional reasonable amount of time, prior to the termination becoming effective.

THIS DOCUMENT OUTLINES THE GENERAL BUSINESS TERMS FOR THE AGREEMENT. OTHER TERMS AND CONDITIONS WOULD APPLY. ALL TERMS ARE SUBJECT TO APPROVAL BY ALZA AND JOHNSON & JOHNSON MANAGEMENT, AND NEGOTIATION AND EXECUTION OF A DEFINITIVE AGREEMENT.

 

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Attachment 16.3.4-

Disclosures

 

1. Interactions and communications relating to the Interim Development Agreement between ALZA Corporation and [**] and its affiliates [**] and [**] regarding Contract [**] , and any research and development conducted pursuant to such agreement.

 

2. Interactions and communications relating to the Material Evaluation Agreement between ALZA Corporation and [**] dated [**], and any research and development conducted pursuant to such Agreement.

 

3. Interactions and communications relating to the opposition filed by [**] in connection with [**].

 

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Attachment 17.2 - Arbitration Proceedings

(a) Any dispute, claim or controversy arising from or related in any way to this Agreement or the interpretation, application, breach, termination or validity thereof, including any claim of inducement of this Agreement by fraud or otherwise, will be submitted for resolution to arbitration pursuant to the rules then pertaining of the CPR Institute for Dispute Resolution for Non-Administered Arbitration (available at www.cpradr.org/arb-rules.htm), or successor (“CPR”), except where those rules conflict with these provisions, in which case these provisions control. The arbitration will be held in Los Angeles, California.

(b) The panel will consist of three arbitrators chosen from the CPR Panels of Distinguished Neutrals (or, by agreement, from another provider of arbitrators) each of whom is a lawyer with at least 15 years experience with a law firm or corporate law department of over 25 lawyers or who was a judge of a court of general jurisdiction. In the event the aggregate damages sought by the claimant are stated to be less than $5 million, and the aggregate damages sought by the counter claimant are stated to be less than $5 million, and neither side seeks equitable relief, then a single arbitrator will be chosen, having the same qualifications and experience specified above. Each arbitrator will be neutral, independent, disinterested, impartial and will abide by The CPR-Georgetown Commission Proposed Model Rule for the Lawyer as Neutral available at www.cpradr.org/cpr-george.html .

(c) The parties agree to cooperate (1) to attempt to select the arbitrator(s) by agreement within 45 days of initiation of the arbitration, including jointly interviewing the final candidates, (2) to meet with the arbitrator(s) within 45 days of selection and (3) to agree at that meeting or before upon procedures for discovery and as to the conduct of the hearing which will result in the hearing being concluded within no more than nine (9) months after selection of the arbitrator(s) and in the award being rendered within 60 days of the conclusion of the hearings, or of any post hearing briefing, which briefing will be completed by both sides within 45 days after the conclusion of the hearings.

(d) In the event the parties cannot agree upon selection of the arbitrator(s), the CPR will select arbitrator(s) as follows: CPR will provide the parties with a list of no less than 25 proposed arbitrators (15 if a single arbitrator is to be selected) having the credentials referenced above. Within 25 days of receiving such list, the parties will rank at least 65% of the proposed arbitrators on the initial CPR list, after exercising cause challenges. The parties may then interview the five candidates (three if a single arbitrator is to be selected) with the highest combined rankings for no more than one

 

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hour each and, following the interviews, may exercise one peremptory challenge each. The panel will consist of the remaining three candidates (or one, if one arbitrator is to be selected) with the highest combined rankings. In the event these procedures fail to result in selection of the required number of arbitrators, CPR will select the appropriate number of arbitrators from among the members of the various CPR Panels of Distinguished Neutrals, allowing each side challenges for cause and three peremptory challenges each. In the event the dispute, claim or controversy relates to the validity or infringement of the Licensed Patents, Future ALZA Patents and TMC Patents, the arbitrator will be registered before the United States Patent and Trademark Office and have experience in patent litigation.

(e) In the event the parties cannot agree upon procedures for discovery and conduct of the hearing meeting the schedule set forth in paragraph c above, then the arbitrator(s) will set dates for the hearing, any post hearing briefing, and the issuance of the award in accord with the paragraph c schedule. The arbitrator(s) will provide for discovery according to those time limits, giving recognition to the understanding of the parties that they contemplate reasonable discovery, including document demands and depositions, but that such discovery be limited so that the paragraph c schedule may be met without difficulty. In no event will the arbitrator(s), absent agreement of the parties, allow more than a total of ten days for the hearing or permit either side to obtain more than a total of 40 hours of deposition testimony from all witnesses, including both fact and expert witnesses, or serve more than 20 individual requests for documents, including subparts, or 20 individual requests for admission or interrogatories, including subparts. Multiple hearing days will be scheduled consecutively to the greatest extent possible.

(f) The arbitrator(s) must render their award by application of the substantive law of Pennsylvania and are not free to apply “amiable compositeur” or “natural justice and equity.” The arbitrator(s) will render a written opinion setting forth findings of fact and conclusions of law with the reasons therefor stated. A transcript of the evidence adduced at the hearing will be made and will, upon request, be made available to either party. The arbitrator(s) will have power to exclude evidence on grounds of hearsay, prejudice beyond its probative value, redundancy, or irrelevance and no award will be overturned by reason of such ruling on evidence. To the extent possible, the arbitration hearings and award will be maintained in confidence.

(g) In the event the panel’s award exceeds $5 million in monetary damages or includes or consists of equitable relief, or rejects a claim in excess of that amount or for that relief, then the losing party may obtain review of the arbitrators’ award or decision by a single appellate arbitrator (the “Appeal Arbitrator”) selected from the CPR Panels of Distinguished Neutrals by agreement or,

 

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failing agreement within seven working days, pursuant to the selection procedures specified in paragraph d above. If CPR cannot provide such services, the parties will together select another provider of arbitration services that can. No Appeal Arbitrator will be selected unless he or she can commit to rendering a decision within forty five days following oral argument as provided in this paragraph. Any such review must be initiated within thirty (30) days following the rendering of the award referenced in f above.

(h) The Appeal Arbitrator will make the same review of the arbitration panel’s ruling and its bases that the U.S. Court of Appeals of the Circuit where the arbitration hearings are held would make of findings of fact and conclusions of law rendered by a district court after a bench trial and then modify, vacate or affirm the arbitration panel’s award or decision accordingly, or remand to the panel for further proceedings. The Appeal Arbitrator will consider only the arbitration panel’s findings of fact and conclusions of law, pertinent portions of the hearing transcript and evidentiary record as submitted by the parties, opening and reply briefs of the party pursuing the review, and the answering brief of the opposing party, plus a total of no more than four (4) hours of oral argument evenly divided between the parties. The party seeking review must submit its opening brief and any reply brief within seventy five (75) and one hundred thirty (130) days, respectively, following the date of the award under review, whereas the opposing party must submit its responsive brief within one hundred ten (110) days of that date. Oral argument will take place within five (5) months after the date of the award under review, and the Appeal Arbitrator will render a decision within forty five (45) days following oral argument. That decision will be final and not subject to further review, except pursuant to the Federal Arbitration Act.

(i) The parties consent to the jurisdiction of the Federal District Court for the district in which the arbitration is held for the enforcement of these provisions and the entry of judgment on any award rendered hereunder (including after review by the Appeal Arbitrator where such an appeal is pursued). Should such court for any reason lack jurisdiction, any court with jurisdiction will act in the same fashion.

(j) Each party has the right before or, if the arbitrator(s) cannot hear the matter within an acceptable period, during the arbitration to seek and obtain from the appropriate court provisional remedies such as attachment, preliminary injunction, replevin, etc. to avoid irreparable harm, maintain the status quo, or preserve the subject matter of the arbitration.

(k) EACH PARTY HERETO WAIVES ITS RIGHT TO TRIAL OF ANY ISSUE BY JURY.

 

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(1) EACH PARTY HERETO WAIVES ANY CLAIM TO PUNITIVE, EXEMPLARY OR MULTIPLIED DAMAGES FROM THE OTHER.

(m) EACH PARTY HERETO WAIVES ANY CLAIM OF CONSEQUENTIAL DAMAGES FROM THE OTHER.

(n) EACH PARTY HERETO WAIVES ANY CLAIM FOR ATTORNEYS’ FEES AND COSTS AND PREJUDGMENT INTEREST FROM THE OTHER.

13.2 Mediation.

(a) Any dispute, controversy or claim arising out of or related to this agreement, or the interpretation, application, breach, termination or validity thereof, including any claim of inducement by fraud or otherwise, which claim would, but for this provision, be submitted to arbitration will, before submission to arbitration, first be mediated through non binding mediation in accordance with The CPR Mediation Procedure then in effect of the CPR Institute for Dispute Resolution (CPR) available at www.cpradr.org/m_proced.htm, except where that procedure conflicts with these provisions, in which case these provisions control. The mediation will be conducted in Philadelphia, Pennsylvania and will be attended by a senior executive with authority to resolve the dispute from each of the operating companies that are parties.

(b) The mediator will be neutral, independent, disinterested and will be selected from a professional mediation firm such as ADR Associates or JAMS/ENDISPUTE or CPR.

(c) The parties will promptly confer in an effort to select a mediator by agreement. In the absence of such an agreement within 10 days of initiation of the mediation, the mediator will be selected by CPR as follows: CPR will provide the parties with a list of at least 15 names from the CPR Panels of Distinguished Neutrals. Each party will exercise challenges for cause, two peremptory challenges, and rank the remaining candidates within 5 working days of receiving the CPR list. The parties may together interview the three top ranked candidates for no more than one hour each and, after the interviews, may each exercise one peremptory challenge. The mediator will be the remaining candidate with the highest aggregate ranking.

(d) The mediator will confer with the parties to design procedures to conclude the mediation within no more than 45 days after initiation. Under no circumstances may the commencement of arbitration above be delayed more than 45 days by the mediation process specified herein absent contrary agreement of the parties.

(e) Each party agrees not to use the period or pendency of the mediation to disadvantage the other party procedurally or otherwise. No statements made by either side during the mediation may be used by the other or referred to during any subsequent proceedings.

 

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(f) Each party has the right to pursue provisional relief from any court, such as attachment, preliminary injunction, replevin, etc., to avoid irreparable harm, maintain the status quo, or preserve the subject matter of the arbitration, even though mediation has not been commenced or completed.

 

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Exhibit 10.5

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED SOLD, RESOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. HOLDERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

SECURED PROMISSORY NOTE

April 26, 2012

Fremont, California

For value received, ZP Holdings, Inc., a Delaware corporation (the “ Company ”), promises to pay to BioMed Realty Holdings, Inc., a Maryland corporation (“ Holder ”), the principal amount of Eight Million Five Hundred Fifty Six Thousand Five Hundred Thirty Three dollars ($8,556,533) (the “ Principal Amount ”). Interest shall accrue, compounded annually, at a rate equal to eight percent (8%) per annum (the “ Interest Rate ”) beginning on the date hereof for the Principal Amount. The Interest Rate shall be computed on the basis of the actual number of days elapsed and a year of 365 days.

References are made to (i) that certain Lease, dated as of May 1, 2007 (as amended, the “ Lease ”), by and between Zosano Pharma, Inc., a Delaware corporation (“ Zosano ”), and BMR-34790 Ardentech Court LP (“ Landlord ”), a wholly owned subsidiary of BioMed Realty, L.P. (“ BioMed ”), as amended by that certain First Amendment to Lease dated as of June 20, 2008, that certain Second Amendment to Lease dated as of October 16, 2008, that certain Third Amendment to Lease dated as of April 29, 2011, that certain Fourth Amendment to Lease dated as of July 31, 2011, and that certain Fifth Amendment to Lease dated as of the date hereof (the “ Fifth Amendment ”), and (ii) that certain Stock Purchase and Loan Restructuring Agreement by and between the Company, Holder, BioMed and Zosano dated as of the date hereof (the “ Stock Purchase Agreement ”). This Note is subject to the following terms and conditions.

DEFINITIONS

For purposes of this Note, the following definitions shall apply.

Affiliate ” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under


common control with such Person, and each of such person’s or entity’s senior executive officers and directors.

Bank ” means Silicon Valley Bank.

Contingent Obligations ” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to: (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit or any obligations in excess of $250,000 with respect to corporate credit cards, or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

Distribution ” means any dividend paid or distribution made by the Company on any shares of capital stock of the Company, including but not limited to any cash distribution, stock distribution, in kind distribution or similar transaction.

GAAP ” means generally accepted accounting principles in effect in the United States.

Governmental Authority ” means any federal, state, provincial, municipal and foreign governmental entity, authority, or agency or any other political subdivision, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of government.

Indebtedness ” means (i) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (ii) all obligations evidenced by notes, bonds, debentures or similar instruments (including this Note); (iii) all capital lease obligations; and (iv) all Contingent Obligations.

Intellectual Property ” means all of the Company’s right, title, and interest in and to the following: (a) copyrights, trademarks and patents of the Company or any Subsidiary; (b) any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created,

 

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acquired or held; (c) any and all design rights which may be available to Company now or hereafter existing, created, acquired or held; (d) any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above; (e) all licenses or other rights to use any of the copyrights, patents or trademarks of the Company or any Subsidiary, and all license fees and royalties arising from such use to the extent permitted by such license or rights; (f) all amendments, renewals and extensions of any of the copyrights, trademarks or patents of the Company or any Subsidiary; and (g) all proceeds and products of the foregoing, including without limitation, all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.

Legal Requirement ” means any statute, ordinance, code, law, rule, regulation, order or other requirement, standard, procedure enacted, adopted or applied by any Governmental Authority, including, decisions, orders, writs, awards, or injunctions of an arbitrator or a court or other Governmental Authority.

Lien ” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

Material Adverse Effect ” means a material adverse effect on: (i) the business operations, assets or condition (financial or otherwise) of the Company, (ii) the ability of Company to repay the Obligations or otherwise perform its obligations under the Note, the Security Agreement or the IP Security Agreement delivered in connection herewith or of Holder to enforce any such obligations, or (iii) the perfection or priority of Holder’s security interest in the Collateral; except to the extent that such effect arises out of or is attributable to any of the following, either alone or in combination: (A) the markets in which the Company and its subsidiaries operate generally, except to the extent any such condition has a disproportionate effect on the Company and its subsidiaries taken as a whole, relative to other persons principally engaged in the same industry, (B) general economic or political conditions (including those affecting the securities or commodities markets), except to the extent any such condition has a disproportionate effect on the Company and its subsidiaries taken as a whole, relative to other persons principally engaged in the same industry, or (C) acts of war (whether or not declared), sabotage or terrorism, military actions or the escalation thereof or other force majeure events occurring after the date of this Note.

Partial Sale ” means a transaction or series of related transactions (excluding any transactions permitted by clauses (i) through (iv) of Section 6.3(f) hereof) affecting the exclusive license or sale of assets of the Company other than in the ordinary course of business that does not otherwise constitute a Sale.

Permitted Indebtedness ” means: (a) Indebtedness of the Company in favor of Holder pursuant to this Note; (b) Indebtedness not to exceed $1,000,000 in the aggregate in any fiscal year of the Company secured by a lien described in clause (c) of the defined term “Permitted Liens;” provided such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment and related software financed with such

 

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Indebtedness; (c) Subordinated Debt; (d) Indebtedness to trade creditors incurred in the ordinary course of business; and (e) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (d) above, provided that: (i) the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon the Company or its Subsidiary, as the case may be, (ii) the interest rate margins or any fixed interest rates on such Indebtedness are not increased, (iii) restrictions are not added on the ability of Company to repay the Obligations, other than those in effect on the date hereof, or (iv) the final maturity date of the Indebtedness is not extended to a date beyond the Maturity Date.

Permitted Investments ” means: (a) (i) marketable direct obligations issued or unconditionally guaranteed by the United States or its agency or any State maturing within one year from its acquisition, (ii) commercial paper maturing no more than one year after its creation and having the highest rating from either Standard & Poor’s Corporation or Moody’s Investors Service, Inc., (iii) certificates of deposit issued maturing no more than one year after issue, and (iv) investments made pursuant to the Company’s investment policy approved by its Board of Directors or officers and disclosed to Holder; (b) the Company’s current ownership of units or shares in its existing Subsidiaries; (c) transfers by the Company to any of its wholly-owned Subsidiaries of the proceeds of any equity or debt financing of the Company; (d) cash investments of Company or wholly-owned Subsidiaries in or to other wholly-owned Subsidiaries of the Company, in each instance where the cash portion of which is not to exceed $1,000,000 in the aggregate in any fiscal year; provided that payments of such amount will not cause an Event of Default or the occurrence of an event that, with the passage of any notice and cure period, would constitute an Event of Default; and (e) investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business.

Permitted Liens ” means: (a) any Liens arising under this Note; (b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Company maintains adequate reserves; (c) purchase money liens: (i) on equipment and software acquired or held by Company incurred for financing the acquisition of the equipment and software; or (ii) existing on equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the equipment and software; (d) leases or subleases and licenses or sublicenses granted in the ordinary course of Company’s business; (e) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default; (f) Liens in favor of financial institutions arising in connection with Company’s deposit accounts held at such institutions to secure standard fees for deposit services charged by, but not financing made available by such institutions, provided that Holder has a perfected security interest in the amounts held in such deposit accounts; (g) Liens securing Indebtedness in item (b) of Permitted Indebtedness and extensions, refinancings, modifications, amendments and restatements thereof; (h) Liens of landlords and liens of carriers, warehousemen, mechanics, materialmen and other similar liens incurred in the ordinary course of business for sums not overdue; and (i) Liens (other than any lien created by Section 4068 of ERISA and

 

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securing an obligation of any employer or employers which is delinquent) incurred or deposits or pledges made in the ordinary course of business in connection with worker’s compensation, unemployment insurance and other types of social security, or to secure the performance of bids, leases, customs, tenders, statutory obligations, surety and appeal bonds, payment and performance bonds, return-of-money bonds and other similar obligations (not incurred in connection with the borrowing of money or the obtaining of advances or credits to finance the purchase price of property).

Person ” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.

Sale ” means (i) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation), other than a transaction or series of transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction continue to retain at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such transaction or series of transactions; or (ii) the exclusive license or sale of all or substantially all of the assets of the Company.

Subordinated Debt ” means any Indebtedness incurred by Company that is subordinated in writing to the debt owing by Company to Holder on terms acceptable to Holder.

Subsidiaries ” shall mean for any Person, a joint venture, or any other business entity of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by the Company or any Subsidiary of the Company.

TERMS AND CONDITIONS

1 Maturity . The unpaid balance of the Principal Amount and any accrued but unpaid interest under this Note shall be due and payable on the earliest of (i) April 26, 2016, (ii) the closing of a Sale or (iii) the date that any Distribution is made (the earliest of the dates in subsections (i) – (iii), the “ Maturity Date ”).

2 Payment .

2.1 Payment on Maturity Date . The unpaid balance of the Principal Amount and any accrued but unpaid interest under this Note shall be due and payable on the Maturity Date. Payment shall be credited first to costs of collection or enforcement, if any, then to accrued interest due and payable through such payment date, and the remainder applied to the Principal Amount.

2.2 Optional Prepayment . The Company may prepay this Note, in whole or in part, at any time, and from time to time, without penalty or premium.

 

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2.3 Mandatory Prepayment . The Company is required to prepay this Note immediately prior to, or in connection with, the initial closing of a Sale. In the event of a Partial Sale that results in the Company’s cash balance being at least $5,000,000 in excess of the Company’s cash requirements for the twelve months following the closing of such Partial Sale, determined in accordance with the Budget (as defined below), then the Company promptly thereafter shall prepay a portion of this Note equal to 50% of the portion of such excess that is greater than $5,000,000.

3 Obligations Secured . The obligation of the Company to repay to Holder the Principal Amount, all accrued interest hereunder and any other amounts payable under this Note or any other obligations of the Company hereunder (collectively, the “ Obligations ”) are secured by a first priority security interest and lien in and to all of the Company’s tangible and intangible properties and assets pursuant to the terms of that certain Security Agreement, dated as of the date hereof, by and between the Company and Holder (the “ Security Agreement ”) and that certain Intellectual Property Security Agreement, dated as of the date hereof, by and between the Company and Holder (the “ IP Security Agreement ”).

4 Representations and Warranties of the Company . The Company represents and warrants to Holder as of the date hereof, and with respect to Section 4.5, for so long as Holder, or an affiliate of Holder, holds the Note or any Company equity securities issued to Holder, as follows:

4.1 Organization, Good Standing and Qualification . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as presently conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a Material Adverse Effect.

4.2 Authorization . All corporate action on the part of the Company, its officers, directors and shareholders necessary for the execution and delivery of the Note and the performance of all obligations of the Company under the Note has been taken prior to the date hereof. The Note, when executed and delivered by the Company, shall constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) to the extent any indemnification provisions may be limited by applicable federal or state securities laws. The issuance of the Note is not and will not be subject to preemptive rights of any present or future debt or equity holders of the Company that have not been waived.

4.3 Governmental Consent . No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with

 

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the valid execution, delivery and performance by the Company of the Note and the transactions contemplated thereby, except for any necessary filings pursuant to applicable state securities laws and Regulation D of the Securities Act of 1933, as amended (the “ Securities Act ”), all of which filings will be effected after the date hereof.

4.4 Compliance with Other Instruments . The Company is not in violation or default of any provision of its organizational documents currently in effect. Upon delivery of this Note, the Company is not in violation of, or default under any provision of any instrument, mortgage, deed of trust, loan, contract, commitment or obligation to which it is a party or by which it or any of its properties are bound, which violations or defaults, individually or in the aggregate, would have a Material Adverse Effect. The Company is not in violation of any provision of any federal, state or local statute, rule or governmental regulation which would have a Material Adverse Effect or any judgment, decree or order to which it is a party, in any material respect. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business, the lack of which would have a Material Adverse Effect. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.

4.5 Health Care / Lodging Facilities . The Company does not operate or manage any health care facilities (including a congregate care facility or assisted living facility) or lodging facilities or provide any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated.

4.6 Information Provided to Holder . No representation or other statement made by the Company to Holder in the Note or any document, certificate or instrument delivered by the Company to Holder pursuant hereto (taken together with all such representations, statements, certificates and instruments delivered by the Company) contains any untrue statement of a material fact or omits to state a material fact necessary to make any statements made to Holder herein or therein not misleading in light of the circumstances under which they were made.

4.7 Financial Information . All financial statements and other information provided to Holder pursuant hereto fairly present the Company’s financial condition, and, except as disclosed to Holder in writing, there has not been a material adverse change in the financial condition of Company since the date of the most recent financial statements submitted to Holder (the “ Latest Financial Statements ”). The Company does not have any obligation or liability (whether accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due and regardless of when asserted) required to be disclosed in a balance sheet prepared in accordance with GAAP (including the notes thereto) arising out of transactions entered into at or prior to the date hereof, or any action or inaction at or prior to the date hereof, or any state of facts existing at or prior to the date hereof other than (A) liabilities set forth on the Latest Financial Statements (including any notes thereto) and (B) liabilities and obligations which have arisen after the date of the Latest Financial Statements in the ordinary course of business (none of which is a liability resulting from breach of contract, breach of warranty, tort, infringement, claim or lawsuit, unless such liability is either fully covered by insurance

 

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(subject to normal deductibles or retentions) or is not, individually or in the aggregate with all such other liabilities, material). The inclusion of each account receivable on the Company’s financial statements delivered to Holder is in accordance with GAAP.

4.8 Intellectual Property . Except as disclosed to Holder in writing, the Company owns, or is a licensor , of all the Intellectual Property used in or necessary for the conduct of its business or operations as currently conducted or that are otherwise material to the condition (financial or otherwise), business, or operations of the Company. All of the Company’s patents and trademarks are listed on the appropriate schedules to the Security Agreement.

4.9 Litigation . Except as disclosed to Holder in writing, the Company is not a party to any litigation and is not, to its knowledge, the subject of any government investigation, and the Company has no knowledge of any pending litigation or investigation or the existence of circumstances that reasonably could be expected to give rise to such litigation or investigation.

4.10 Investments; Inventory; Assets . Other than Permitted Investments, the Company does not own any shares or other equity interests in any corporation, partnership, limited liability company or other entity. All of the Company’s inventory is in all material respects of good and marketable quality, free from material defects, except for inventory for which adequate reserves have been made in accordance with GAAP. All Collateral consisting of equipment and inventory is in good operating condition and repair, subject to ordinary wear and tear, and the Company has made all economically reasonable and necessary repairs thereto.

4.11 Collateral; First Priority Lien . The Company has full power and authority to create a first priority Lien on the Collateral and no disability or contractual obligation exists that would prohibit the Company from pledging the Collateral pursuant to this Note. There are no subscriptions, warrants, rights of first refusal, or other restrictions on transfer relative to, or options exercisable with respect to the Collateral. The Collateral is not the subject of any present or threatened suit, action, arbitration, administrative or other proceeding, and the Company knows of no reasonable grounds for the institution of any such proceedings. The Company, by virtue of its business and financial experience, has the capacity to protect its own interests in connection with this Note.

5 Representations and Warranties of Holders . Holder hereby represents and warrants to the Company as of the date hereof that:

5.1 Requisite Power and Authority . Holder has all necessary power and authority under all applicable provisions of law to execute and deliver the Note and the Fifth Amendment and to carry out their provisions. All action on Holder’s part required for the lawful execution and delivery of the Note and the Fifth Amendment has been taken. Upon their execution and delivery, the Note and the Fifth Amendment will constitute valid and legally binding obligations of Holder, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws of general application affecting enforcement of

 

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creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) to the extent any indemnification provisions may be limited by applicable federal or state securities laws.

5.2 Experience . Holder is experienced in investing in the securities of development stage companies such as the Company and acknowledges that investment in the Note involves a number of significant risks, it is able to fend for itself, it can bear the economic risk of its investment, including the full loss of its investment, and it has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Note. Holder also represents it was not organized solely for the purpose of acquiring the Note.

5.3 Accredited Investor . Holder represents that it is an “accredited investor” within the meaning of Rule 501(a) of the Securities Act.

5.4 Purchase Entirely for Own Account . This Note is issued to Holder in reliance upon Holder’s representation to the Company, which by Holder’s purchase of this Note, Holder hereby confirms, that the Note to be received by Holder will be acquired for investment for Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. Holder further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Note.

5.5 No Public Market . Holder understands that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for any securities issued by the Company.

6 Covenants .

6.1 Financial Information . Company will provide Holder (a) within ninety (90) days after the last day of the Company’s fiscal year, unaudited consolidated financial statements for such fiscal year, prepared in accordance with GAAP (except that such financial statements may not contain all notes thereto that may be required in accordance with GAAP); (b) as soon as practicable following the Company’s delivery of the unaudited financial statements referred to in the foregoing clause (a) but in no event later than two hundred seventy (270) days after the last day of Company’s fiscal year, audited consolidated financial statements for such fiscal year, prepared in accordance with GAAP, certified by an independent public accounting firm approved by the Company’s Board of Directors; (c) within twenty (20) days after the last day of each fiscal quarter of the Company, but only if the Company reasonably anticipates positive net income for such fiscal quarter, the Company’s good faith estimate of the amount of net income for such fiscal quarter; (d) within forty five (45) days after the last day of each fiscal quarter of the Company, unaudited consolidated financial statements for such fiscal quarter, prepared in accordance with GAAP; (e) within sixty (60) days after the end of Company’s fiscal years, Company’s financial and business projections and budget for the

 

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upcoming fiscal year, with evidence of approval thereof by the Board of Directors of the Company (the “ Budget ”); and (f) promptly upon Holder’s request, such other information relating to Company’s operations and condition as Holder may reasonably request from time to time, including detailed capitalization information (including convertible securities) of the Company.

6.2 Good Standing; Compliance with Laws . The Company shall maintain its corporate existence and good standing and will maintain in force all licenses and agreements necessary or appropriate to the conduct of its business where a failure to do so could reasonably be expected to have a Material Adverse Effect. The Company shall pay all taxes on or before the date such taxes are due. The Company shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, and shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which or failure to comply with which could reasonably be expected to have a Material Adverse Effect.

6.3 Negative Covenants . Without Holder’s prior written consent, the Company shall not (and the Company shall not permit any Subsidiary to) (a) make any investments in, or loans or advances to, any Person other than in the ordinary course of business as currently conducted and other than Permitted Investments; (b) acquire any assets (i) other than in the ordinary course of business as currently conducted or (ii) that would cause an Event of Default to occur and be continuing; (c) make any distributions or pay any dividends (other than those from any Subsidiary to its parent entity) on any shares of capital stock of the Company or any Subsidiary; (d) make any payment on account of or in redemption, retirement or purchase of any capital stock or equity of the Company or any Subsidiary (except (i) that a Subsidiary may make such payments to its parent entity and (ii) for repurchases of stock (A) from former employees, officers, directors, consultants or other persons who performed services for the Company or any subsidiary in connection with the cessation of such employment or service, but in no event to exceed the price originally paid for such stock, or (B) pursuant to rights of first refusal contained in agreements providing for such right); (e) directly or indirectly enter into or permit to exist any transaction with any Affiliate of the Company or any Subsidiary, except for (i) Permitted Investments, and (ii) other transactions in the ordinary course of business, in each case, upon fair and reasonable terms that are no less favorable to the Company than would be obtained in an arms-length transaction with a non-affiliated Person; (f) move, dispose of or encumber any portion of any the Company’s or any Subsidiary’s assets, including but not limited to the Collateral (as defined in the Security Agreement and hereinafter, the “ Collateral ”), except for (i) transfers or dispositions of inventory in the ordinary course of business as currently conducted, (ii) dispositions of obsolete, worn-out or surplus equipment and inventory, (iii) licenses and similar arrangements in the ordinary course of business (including exclusive licenses where such exclusivity applies only with respect to the practice of the Company’s technology platform to develop, manufacture and/or commercialize a particular product, whether on a worldwide basis or in particular geographic areas), in each case upon commercially reasonable terms that are not materially less favorable to the Company than would be obtained in an arms-length transaction with a non-affiliated

 

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Person, where such licenses or similar arrangements do not comprise the disposition, in a single transaction or series of related transactions, of all or substantially all the assets of the Company (other than in connection with a Sale in which all of the Obligations are fully satisfied), (iv) Permitted Liens and (v) pursuant to a Sale in which all of the Obligations are fully satisfied; (g) create any direct or indirect Subsidiary; (h) alter or modify the Company’s or any Subsidiary’s corporate structure, or change its name without prior written notice to Holder, or have a change in senior management consisting of the Company’s termination of Vikram Lamba (provided that Company may replace such manager with someone to act in the same position and level of authority based on industry standards within one hundred twenty (120) days after such change occurs); (i) suffer or permit a Sale (other than any Sale in which all Obligations are fully and forever satisfied); or (k) maintain any deposit, operating or investment accounts outside the Bank, provided that all such accounts shall be subject to deposit and securities control agreements in form and content reasonably acceptable to Holder.

6.4 Indebtedness . The Company shall not, and shall not permit any Subsidiary to, create, incur, assume or be liable for any Indebtedness, other than Permitted Indebtedness.

6.5 Liens and Encumbrances . The Company shall not, and shall not permit any Subsidiary to, create, incur, or allow any Lien on any of its property or assign or convey any right to receive income, except for Permitted Liens.

6.6 Subordinated Debt . The Company shall not make or permit, or permit any Subsidiary to make, any payment on any Subordinated Debt, except under the terms of the Subordinated Debt, or amend any provision in any document relating to the Subordinated Debt.

6.7 Books and Records; Inspection and Audit Rights . The Company shall maintain financial records in accordance with GAAP. Holder shall have (a) a right to visit and inspect any of the properties of the Company and/or its Subsidiaries, including a right to examine and copy the Company’s and/or its Subsidiaries’ books and records from time to time upon reasonable notice to the Company or such Subsidiaries and during normal business hours; and (b) to discuss its affairs, finances and accounts with the Company’s or any Subsidiary’s officers and its independent public accountants, at such reasonable times and as often as Holder may reasonably request, provided that that the Company and its Subsidiaries shall not be obligated to provide access to any information the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel. Holder hereby agrees that all confidential information it obtains hereunder shall be subject to the confidentiality provisions set forth in Section 2.3 of the Stockholder Rights and Voting Agreement dated as of April 26, 2012 among the Company, Holder and the other stockholders of the Company named therein (the “ Stockholder Rights Agreement ”). Following any Event of Default, Holder may audit the Collateral at the Company’s expense. Holder will give the Company or any applicable Subsidiary fifteen (15) days advance notice of such an audit, unless an Event of Default has occurred and is continuing, in which case no prior notice shall be required.

 

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6.8 Insurance . The Company shall maintain insurance relating to the Collateral and Company’s business in such amounts and forms and with such companies as are customarily maintained by businesses similar to the Company. Any insurance on the Collateral shall include a lender’s loss payable endorsement in favor of Holder as an additional loss payee, and any liability insurance shall show Holder as an additional insured.

6.9 Registration of Intellectual Property Rights . The Company and any Subsidiary shall register with the United States Patent and Trademark Office or the United States Copyright Office, its Intellectual Property and additional intellectual property rights developed or acquired including revisions or additions with any product before the sale or licensing of the product to any third party, in each case to the extent registrable and that its members or managers in good faith deems appropriate for the development of Company’s business and in the best interests of Company and its equityholders. The Company shall also use best efforts to: (a) protect, defend and maintain the validity and enforceability of the Intellectual Property and promptly advise Holder in writing of any material infringements of which the Company becomes aware; and (b) not allow any Intellectual Property material to the Company’s or any Subsidiary’s business to be abandoned, forfeited or dedicated to the public without Holder’s prior written consent.

6.10 Further Assurances . The Company shall, within three (3) business days, execute any further instruments and take further action as Holder may reasonably request to perfect or continue Holder’s security interest in the Collateral or to effect the purposes of this Note.

6.11 Information for REIT . For so long as Holder, or an Affiliate of Holder, holds the Note or any Company equity securities issued to Holder pursuant to the terms of the Stock Purchase Agreement or otherwise, the Company will provide to Holder such Company information as requested by Holder that Holder in good faith deems necessary to monitor BioMed Realty Trust, Inc.’s compliance with requirements relating to BioMed Realty Trust, Inc.’s status as a real estate investment trust for federal income tax purposes.

7 Assignment . The Company shall not assign this Note, by operation of law or otherwise, without the prior written consent of Holder, which may be withheld in its sole discretion. Subject to the foregoing, the rights and obligations of the Company and Holder will be binding upon and inure to the benefit of the successors, assigns, heirs, administrators and transferees of the parties.

8 Events of Default . Upon the occurrence or existence of any Event of Default (as defined below) and at any time thereafter during the continuance of such Event of Default, the entire outstanding principal balance of this Note, together with all unpaid accrued interest thereon, and all unpaid fees, charges, costs and expenses, if any, owed by the Company to Holder hereunder, may become or may be declared by Holder to be immediately due and payable by written notice to the Company. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, Holder

 

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may exercise any other right, power or remedy permitted to it by applicable law, either by suit in equity or by action at law, or both.

8.1 Events of Default . The occurrence of any one or more of the following events with respect to the Company constitutes an “ Event of Default ” hereunder:

(a) The Company breaches any covenant or obligation in this Note, and fails to cure such breach within twenty (20) days after receipt of written notice thereof from Holder;

(b) The Company fails to pay timely any of the principal amount due under this Note on the date the same becomes due and payable or any accrued interest or other amounts due under this Note on the date the same becomes due and payable;

(c) The dissolution, termination of existence or insolvency of the Company or appointment of a receiver, trustee or custodian, for all or any part of the property of the Company under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect;

(d) The commencement of any proceeding against the Company under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future, if within sixty (60) days after the commencement of such proceeding (i) such action has not been dismissed or all orders or proceedings thereunder affecting the operations or the business of the Company stayed, or (ii) the stay of any such order or proceedings has been set aside;

(e) The Company defaults under the Lease or breaches the Support Agreement (as defined in the Security Agreement) and such default is not cured within the applicable time periods as set forth in the Lease or the Support Agreement, as applicable; or

(f) The Company defaults under any Indebtedness that constitutes Subordinated Indebtedness.

8.2 Default Rate . As long as any payment due under this Note remains past due (whether at the stated maturity, by acceleration or otherwise) for five (5) days or more, interest under this Note shall accrue on such overdue payment at a rate (the “ Default Rate ”) (which is in lieu of and not in addition to the Interest Rate) equal to the lesser of ten percent (10%) per annum or the maximum rate permitted by applicable law from the date of such non-payment until such amount is paid in full (whether after or before judgment).

8.3 Payment of Expenses . Following the occurrence of an Event of Default, the Company shall pay, on demand, all reasonable costs and expenses of collection of this

 

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Note (including reasonable attorneys’ fees, costs and disbursements) in respect of such Event of Default, whether or not any suit or other legal proceedings shall be instituted.

8.4 No Usury . Payments of interest shall not be required, for any period for which interest is computed hereunder, to the extent that contracting for or receipt thereof would be contrary to provisions of any applicable law to Holder limiting the highest rate of interest that may be lawfully contracted for, charged or received by Holder, as determined by a final judgment of a court of competent jurisdiction. Any interest paid in excess of such highest rate shall be applied to the unpaid principal balance of this Note. In the event that any such excess exceeds the principal amount, the amount of such excess over the principal amount shall be refunded to the Company.

9 Governing Law . This Note and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of New York, without giving effect to principles of conflicts of law.

10 Notices . All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery, upon three (3) business days after deposit with the United States Post Office, by registered or certified mail, return receipt requested, postage prepaid, one (1) business day after deposit with a nationally recognized air courier, or upon receipt of confirmation with regard to delivery by facsimile and addressed: (a) if to Holder, at Holder’s address as set forth on Holder’s signature page hereto, or at such other address as Holder shall have furnished to the Company in writing, or (b) if to the Company, at its current address or at such other address as the Company shall have furnished to Holder in writing.

11 Entire Agreement; Amendments and Waivers . Any term of this Note may be amended and the observance of any term of this Note may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Holder. No waivers of or exceptions to any term, condition or provision of this Note, in any one more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision. This Note, the Security Agreement, the IP Security Agreement, the Pledge Agreement (as defined in the Security Agreement), the Support Agreement (as defined in the Security Agreement), the Stock Purchase Agreement, the Stockholder Rights Agreement, and the exhibits and schedules hereto and thereto (collectively, the “ Transaction Documents ”) constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof and no party shall be liable for or bound to any other in any manner by any oral or written representations, warranties, covenants and agreements except as specifically set forth herein and therein.

12 Lost Documents . Upon receipt by the Company of evidence and indemnity satisfactory to it of the loss, theft, destruction or mutilation of, and upon surrender and cancellation of this Note, if mutilated, the Company will make and deliver in lieu of this Note a new note of the same series and of like tenor and unpaid Principal Amount and

 

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dated as of the date to which interest, if any, has been paid on the unpaid Principal Amount of this Note.

13 Waivers and Rights of Holder . The Company hereby waives demand, presentment for payment, protest, notice of nonpayment, notice of protest, notice of dishonor, and any other notices of any kind, and any and all exemption rights that it holds at law or in equity with respect to the indebtedness evidenced by this Note.

14 No Impairment . Except and to the extent waived or consented to by Holder, or as otherwise permitted under the terms hereof the Company will 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 hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Note and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of Holder against impairment.

15 Further Assurances . From time to time, the Company shall execute and deliver to Holder such additional documents and shall provide such additional information to Holder as Holder may reasonably require (i) to carry out the terms of this Note and any agreements executed in connection herewith, and (ii) to be informed of the financial and business conditions and prospects of the Company.

16 Severability . If one or more provisions of this Note are held to be unenforceable under applicable law, such provision shall be excluded from this Note and the balance of the Note shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

17 Joint and Several Obligations . Each of the Company and Zosano is jointly and severally liable to perform each and all of the Obligations, covenants, and conditions, and to make all of the payments, set forth herein or in the other documents executed in connection herewith. Zosano also expressly agrees to the terms and conditions hereof and agrees to take all actions necessary or desirable to further any of the obligations of either the Company or Zosano to Holder pursuant to this Note and the other documents executed in connection herewith. However, the Company may, without the consent, approval, or any action by Zosano, take any and all actions required of the Company hereunder and under the other documents executed in connection herewith, and Holder may rely on the Company’s notices, actions, approvals, consents, and payments as if Zosano had given and taken the same and without notifying or obtaining the consent of Zosano. Further, Zosano hereby acknowledges and agrees that any and all communications and notices from Holder to the Company shall be deemed given to and received by Zosano.

18 Fees and Expenses of Holder . The Company agrees (a) to pay upon demand all reasonable fees, expenses and disbursements of external counsel to Holder in connection with the preparation, negotiation, execution and delivery of this Agreement and the other

 

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Transaction Documents and any refinancing or restructuring of any of the Transaction Documents, in an aggregate amount not to exceed $20,000 for all such fees and expenses, (b) to pay any costs or expenses required to be paid by the Company or Zosano under any of the Transaction Documents that are paid, advanced, or incurred by a Holder, and (c) to pay Holders’ reasonable costs and expenses (including attorneys, accountants, consultants, and other advisors fees and expenses) incurred in terminating, enforcing (including attorneys, accountants, consultants, and other advisors fees and expenses incurred in connection with a “workout,” a “restructuring,” or an insolvency proceeding concerning the Company or any of its subsidiaries or in exercising rights or remedies under the Transaction Documents), or defending the Transaction Documents.

19 Counterparts . This Note may be executed in two or more counterparts (including by facsimile or PDF copy), each of which shall be deemed an original and all of which together shall constitute one instrument.

(Signature Page Follows)

 

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The parties have executed this Secured Promissory Note as of the date first written above.

 

COMPANY:     HOLDER:
ZP HOLDINGS, INC.   BIOMED REALTY HOLDINGS, INC.
By:  

/s/ Vikram Lamba

    By:  

/s/ Greg N. Lubushkin

Name:       Name:   Greg N. Lubushkin
Title:       Title:   CFO
      Address:   17190 Bernardo Center Drive
ZOSANO PHARMA, INC.     San Diego, CA 92128
        Attn: Corporate Legal
By:  

/s/ Peter Daddona

     
Name:        
Title:        

SIGNATURE PAGE TO SECURED PROMISSORY NOTE

Exhibit 10.6

ZP HOLDINGS, INC.

SECURITY AGREEMENT

THIS SECURITY AGREEMENT, dated as of April 26, 2012 (as may be amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement” ), is made by and among ZP Holdings, Inc., a Delaware corporation ( “Grantor” ), and BioMed Realty Holdings, Inc., a Maryland corporation ( “Secured Party” ).

RECITALS

A. Secured Party has made certain financial accommodations to Grantor as evidenced by that certain Secured Promissory Note dated as of even date herewith, executed by Grantor in favor of Secured Party (the “Note” ), such financial accommodations being referred to herein as the “Loan.”

B. Secured Party is willing to make the Loan to Grantor, but only upon the condition, among others, that Grantor shall have executed and delivered to Secured Party this Security Agreement, along with the IP Security Agreement, the Pledge Agreement and the Support Agreement (as each is defined below).

AGREEMENT

N OW , T HEREFORE , in order to induce Secured Party to make the Loan and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, Grantor hereby represents, warrants, covenants and agrees as follows:

1. Defined Terms . When used in this Security Agreement the following terms shall have the following meanings (such meanings being equally applicable to both the singular and plural forms of the terms defined):

Bankruptcy Code means Title XI of the United States Code.

Collateral shall have the meaning assigned to such term in Section 2 of this Security Agreement.

Contracts means all contracts (including any customer, vendor, supplier, service or maintenance contract), leases, licenses, undertakings, purchase orders, permits, franchise agreements or other agreements (other than any right evidenced by Chattel Paper, Documents or Instruments), whether in written or electronic form, in or under which Grantor now holds or hereafter acquires any right, title or interest, including, without limitation, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof.

Copyright License means any agreement, whether in written or electronic form, in which Grantor now holds or hereafter acquires any interest, granting any right in or to any Copyright or Copyright registration (whether Grantor is the licensee or the licensor thereunder)

 

1.


including, without limitation, licenses pursuant to which Grantor has obtained the exclusive right to use a copyright owned by a third party.

Copyrights means all of the following now owned or hereafter acquired or created (as a work for hire for the benefit of Grantor) by Grantor or in which Grantor now holds or hereafter acquires or receives any right or interest, in whole or in part: (a) all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof or any other country or union or group of countries, or any political subdivision of any of the foregoing; (b) registrations, applications, recordings and proceedings in the United States Copyright Office or in any similar office or agency of the United States, any State thereof or any other country or union or group of countries, or any political subdivision of any of the foregoing; (c) any continuations, renewals or extensions thereof; (d) any registrations to be issued in any pending applications, and shall include any right or interest in and to work protectable by any of the foregoing which are presently or in the future owned, created or authorized (as a work for hire for the benefit of Grantor) or acquired by Grantor, in whole or in part; (e) prior versions of works covered by copyright and all works based upon, derived from or incorporating such works; (f) all proceeds therefrom, including income, royalties, damages, claims and payments now and hereafter due and/or payable with respect to the foregoing, including, without limitation, damages, claims and recoveries for past, present or future infringement; (g) rights to sue or otherwise recover for past, present and future infringements of any of the foregoing; and (h) any other rights corresponding to any of the foregoing rights throughout the world.

Event of Default means (i) any failure by Grantor forthwith to pay or perform any of the Secured Obligations, (ii) any report, information or notice made to, obtained or received by Secured Party at any time after the date hereof that shall indicate that Secured Party’s security interest in the Collateral is not prior to all other security interests or other interests in the Collateral reflected in such report, information or notice, which priority security interest of the Secured Party is not reinstated within ten (10) days after Grantor’s receipt of written notice thereof from the Secured Party (provided that such ten (10)-day period shall not be applicable if any party asserting such other prior security interest is exercising remedies of a secured party upon default in respect of the Collateral), (iii) any breach by Grantor of any covenant set forth herein, which breach is not cured within ten (10) days after receipt of written notice thereof from the Secured Party and (iv) any “Event of Default” as defined in the Note.

Intellectual Property means any intellectual property, in any medium, of any kind or nature whatsoever, now or hereafter owned or acquired or received by Grantor or in which Grantor now holds or hereafter acquires or receives any right or interest, and shall include, in any event, any Copyright, Trademark, Patent, License, trade secret, customer list, marketing plan, internet domain name (including any right related to the registration thereof), proprietary or confidential information, mask work, source, object or other programming code, invention (whether or not patented or patentable), technical information, procedure, design, knowledge, know-how, software, data base, data, skill, expertise, recipe, experience, process, model, drawing, material or record and the right to sue or otherwise recover for any past, present and future infringement, dilution, misappropriation, or other violation or impairment thereof, including the right to receive all proceeds therefrom, including without limitation license fees, royalties, income, payments, claims, damages and proceeds of suit, now or hereafter due and/or payable with respect thereto.

 

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IP Security Agreement ” means the Intellectual Property Security Agreement of even date herewith by and between Grantor and Secured Party, and all Schedules thereto, substantially in the form set forth as Exhibit 1 hereto, as the same may from time to time be amended, modified, supplemented or restated.

License means any Copyright License, Patent License, Trademark License or other license of rights or interests, whether in-bound or out-bound, whether in written or electronic form, now or hereafter owned or acquired or received by Grantor or in which Grantor now holds or hereafter acquires or receives any right or interest, and shall include any renewals or extensions of any of the foregoing thereof.

Lien means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

Money means a medium of exchange authorized or adopted by a domestic or foreign government and includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more nations.

Obligations means the Obligations as defined in the Note.

Patent License means any agreement, whether in written or electronic form, in which Grantor now holds or hereafter acquires any interest, granting any right with respect to any invention on which a Patent is in existence (whether Grantor is the licensee or the licensor thereunder).

Patents means all of the following in which Grantor now holds or hereafter acquires any interest: (a) all letters patent of the United States or any other country or union or group of countries, or any political subdivision of any of the foregoing, all registrations and recordings thereof and all applications for letters patent of the United States or any other country or union or group of countries, or any political subdivision of any of the foregoing, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or union or group of countries, or any political subdivision of any of the foregoing; (b) all reissues, divisions, continuations, renewals, continuations-in-part or extensions thereof; (c) all petty patents, divisionals and patents of addition; (d) all patents to issue in any such applications; (e) all proceeds therefrom, including income, royalties, damages, claims and payments now and hereafter due and/or payable with respect to any of the foregoing, including, without limitation, damages, claims and recoveries for past, present or future infringement; (f) rights to sue or otherwise recover for past, present and future infringements of any of the foregoing; and (g) any other rights corresponding to any of the foregoing rights throughout the world.

Permitted Lien means: (a) any Liens existing on the date of this Security Agreement and set forth on Schedule A attached hereto; (b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Secured Party’s security interests created hereunder; (c) Liens (i) upon or in any Equipment acquired or held by Grantor to secure the purchase price of such Equipment or indebtedness (including capital leases)

 

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incurred solely for the purpose of financing the acquisition of such Equipment or (ii) existing on such Equipment at the time of its acquisition, provided that the Lien is confined solely to the Equipment so acquired, improvements thereon and the Proceeds of such Equipment; (d) leases or subleases and licenses or sublicenses granted to others in the ordinary course of Grantor’s business if such are not otherwise prohibited under this Security Agreement and do not interfere in any material respect with the business of Grantor; (e) Liens arising from judgments, decrees or attachments to the extent and only so long as such judgment, decree or attachment has not caused or resulted in an Event of Default; (f) easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and other similar Liens affecting real property not interfering in any material respect with the ordinary conduct of the business of Grantor; (g) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (h) Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; and (i) Liens in favor of a securities intermediary pursuant to such securities intermediary’s customary customer account agreement; provided that any such Liens shall at no time secure any indebtedness or obligations other than customary fees and charges payable to such securities intermediary.

Person means an individual, corporation, partnership, joint venture trust, unincorporated organization, governmental agency or authority, or any other entity of whatever nature.

Pledge Agreement ” means that certain Pledge Agreement between the Secured Party and Zosano Pharma, Inc. and all schedules thereto, substantially in the form set forth as Exhibit 2 hereto, as the same may from time to time be amended, modified, supplemented or restated.

Secured Obligations means (a) the Obligations of Grantor pursuant to the Note, (b) the obligation of Grantor to pay any fees, costs and expenses of Secured Party under the Note, this Security Agreement, the Pledge Agreement, the Support Agreement or the IP Security Agreement, and (c) all other indebtedness, liabilities and obligations of Grantor to Secured Party, whether now existing or hereafter incurred, and whether created under, arising out of or in connection with any written agreement or otherwise.

Security Agreement means this Security Agreement and all Schedules hereto, as the same may from time to time be amended, modified, supplemented or restated.

Support Agreement ” means that certain Support Agreement among the Secured Party, ZP Group LLC, AKP USA, Inc. and Zosano Pharma, Inc., and all schedules thereto, substantially in the form set forth as Exhibit 3 hereto, as the same may from time to time be amended, modified, supplemented or restated

Trademark License means any agreement, whether in written or electronic form, in which Grantor now holds or hereafter acquires any interest, granting any right in and to any Trademark or Trademark registration or application (whether Grantor is the licensee or the licensor thereunder).

 

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Trademarks means any of the following in which Grantor now holds or hereafter acquires any interest: (a) any trademarks, tradenames, corporate names, company names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or union or group of countries, or any political subdivision of any of the foregoing (collectively, the “ Marks ”); (b) any reissues, extensions or renewals thereof; (c) the goodwill of the business connected with the use of and symbolized by the Marks; (d) all proceeds therefrom, including income, royalties, damages, claims and payments now and hereafter due and/or payable with respect to the Marks, including, without limitation, damages, claims and recoveries for past, present or future infringement; and (e) rights to sue for or otherwise recover past, present and future infringements of the Marks; and (f) any other rights corresponding to any of the foregoing rights throughout the world.

“UCC” means the Uniform Commercial Code as the same may from time to time be in effect in the State of New York (and each reference in this Security Agreement to an Article thereof shall refer to that Article as from time to time in effect in the State of New York); provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of Secured Party’s security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code (including the Articles thereof) as in effect at such time in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions.

In addition, the following terms shall be defined terms having the meaning set forth for such terms in the UCC: “Account”, “Account Debtor”, “Chattel Paper”, “Commercial Tort Claims”, “Commodity Account”, “Deposit Account”, “Documents”, “Equipment”, “Fixtures”, “General Intangible”, “Goods”, “Instrument” (which shall have the meaning specified in Article 9, not Article 3 of the UCC), “Inventory”, “Investment Property”, “Letter-of-Credit Right”, “Money”, “Payment Intangibles”, “Proceeds”, “Promissory Notes”, “Securities Account”, and “Supporting Obligations”. Each of the foregoing defined terms shall include all of such items now owned, or hereafter acquired, by Grantor.

2. Grant of Security Interest . As collateral security for the full, prompt, complete and final payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all the Secured Obligations and in order to induce Secured Party to cause the Loan to be made, Grantor hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to Secured Party and hereby grants to Secured Party a security interest in all of Grantor’s right, title and interest in, to and under the following, whether now owned or hereafter acquired or created (all of which being collectively referred to herein as the “ Collateral ”):

(a) All Accounts of Grantor;

 

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(b) All Chattel Paper of Grantor;

(c) The Commercial Tort Claims of Grantor;

(d) All Commodity Accounts of Grantor;

(e) All Contracts of Grantor;

(f) All Deposit Accounts of Grantor;

(g) All Documents of Grantor;

(h) All General Intangibles of Grantor, including, without limitation, Intellectual Property;

(i) All Goods of Grantor, including without limitation, Equipment, Inventory and Fixtures;

(j) All Instruments of Grantor, including, without limitation, Promissory Notes;

(k) All Investment Property of Grantor;

(l) All Letter-of Credit Rights of Grantor;

(m) All Money of Grantor;

(n) All Securities Accounts of Grantor;

(o) All Supporting Obligations of Grantor;

(p) All property of Grantor held by Secured Party, or any other party for whom Secured Party is acting as agent, including, without limitation, all property of every description now or hereafter in the possession or custody of or in transit to Secured Party or such other party for any purpose, including, without limitation, safekeeping, collection or pledge, for the account of Grantor, or as to which Grantor may have any right or power;

(q) All other goods and personal property of Grantor, wherever located, whether tangible or intangible, and whether now owned or hereafter acquired, existing, leased or consigned by or to Grantor; and

(r) 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 the foregoing provisions of this Section 2 , the grant, assignment and transfer of a security interest as provided herein shall not extend to, and the term “Collateral” shall not include (a) “intent-to-use” trademarks at all times prior to the first use thereof, whether by the actual use thereof in commerce, the recording of a statement of use with the United States

 

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Patent and Trademark Office or otherwise or (b) any Account, Chattel Paper, General Intangible or Promissory Note in which Grantor has any right, title or interest if and to the extent such Account, Chattel Paper, General Intangible or Promissory Note includes a provision containing a restriction on assignment such that the creation of a security interest in the right, title or interest of Grantor therein would be prohibited and would, in and of itself, cause or result in a default thereunder enabling another person party to such Account, Chattel Paper, General Intangible or Promissory Note to enforce any remedy with respect thereto; provided that the foregoing exclusion shall not apply if (i) such prohibition has been waived or such other person has otherwise consented to the creation hereunder of a security interest in such Account, Chattel Paper, General Intangible or Promissory Note or (ii) such prohibition would be rendered ineffective pursuant to Sections 9-406(d), 9-407(a) or 9-408(a) of the UCC, as applicable and as then in effect in any relevant jurisdiction, or any other applicable law (including the Bankruptcy Code) or principles of equity); provided further that immediately upon the ineffectiveness, lapse or termination of any such provision, the Collateral shall include, and Grantor shall be deemed to have granted on the date hereof a security interest in, all its rights, title and interests in and to such Account, Chattel Paper, General Intangible or Promissory Note as if such provision had never been in effect; and provided further that the foregoing exclusion shall in no way be construed so as to limit, impair or otherwise affect Secured Party’s unconditional continuing security interest in and to all rights, title and interests of Grantor in or to any payment obligations or other rights to receive monies due or to become due under any such Account, Chattel Paper, General Intangible or Promissory Note and in any such monies and other proceeds of such Account, Chattel Paper, General Intangible or Promissory Note.

If Grantor shall at any time acquire a Commercial Tort Claim, Grantor shall immediately notify Secured Party in a writing signed by Grantor of the brief details thereof and grant to Secured Party in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Security Agreement, with such writing to be in form and substance satisfactory to Secured Party.

3. Rights Of Secured Party; Collection Of Accounts; Authority of Secured Party.

(a) Notwithstanding anything contained in this Security Agreement to the contrary, Grantor expressly agrees that it shall remain liable under each of its Contracts, Chattel Paper, Documents, Instruments and Licenses to observe and perform all the conditions and obligations to be observed and performed by it thereunder and that it shall perform all of its duties and obligations thereunder, all in accordance with and pursuant to the terms and provisions of each such Contract, Chattel Paper, Document, Instrument, and License. Secured Party shall not have any obligation or liability under any such Contract, Chattel Paper, Document, Instrument or License by reason of or arising out of this Security Agreement or the granting to Secured Party of a lien therein or the receipt by Secured Party of any payment relating to any such Contract, Chattel Paper, Document, Instrument or License pursuant hereto, nor shall Secured Party be required or obligated in any manner to perform or fulfill any of the obligations of Grantor under or pursuant to any such Contract, Chattel Paper, Document, Instrument or License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any such Contract, Chattel Paper, Document, Instrument or License, or to present or file

 

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any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

(b) During the existence of any Event of Default, at the request of Secured Party, Grantor shall deliver all original and other documents evidencing and relating to the performance of labor or service which created its Accounts, including, without limitation, all original orders, invoices and shipping receipts.

(c) Secured Party may at any time during the existence of any Event of Default, without notifying Grantor of its intention to do so, notify Account Debtors of Grantor, parties to the Contracts of Grantor, and obligors in respect of Instruments of Grantor and obligors in respect of Chattel Paper of Grantor that the Accounts and the right, title and interest of Grantor in and under such Contracts, Instruments and Chattel Paper have been assigned to Secured Party and that payments shall be made directly to Secured Party. During the existence of any Event of Default, upon the request of Secured Party, Grantor shall so notify such Account Debtors, parties to such Contracts, obligors in respect of such Instruments and obligors in respect of such Chattel Paper. Secured Party may communicate with such Account Debtors, parties to such Contracts, obligors in respect of such Instruments and obligors in respect of such Chattel Paper to verify with such parties, to Secured Party’s satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper.

4. Representations and Warranties . Grantor hereby represents and warrants to Secured Party that:

(a) Except for the security interest granted to Secured Party under this Security Agreement and Permitted Liens, Grantor is the sole legal and equitable owner or lessor of each item of the Collateral in which it purports to grant a security interest hereunder, having good and marketable title thereto or a valid leasehold interest therein, free and clear of any and all Liens.

(b) No effective security agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any part of the Collateral exists, except such as may have been filed by Grantor in favor of Secured Party pursuant to this Security Agreement and except for Permitted Liens.

(c) This Security Agreement creates a legal and valid security interest on and in all of the Collateral in which Grantor now has rights and will create a legal and valid security interest in the Collateral in which Grantor later acquires rights. Upon the filing of a financing statement naming Grantor as “debtor” and Secured Party as “secured party” in the form attached hereto as Exhibit 4 in the office of the Secretary of State of the State of Delaware, the security interest of the Secured Party in the Collateral, to the extent it can be perfected by the filing of a financing statement under the Delaware Uniform Commercial Code in such office, will constitute a valid, perfected, first priority Lien, subject in the case of priority only, to any Permitted Liens with respect to the Collateral. To the extent perfection or priority of the security interest of the Secured Party in the Copyrights, Patents or Trademarks is not subject to Article 9 of the UCC, upon recordation of the IP Security Agreement in the form executed and delivered on the date hereof in the United States Copyright Office and the United States Patent and

 

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Trademark Office, the security interest of the Secured Party in the Copyrights, Patents and Trademarks described on Exhibits A, B and C to the IP Security Agreement in the form executed and delivered on the date hereof shall constitute valid, perfected, first priority Liens (subject, in the case of priority only, to Permitted Liens). Each agreement purporting to give the Secured Party “control” within the meaning of Section 9-104 or 9-106 of the UCC, as applicable, over any Collateral is effective to establish the Secured Party’s control of the Collateral subject thereto.

(d) Grantor’s chief executive office, principal place of business, and the place where Grantor maintains its records concerning the Collateral are presently located at the address set forth on the signature page hereof. Grantor’s full legal name is as set forth in the first paragraph of this Agreement. The Collateral consisting of goods, other than motor vehicles and such other mobile goods, is presently located at such address and at such additional addresses set forth on Schedule B attached hereto.

(e) All Collateral of Grantor consisting of Chattel Paper, Instruments or Investment Property is set forth on Schedule C attached hereto. All action necessary or desirable to protect and perfect such security interest in each item set forth on Schedule C , including the delivery of all originals thereof, duly endorsed to Secured Party, has been duly taken. The security interest of Secured Party in the Collateral listed on Schedule C is prior in right and interest to all other Liens (other than Permitted Liens) and is enforceable as such against creditors of and purchasers from Grantor.

(f) The name and address of each depository institution at which Grantor maintains any Deposit Account and the account number and account name of each such Deposit Account is listed on Schedule D attached hereto. The name and address of each securities intermediary or commodity intermediary at which Grantor maintains any Securities Account or Commodity Account and the account number and account name is listed on Schedule D attached hereto. Grantor agrees to amend Schedule D from time to time within five (5) business days after opening any additional Deposit Account, Securities Account or Commodity Account, or closing or changing the account name or number on any existing Deposit Account, Securities Account, or Commodity Account. Grantor shall cause each depositary institution, securities intermediary and commodity intermediary to enter into an agreement in form and substance reasonably satisfactory to the Secured Party establishing the Secured Party’s “control” (within the meaning of Section 9-104 or 9-106 of the UCC, as applicable) over such Deposit Accounts, Securities Accounts and Commodity Accounts.

(g) All Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses owned or held by Grantor as of the date hereof are listed in Exhibits A, B and C to the IP Security Agreement in the form executed and delivered on the date hereof.

5. Covenants . Unless the Secured Party otherwise consents, Grantor covenants and agrees with Secured Party that from and after the date of this Security Agreement and until the Secured Obligations have been performed and paid in full:

5.1 Disposition of Collateral . Grantor shall not sell, lease, transfer or otherwise dispose of any of the Collateral (each, a Transfer ), or attempt or contract to do so,

 

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other than (a) the sale of Inventory in the ordinary course of business, (b) the granting of Licenses in the ordinary course of business (including exclusive licenses where such exclusivity applies only with respect to the practice of Grantor’s technology platform to develop, manufacture and/or commercialize a particular product, whether on a worldwide basis or in particular geographic areas), in each case upon commercially reasonable terms that are not materially less favorable to Grantor than would be obtained in an arms-length transaction with a non-affiliated Person, where such licenses or similar arrangements do not comprise the disposition, in a single transaction or series of related transactions, of all or substantially all the assets of Grantor (other than in connection with a Sale (as defined in the Note) in which all of the Obligations (as defined in the Note) are fully satisfied), (c) the disposal of worn-out or obsolete Equipment, all in the ordinary course of Grantor’s business or (d) pursuant to a Sale (as defined in the Note) in which all of the Obligations (as defined in the Note) are fully satisfied.

5.2 Change of Jurisdiction of Organization, Relocation of Business or Collateral . Grantor shall not change its full legal name, jurisdiction of organization or relocate its chief executive office, principal place of business or its records, or allow the relocation of any Collateral (except as allowed pursuant to Section 5.1 immediately above) from such address(es) provided to Secured Party pursuant to Section 4(d) above without at least seven (7) days prior written notice to Secured Party and without taking all actions necessary or advisable to maintain the continuous validity, perfection and priority of the Secured Party’s security interest in the Collateral granted or intended to be granted hereby.

5.3 Limitation on Liens on Collateral . Grantor shall not, directly or indirectly, create, permit or suffer to exist, and shall defend the Collateral against and take such other action as is necessary to remove, any Lien on the Collateral, except (a) Permitted Liens and (b) the Lien granted to Secured Party under this Security Agreement. Grantor shall further defend the right, title and interest of Secured Party in and to any of Grantor’s rights in the Collateral against the claims and demands of all persons whomsoever.

5.4 Limitations on Modifications of Accounts, Etc. During the existence of any Event of Default, Grantor shall not, without Secured Party’s prior written consent, grant any extension of the time of payment of any of the Accounts, Chattel Paper, Instruments or amounts due under any Contract or Document, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any person liable for the payment thereof, or allow any credit or discount whatsoever thereon other than trade discounts and rebates granted in the ordinary course of Grantor’s business.

5.5 Insurance . Grantor shall maintain insurance policies insuring the Collateral against loss or damage from such risks and in such amounts and forms and with such companies as are customarily maintained by businesses similar to Grantor.

5.6 Taxes, Assessments, Etc . Grantor shall pay promptly when due all property and other taxes, assessments and government charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Goods, except to the extent the validity or amount thereof is being contested in good faith and adequate reserves are being maintained in connection therewith.

 

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5.7 Maintenance of Records . Grantor shall keep and maintain at its own cost and expense satisfactory and complete records of the Collateral. Grantor shall not create any Chattel Paper without placing a legend on the Chattel Paper acceptable to Secured Party indicating that Secured Party has a security interest in the Chattel Paper.

5.8 Intellectual Property .

(a) Grantor shall use commercially reasonable efforts to (i) protect, defend and maintain the validity and enforceability of its Copyrights, Patents and Trademarks, (ii) promptly advise Secured Party in writing of material infringements of Copyrights, Patents and Trademarks detected and (iii) not allow any of its Copyrights, Patents or Trademarks to be abandoned, forfeited or dedicated to the public without the prior written consent of Secured Party.

(b) Within 30 days after the end of each calendar quarter, Grantor shall report to the Secured Party the filing of any application (or any assignment in favor of Grantor in connection with the acquisition of any registered Copyrights, Patents or Trademarks) made during the previous quarter to register any Copyright with the United States Copyright Office or any Patent or Trademark with the United States Patent and Trademark Office (whether such application is filed by the Grantor or through any agent, employee, licensee, or designee thereof). The Grantor shall, with respect to the foregoing Intellectual Property, promptly execute and deliver to the Secured Party an amendment to the IP Security Agreement covering any such Intellectual Property for recordation (at the sole expense of the Grantor) with the United States Copyright Office or the United States Patent and Trademark Office, as applicable.

5.9 Further Assurances; Pledge of Instruments . At any time and from time to time, upon the written request of Secured Party, and at the sole expense of Grantor, Grantor shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as Secured Party may reasonably deem necessary or appropriate to obtain the full benefits of this Security Agreement, including, without limitation, (a) using its commercially reasonable efforts to secure all consents and approvals necessary or appropriate for the grant of a security interest to Secured Party in any item of Collateral held by Grantor or in which Grantor has any right or interest, (b) executing, delivering and causing to be filed any financing or continuation statements (including “in lieu” continuation statements) under the UCC with respect to the security interests granted hereby, (c) filing or cooperating with Secured Party in filing any forms or other documents required to be recorded with the United States Patent and Trademark Office, United States Copyright Office, or any actions, filings, recordings or registrations in any foreign jurisdiction or under any international treaty, required to secure or protect Secured Party’s interest in the Collateral, (d) transferring the Collateral to Secured Party’s possession (if a security interest in such Collateral can be perfected only by possession), (e) at Secured Party’s reasonable request, placing the interest of Secured Party as lienholder on the certificate of title (or similar evidence of ownership) of any vehicle, watercraft or other item of Collateral owned by Grantor which is covered by a certificate of title (or similar evidence of ownership), (f) executing and delivering and causing the applicable depository institution, securities intermediary, commodity intermediary or issuer or nominated party under a letter of credit to execute and deliver a collateral control agreement with respect to each Deposit Account, Securities Account or Commodity Account or Letter-of-Credit Right in or to which Grantor now

 

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or hereafter has any right or interest in order to perfect the security interest created hereunder in favor of Secured Party (including giving Secured Party “control” over such Collateral within the meaning of the applicable provisions of Article 8 and Article 9 of the UCC), (g) at Secured Party’s reasonable request, executing and delivering or causing to be delivered written notice to insurers of Secured Party’s security interest in, or claim in or under, any policy of insurance (including unearned premiums) and (h) at Secured Party’s reasonable request, using its commercially reasonable efforts to obtain acknowledgments from bailees having possession of any Collateral and waivers of liens from landlords and mortgagees of any location where any of the Collateral may from time to time be stored or located. Secured Party may at any time and from time to time file financing statements, continuation statements (including “in lieu” continuation statements) and amendments thereto that describe the Collateral as all assets of Grantor or words of similar effect. Any such financing statements, continuation statements or amendments may be signed by Secured Party on behalf of Grantor and may be filed at any time in any jurisdiction. Grantor also hereby authorizes Secured Party to file any such financing or continuation statement (including “in lieu” continuation statements) without the signature of Grantor. If any amount payable under or in connection with any of the Collateral is or shall become evidenced by any Instrument, such Instrument, other than checks and notes received in the ordinary course of business and any Instrument in the outstanding or stated amount of less than $500,000, shall be duly endorsed in a manner reasonably satisfactory to Secured Party and delivered to Secured Party promptly and in any event within five (5) business days of Grantor’s receipt thereof.

6. Secured Party’s Appointment as Attorney-in-Fact; Performance by Secured Party.

(a) Subject to Section 6(b) below, Grantor hereby irrevocably constitutes and appoints Secured Party, and any officer or agent of Secured Party, with full power of substitution, as its true and lawful attorney-in-fact with full power and authority in the place and stead of Grantor and in the name of Grantor or in its own name, from time to time at Secured Party’s discretion, for the purpose of carrying out the terms of this Security Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Security Agreement and, without limiting the generality of the foregoing, hereby gives Secured Party the power and right, on behalf of Grantor, without notice to or assent by Grantor to do the following:

(i) to ask, demand, collect, receive and give acquittances and receipts for any and all monies due or to become due under any Collateral and, in the name of Grantor, in its own name or otherwise to take possession of, endorse and collect any checks, drafts, notes, acceptances or other Instruments for the payment of monies due under any Collateral and to file any claim or take or commence any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Secured Party for the purpose of collecting any and all such monies due under any Collateral whenever payable;

(ii) to pay or discharge any Liens, including, without limitation, any tax lien, levied or placed on or threatened against the Collateral, to effect any repairs or any insurance called for by the terms of this Security Agreement and to pay all or any part of the

 

12.


premiums therefor and the costs thereof, which actions shall be for the benefit of Secured Party and not Grantor;

(iii) to (1) direct any Person liable for any payment under or in respect of any of the Collateral to make payment of any and all monies due or to become due thereunder directly to Secured Party or as Secured Party shall direct, (2) receive payment of any and all monies, claims and other amounts due or to become due at any time arising out of or in respect of any Collateral, (3) sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts and other Instruments and Documents constituting or relating to the Collateral, (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral, (5) defend any suit, action or proceeding brought against Grantor with respect to any Collateral, (6) settle, compromise or adjust any suit, action or proceeding described above, and in connection therewith, give such discharges or releases as Secured Party may deem appropriate, (7) license, or, to the extent permitted by an applicable License, sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any Copyright, Patent or Trademark throughout the world for such term or terms, on such conditions and in such manner as Secured Party shall in its discretion determine and (8) sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes; and

(iv) to do, at Secured Party’s option and Grantor’s expense, at any time, or from time to time, all acts and things which Secured Party may reasonably deem necessary to protect, preserve or realize upon the Collateral and Secured Party’s security, interest therein in order to effect the intent of this Security Agreement, all as fully and effectively as Grantor might do.

(b) Secured Party agrees that, except during the existence of an Event of Default, it shall not exercise the power of attorney or any rights granted to Secured Party pursuant to this Section 6 . Except where prior notice is expressly required by the terms of this Agreement, Secured Party shall use commercially reasonable efforts to provide notice to Grantor prior to taking any action described in this Section 6 , provided that failure to deliver such notice shall not limit Secured Party’s right to take such action or the validity of any such action. Grantor hereby ratifies, to the extent permitted by law, all that said attorney shall lawfully do or cause to be done by virtue hereof. The power of attorney granted pursuant to this Section 6 is a power coupled with an interest and shall be irrevocable until the Secured Obligations are completely and indefeasibly paid and performed in full and Secured Party no longer has any commitment to make any Loans to Grantor.

(c) If Grantor fails to perform or comply with any of its agreements contained herein and Secured Party, as provided for by the terms of this Security Agreement, shall perform or comply, or otherwise cause performance or compliance, with such agreement, the reasonable expenses, including reasonable attorneys’ fees and costs, of Secured Party incurred in connection with such performance or compliance, together with interest thereon at a rate of interest equal to the highest per annum rate of interest charged on the Loan, shall be payable by Grantor to

 

13.


Secured Party within five (5) business days of demand and shall constitute Secured Obligations secured hereby.

7. Rights And Remedies Upon Default . After any Event of Default shall have occurred and be continuing:

(a) Secured Party may exercise in addition to all other rights and remedies granted to it under this Security Agreement, the IP Security Agreement, the Note and under any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the UCC, any other applicable law or in equity. Without limiting the generality of the foregoing, Grantor expressly agrees that in any such event Secured Party, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the UCC and other applicable law), may (i) reclaim, take possession, recover, store, maintain, finish, repair, prepare for sale or lease, shop, advertise for sale or lease and sell or lease (in the manner provided herein) the Collateral, and in connection with the liquidation of the Collateral and collection of the accounts receivable pledged as Collateral, use any Trademark, Copyright, or process used or owned by Grantor and (ii) forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker’s board or at any Secured Party’s offices or elsewhere at such prices as it may deem commercially reasonable, for cash or on credit or for future delivery without assumption of any credit risk. To the extent Grantor has the right to do so, Grantor authorizes Secured Party, on the terms set forth in this Section 7 to enter the premises where the Collateral is located, to take possession of the Collateral, or any part of it, and to pay, purchase, contact, or compromise any encumbrance, charge, or lien which, in the opinion of Secured Party, appears to be prior or superior to its security interest. Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption Grantor hereby releases. Grantor further agrees, at Secured Party’s request, to assemble the Collateral and make it available to Secured Party at places which Secured Party shall reasonably select, whether at Grantor’s premises or elsewhere. Secured Party shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale as provided in Section 7(f) , below, with Grantor remaining liable for any deficiency remaining unpaid after such application. To the maximum extent permitted by applicable law, Grantor waives all claims, damages, and demands against Secured Party arising out of the repossession, retention or sale of the Collateral. Grantor agrees that Secured Party need not give more than ten (10) days’ notice of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. Grantor shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which Secured Party is entitled from Grantor, Grantor also being liable for the attorney costs of any attorneys employed by Secured Party to collect such deficiency.

 

14.


(b) As to any Collateral constituting certificated securities or uncertificated securities, if, at any time when Secured Party shall determine to exercise its right to sell the whole or any part of such Collateral hereunder, such Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as amended (as so amended the “ Act ”), the Secured Party may, in its discretion (subject only to applicable requirements of law), sell such Collateral or part thereof by private sale in such manner and under such circumstances as Secured Party may deem necessary or advisable, but subject to the other requirements of this Section 7(b) , and shall not be required to effect such registration or cause the same to be effected. Without limiting the generality of the foregoing, in any such event Secured Party may, in its sole discretion, (i) in accordance with applicable securities laws, proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Collateral or part thereof could be or shall have been filed under the Act; (ii) approach and negotiate with a single possible purchaser to effect such sale; and (iii) restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment, and not with a view to the distribution or sale of such Collateral or part thereof. In addition to a private sale as provided above in this Section 7(b) , if any of such Collateral shall not be freely distributable to the public without registration under the Act at the time of any proposed sale hereunder, then Secured Party shall not be required to effect such registration or cause the same to be effected but may, in its sole discretion (subject only to applicable requirements of law), require that any sale hereunder (including a sale at auction) be conducted subject to such restrictions as Secured Party may, in its sole discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may be effected in compliance with the Bankruptcy Code and other laws affecting the enforcement of creditors’ rights and the Act and all applicable state securities laws.

(c) Grantor agrees that in any sale of any of such Collateral, whether at a foreclosure sale or otherwise, Secured Party is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental authority, and Grantor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall Secured Party be liable nor accountable to Grantor for any discount allowed by the reason of the fact that such Collateral is sold in compliance with any such limitation or restriction.

(d) Grantor also agrees to pay all fees, costs and expenses of Secured Party, including, without limitation, reasonable attorneys’ fees, incurred in connection with the enforcement of any of its rights and remedies hereunder.

(e) Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral.

 

15.


(f) The Proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be distributed by Secured Party in the following order of priorities:

First , to Secured Party in an amount sufficient to pay in full the reasonable costs of Secured Party in connection with such sale, disposition or other realization, including all fees, costs, expenses, liabilities and advances incurred or made by Secured Party in connection therewith, including, without limitation, reasonable attorneys’ fees;

Second , to Secured Party the amount of the then unpaid Secured Obligations; and

Finally , upon payment in full of the Secured Obligations, to Grantor or its representatives, in accordance with the UCC or as a court of competent jurisdiction may direct.

8. Indemnity . Grantor agrees to defend, indemnify and hold harmless Secured Party, its respective partners, managing members, affiliates, employees, agents, counsel and other advisors against (each, an “ Indemnitee ”) (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Security Agreement or the IP Security Agreement and (b) all losses or expenses in any way suffered, incurred, or paid by any Secured Party as a result of or in any way arising out of, following or consequential to transactions between any Secured Party and Grantor, whether under this Security Agreement, the IP Security Agreement or otherwise (including without limitation, reasonable attorney’s fees and expenses), except for losses arising from or out of (i) such Secured Party’s gross negligence or willful misconduct or (ii) a claim brought by Grantor against an Indemnitee for breach in bad faith of such Indemnitee’s obligations under this Security Agreement or the IP Security Agreement.

9. Limitation on Secured Party’s Duty in Respect of Collateral . Secured Party shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it takes such action as Grantor requests in writing except during an Event of Default, but failure of Secured Party to comply with any such request shall not in itself be deemed a failure to act reasonably, and no failure of Secured Party to do any act not so requested shall be deemed a failure to act reasonably

10. Reinstatement . This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Grantor for liquidation or reorganization, should Grantor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Grantor’s property and assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

 

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11. Miscellaneous.

11.1 Waivers; Modifications . None of the terms or provisions of this Security Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by Grantor and Secured Party.

11.2 Termination of this Security Agreement . Subject to Section 10 hereof, this Security Agreement and the security interest in the Collateral created hereby shall terminate upon the payment and performance in full of the Secured Obligations.

11.3 Successor and Assigns . This Security Agreement and all obligations of Grantor hereunder shall be binding upon the successors and assigns of Grantor, and shall, together with the rights and remedies of Secured Party, inure to the benefit of Secured Party, any future holder of any of the Secured Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Secured Obligations or any portion thereof or interest therein shall in any manner affect the lien granted to Secured Party hereunder.

11.4 Governing Law . In all respects, including all matters of construction, validity and performance, this Security Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, except to the extent that the UCC provides for the application of the law of a different jurisdiction.

(Signature Pages Follow)

 

17.


IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer on the date first set forth above.

 

GRANTOR:

ZP HOLDINGS, INC.

a Delaware corporation

By:  

/s/ Vikram Lamba

Name:  

 

Title:  

 

Address:
 

34790 Ardentech Court

 

Fremont, CA 94555

( Signature Page to Security Agreement )


SECURED PARTY:

BIOMED REALTY HOLDINGS, INC.

a Maryland corporation

By:  

/s/ Greg N. Lubushkin

Name:  

Greg N. Lubushkin

Title:  

CFO

( Signature Page to Security Agreement )


Schedule A

Liens Existing on the date of this Security Agreement

None, other than liens created pursuant to the Transaction Documents (as defined in the Note).


Schedule B

Location of Goods

 

E NTITY   A DDRESS
ZP Holdings, Inc.  

34790 Ardentech Court

Fremont, California 94555

510-745-1200

Zosano Pharma, Inc.  

34790 Ardentech Court

Fremont, California 94555

510-745-1200


Schedule C

Chattel Paper, Instruments, and Investment Property

(certificated securities)

Stock certificate representing all of the outstanding shares of capital stock of Zosano Pharma, Inc.


Schedule D

Deposit Accounts, Securities Accounts and Commodity Accounts

Silicon Valley Bank

3003 Tasman, Santa Clara, CA 95054

Checking Accounts :

Account holder: ZP Holdings, Inc.

Account number: 3300866478

Account holder: Zosano Pharma, Inc.

Account number: 300536298

Certificate of Deposit :

Account holder: Zosano Pharma, Inc.

CD number: 8800062146


Exhibit 1

Form of IP Security Agreement


Exhibit 2

Form of Pledge Agreement


LLC PLEDGE AGREEMENT

This LLC PLEDGE AGREEMENT, dated as of April 26, 2012 (together with all amendments, restatements, supplements or other modifications, if any, from time to time hereto, this “ Agreement ”) is entered into among Zosano Pharma, Inc., a Delaware corporation (“ Pledgor ”), and BioMed Realty Holdings, Inc., a Maryland corporation (“ BioMed ”) (together with any future assignees and successors, the “ Secured Party ”).

W I T N E S S E T H:

WHEREAS, Pledgor is the record and beneficial owner of 50% of the limited liability company membership interests of ZP Group LLC, a Delaware limited liability company (“ Pledged Entity ”), as set forth on Schedule I hereto (the “ Initial Pledged LLC Interests ”);

WHEREAS, Pledgor has agreed to enter into that certain Limited Liability Company Agreement dated as of April 1, 2012 by and among Pledged Entity, Pledgor, and AKP USA, Inc., a Delaware corporation (“ AKP ”) (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified, the “ LLC Agreement ”);

WHEREAS, Pledgor and ZP Holdings, Inc., a Delaware corporation (“ ZP Holdings ”), have each agreed to enter into that certain Secured Promissory Note of even date hereof with BioMed (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified, the “ Secured Note ”) and the other Transaction Documents (as defined therein) in connection therewith;

WHEREAS, Pledgor benefits from the terms of the Secured Note and the other Transaction Documents; and

WHEREAS, in order to induce BioMed to agree to the terms of the Secured Note, Pledgor has agreed to pledge the Pledged Collateral to Secured Party in accordance herewith.

NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and to induce BioMed to enter into the Secured Note, it is agreed as follows:

1. Definitions . Unless otherwise defined herein, terms defined in the LLC Agreement are used herein as therein defined, and the following shall have (unless otherwise provided elsewhere in this Agreement) the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined):

“Additional Pledged LLC Interests means all membership interests of Pledged Entity acquired by Pledgor after the date hereof.

“Bankruptcy Code” means the provisions of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq ., as amended or supplemented from time to time, or any successor statute, and any and all rules and regulations issued or promulgated in connection therewith.

 

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Event of Default ” means (a) a breach or default by Pledgor of any covenant or obligation set forth in the LLC Agreement or this Agreement and such breach of default continues unremedied for a period of thirty (30) days following written notice of such breach or default is given by the Secured Party to Pledgor or (b) an “Event of Default” as defined in the Secured Note.

Lien ” means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing and (ii) any purchase option, call or similar right of a third party with respect to any Pledged LLC Interests.

LLC Manager ” means the Manager of the Pledged Entity designated by Pledgor pursuant to Section 2.2(a)(ii) of the LLC Agreement.

Pledged Collateral ” has the meaning assigned to such term in Section 2 hereof.

Pledged LLC Interests ” means Initial Pledged LLC Interest and any Additional Pledged LLC Interests.

Proceeds ” has the meaning set forth in Section 9-102(a)(64) of the UCC.

Secured Obligations ” has the meaning assigned to such term in Section 3 hereof.

UCC ” shall mean the Uniform Commercial Code as in effect from time to time in the State of New York; provided, however, that in the event that, by reason of mandatory provisions of law, any or all of the perfection or priority of, or remedies with respect to, any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions hereof relating to such perfection, priority or remedies.

2. Pledge . Pledgor hereby pledges and grants to Secured Party a first priority security interest in all of the following (collectively, the “ Pledged Collateral ”):

(a) The Pledged LLC Interests and the certificates representing the Pledged LLC Interests, if any, any securities entitlements relating thereto, including all voting rights associated with the Pledged LLC Interests, and all cash or non-cash dividends and distributions, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged LLC Interests;

(b) All options, rights or other agreements of Pledgor relating to the Pledged LLC Interests or the Pledged Entity;

(c) All management and other rights of Pledgor under the LLC Agreement;

(d) All rights of Pledgor under any shareholder or voting trust agreement or similar agreement relating to the Pledged LLC Interests; and

 

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(e) All Proceeds of the foregoing.

3. Security for Obligations . This Agreement secures, and the Pledged Collateral is security for, the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise, and performance of all Obligations (as defined in the Secured Note) of any kind under or in connection with the Secured Note, by either ZP Holdings or the Pledgor, and all obligations of Pledgor now or hereafter existing under this Agreement including, without limitation, all fees, costs and expenses whether in connection with collection actions hereunder or otherwise (collectively, the “ Secured Obligations ”).

4. Delivery of Pledged Collateral . All certificates and instruments, if any, evidencing the Initial Pledged LLC Interests shall be delivered to Secured Party on or prior to the date hereof and held by or on behalf of Secured Party pursuant hereto. All certificates and instruments, if any, evidencing any Additional Pledged LLC Interests or other Pledged Collateral shall be delivered to Secured Party promptly after Pledgor acquires rights therein and held by or on behalf of Secured Party pursuant hereto. All Pledged LLC Interests or other Pledged Collateral delivered to the Secured Party shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party.

5. Representations and Warranties . Pledgor represents and warrants to Secured Party that:

(a) Pledgor is, and at the time of delivery of the Pledged LLC Interests to BioMed will be, the sole holder of record and the sole beneficial owner of such Pledged Collateral pledged by Pledgor free and clear of any Lien thereon or affecting the title thereto, except for any Lien created by this Agreement or pursuant to Section 9.2(a), 9.2(b), 9.4(a) or 9.5 of the Limited Liability Company Agreement dated as of April 1, 2012 by and among Pledged Entity, Pledgor and AKP (not including any amendments or modifications thereto after such date, the “ Current LLC Agreement ”);

(b) Subject to Section 9.2, 9.4(a) and 9.5 of the Current LLC Agreement, Pledgor has the corporate power and requisite authority to pledge, assign, transfer, deliver, deposit and set over the Pledged Collateral pledged by Pledgor to Secured Party as provided herein;

(c) As of the date hereof, there are no existing options, warrants, calls or commitments of any character whatsoever relating to the Pledged LLC Interests, except as set forth in the LLC Agreement;

(d) No consent, approval, authorization or other order or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required (i) for the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by Pledgor, or (ii) for the exercise by Secured Party of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement, except as set forth in the LLC Agreement or as may be required in connection with such disposition by laws affecting the offering and sale of securities generally;

(e) All of the Initial Pledged LLC Interests were validly issued to Grantor, and, except as set forth in Section 9.4 of the LLC Agreement, any purchasers of the Pledged LLC Interests will

 

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not have any obligation pursuant to the LLC Agreement to make additional payments to the Pledged Entity or its creditors (other than the purchase price for the securities) or contributions to the Pledged Entity or its creditors solely by reason of the purchasers’ purchase of the Pledged LLC Interests.

(f) The pledge, assignment and delivery of the Pledged Collateral pursuant to this Agreement will create a valid security interest in favor of the Secured Party in the Pledged Collateral and the proceeds thereof, securing the payment of the Secured Obligations, subject to no other Lien except pursuant to the LLC Agreement;

(g) This Agreement has been duly authorized, executed and delivered by Pledgor and constitutes a legal, valid and binding obligation of Pledgor enforceable against Pledgor in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability;

(h) Pledgor has been duly incorporated under the laws of the state of Delaware and remains validly existing in good standing under the laws of Delaware. The full legal name of Pledgor is as set forth on the signature pages hereof and it has not done in the last five (5) years, and does not do, business under any other name (including any trade-name or fictitious business name) other than “The MacroFlux Corporation”; and

(i) No effective UCC financing statement, fixture filing or other instrument similar in effect under any applicable law covering all or any part of the Pledged Collateral is on file in any filing or recording office.

6. Covenants and Agreements . Pledgor covenants and agrees that during the term of this Agreement:

(a) Without the prior written consent of Secured Party, Pledgor will not sell, assign, transfer, pledge, or otherwise encumber any of its rights in or to the Pledged Collateral, or any unpaid dividends, interest or other distributions or payments with respect to the Pledged Collateral or grant a Lien in the Pledged Collateral, except for a sale to AKP pursuant to Section 9.2(b) of the LLC Agreement;

(b) In the event that AKP transfers its limited liability company membership interest in the Pledged Entity to Pledgor under Section 9.3 of the LLC Agreement, then the Pledgor will cause (i) the Pledged Entity to expressly agree to the terms and conditions of the Secured Note and to agree to take all actions necessary or desirable to further any of the obligations of either the Pledgor or ZP Holdings to BioMed pursuant to the Secured Note and (ii) the Pledged Entity’s assets to become subject to the terms of Security Agreement of even date herewith between BioMed and ZP Holdings.

(c) Pledgor will, at its expense, promptly execute, acknowledge and deliver all such instruments and take all such actions as Secured Party from time to time may reasonably request in order to ensure to Secured Party the benefits of the Liens in and to the Pledged Collateral intended to be created by this Agreement, including the filing of any necessary UCC financing statements, which may be filed by Secured Party with or (to the extent permitted by law) without

 

10


the signature of Pledgor, and will cooperate with Secured Party, at Pledgor’s expense, in obtaining all necessary approvals and making all necessary filings under federal, state, local or foreign law in connection with such Liens or any sale or transfer of the Pledged Collateral;

(d) Pledgor has and will defend the title to the Pledged Collateral and the Liens of Secured Party in the Pledged Collateral against the claim of any Person (except for AKP pursuant to Section 9.2(b) of the LLC Agreement) and will maintain and preserve such Liens; and

(e) Pledgor hereby irrevocably consents to the transfer and conveyance of the Pledged LLC Interests in the event that the Secured Party exercises its rights pursuant to Section 8(a) in the Event of Default and Pledgor hereby irrevocably consents to the amendment to the LLC Agreement pursuant to Section 2.6 thereof, which shall include such modifications to the LLC Agreement as the Pledgor deems reasonably necessary to effect the exercise of its rights hereunder. Pledgor further covenants to take any such actions as may be reasonably necessary to effectuate the rights of the Secured Party pursuant to Section 8 .

7. Intentionally Omitted

8. Defaults and Remedies; Proxy .

(a) Upon the occurrence of and during the continuation of any Event of Default, and concurrently with written notice to Pledgor, Secured Party (personally or through an agent) may exercise one or more of the following rights or remedies: (i) to exercise the voting and all other rights as a holder with respect to the Pledged LLC Interests; (ii) to collect and receive all cash dividends, interest, principal and other distributions made on the Pledged LLC Interests; or (iii) to exercise and enforce any or all rights and remedies available upon default to a secured party under the UCC, including the sell in one or more sales after ten (10) days’ notice of the time and place of any public sale or of the time at which a private sale is to take place (which notice Pledgor agrees is commercially reasonable) the whole or any part of the Pledged Collateral. Any sale shall be made at a public or private sale at Secured Party’s place of business, or at any place to be named in the notice of sale, either for cash or upon credit or for future delivery at such price as Secured Party may deem fair, and Secured Party may be the purchaser of the whole or any part of the Pledged Collateral so sold and hold the same thereafter in its own right free from any claim of Pledgor or any right of redemption. Each sale shall be made to the highest bidder, but Secured Party reserves the right to reject any and all bids at such sale which, in its discretion, it shall deem inadequate. UPON THE OCCURRENCE OF AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT AS SET FORTH ABOVE, PLEDGOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS SECURED PARTY AS THE PROXY AND ATTORNEY-IN-FACT OF PLEDGOR WITH RESPECT TO THE PLEDGED COLLATERAL FOR THE CONTINUATION OF THE EVENT OF DEFAULT UNTIL SUCH TIME AS THE EVENT OF DEFAULT IS CURED OR THE PLEDGED LLC INTERESTS ARE SOLD IN ACCORDANCE WITH SECTION 8(A)(III). THE APPOINTMENT OF SECURED PARTY AS PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF THE PLEDGED LLC INTERESTS WOULD BE ENTITLED (INCLUDING THE RIGHT TO VOTE THE PLEDGED LLC INTERESTS, WITH FULL

 

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POWER OF SUBSTITUTION TO DO SO AND ALL RIGHTS SET FORTH IN THE LLC AGREEMENT). SUCH PROXY SHALL BECOME EFFECTIVE AS SET FORTH IN THIS SECTION 8(A), AUTOMATICALLY AND WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY PLEDGED LLC INTERESTS ON THE RECORD BOOKS OF PLEDGED ENTITY) BY ANY PERSON (INCLUDING PLEDGED ENTITY OR ANY OFFICER OR SECURED PARTY THEREOF). NOTWITHSTANDING THE FOREGOING, SECURED PARTY SHALL NOT HAVE ANY DUTY TO EXERCISE ANY SUCH RIGHT OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO.

(b) If, at any time when Secured Party shall determine to exercise its right to sell the whole or any part of the Pledged Collateral hereunder, such Pledged Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as amended (or any similar statute then in effect) (the “ Act ”), Secured Party may, in its discretion (subject only to applicable requirements of law), sell such Pledged Collateral or part thereof by private sale in such manner and under such circumstances as Secured Party may deem necessary or advisable, but subject to the other requirements of this Section 8 and the UCC, and shall not be required to effect such registration or to cause the same to be effected. Without limiting the generality of the foregoing, in any such event, subject to the requirements of the UCC, Secured Party in its discretion (i) may, in accordance with applicable securities laws, proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Collateral or part thereof could be or shall have been filed under said Act (or similar statute), (ii) may approach and negotiate with a single possible purchaser to effect such sale, and (iii) may restrict such sale to a purchaser who is an accredited investor under the Act and who will represent and agree that such purchaser is purchasing for its own account, for investment and not with a view to the distribution or sale of such Pledged Collateral or any part thereof. In addition to a private sale as provided above in this Section 8 , if any of the Pledged Collateral shall not be freely distributable to the public without registration under the Act (or similar statute) at the time of any proposed sale pursuant to this Section 8 , then Secured Party shall not be required to effect such registration or cause the same to be effected but, in its discretion (subject only to applicable requirements of law), may require that any sale hereunder (including a sale at auction) be conducted subject to restrictions:

(i) as to the financial sophistication and ability of any Person permitted to bid or purchase at any such sale;

(ii) as to the content of legends to be placed upon any certificates representing the Pledged Collateral sold in such sale, including restrictions on future transfer thereof;

(iii) as to the representations required to be made by each Person bidding or purchasing at such sale relating to that Person’s access to financial information about Pledgor and such Person’s intentions as to the holding of the Pledged Collateral so sold for investment for its own account and not with a view to the distribution thereof; and

(iv) as to such other matters as Secured Party may, in its discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may

 

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be effected in compliance with the Bankruptcy Code and other laws affecting the enforcement of creditors’ rights and the Act and all applicable state securities laws.

(c) Pledgor recognizes that Secured Party may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof in accordance with clause (b)  above. Pledgor also acknowledges that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private. Secured Party shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit Pledged Entity to register such securities for public sale under the Act, or under applicable state securities laws, even if Pledgor and Pledged Entity would agree to do so.

(d) Pledgor agrees to the maximum extent permitted by applicable law that following the occurrence and during the continuance of an Event of Default it will not at any time plead, claim or take the benefit of any appraisal, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Agreement, or the absolute sale of the whole or any part of the Pledged Collateral or the possession thereof by any purchaser at any sale hereunder, and Pledgor waives the benefit of all such laws to the extent it lawfully may do so. No failure or delay on the part of Secured Party to exercise any such right, power or remedy and no notice or demand which may be given to or made upon Pledgor by Secured Party with respect to any such remedies shall operate as a waiver thereof, or limit or impair Secured Party’s right to take any action or to exercise any power or remedy hereunder, without notice or demand, or prejudice its rights as against Pledgor in any respect.

(e) Pledgor further agrees that a breach of any of the covenants contained in this Section 8 will cause irreparable injury to Secured Party, that Secured Party shall have no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 8 shall be specifically enforceable against Pledgor, and Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that the Secured Obligations are not then due and payable in accordance with the agreements and instruments governing and evidencing such obligations.

9. Waiver . No delay on Secured Party’s part in exercising any power of sale, Lien, option or other right hereunder, and no notice or demand which may be given to or made upon Pledgor by Secured Party with respect to any power of sale, Lien, option or other right hereunder, shall constitute a waiver thereof, or limit or impair Secured Party’s right to take any action or to exercise any power of sale, Lien, option, or any other right hereunder, without notice or demand, or prejudice Secured Party’s rights as against Pledgor in any respect.

10. Assignment . The provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. No party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other party provided that the Secured Party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of Pledgor to

 

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the acquirer, the surviving entity or the entity that controls such surviving entity in the event of its merger or consolidation or change in control or similar transaction of the Secured Party.

11. Termination . This Agreement shall terminate and, except as otherwise provided herein, all of the Pledgor’s obligations hereunder shall terminate upon the earlier of: (i) the sale of the Pledged LLC Interests pursuant to Section 8(a)(iii) of this Agreement, (ii) the payment in full and/or satisfaction of any and all Secured Obligations, (iii) the dissolution and winding up of the Pledged Entity and (iv) the liquidation of the Pledged Entity.

12. Lien Absolute and Unconditional; Waiver of Suretyship Defenses .

(a) All rights of Secured Party hereunder, and all obligations of Pledgor hereunder, shall be absolute and unconditional during the term of this Agreement irrespective of, and Pledgor hereby waives any defense based on:

(i) any lack of validity or enforceability of the LLC Agreement, the Secured Notes, the other Transaction Documents or any other agreement or instrument governing or evidencing any Secured Obligations;

(ii) any defense, set-off or counterclaim (other than a defense of payment in full) which may at any time be available to or be asserted by Pledgor or any other Person against Secured Party;

(iii) any change in the time, manner or place of payment of, or in any other term of, all or any part of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the LLC Agreement, the Secured Notes, the other Transaction Documents, or any other agreement or instrument governing or evidencing any Secured Obligations;

(iv) any exchange, release or non-perfection of any other Collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations;

(v) the insolvency of Pledgor;

(vi) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor; or

(vii) any exchange, release and/or surrender of all or any of the collateral securing the Secured Obligations (including, without limitation, the Pledged Collateral), or any part thereof, by whomsoever deposited, which is now or may hereafter be held by Secured Party in connection with all or any of the Secured Obligations; all in such manner and upon such terms as Secured Party may deem proper, and without notice to or further assent from Pledgor, it being hereby agreed that Pledgor shall be and remain bound upon this Agreement, irrespective of the value or condition of any of the Collateral, and notwithstanding any such change, exchange, settlement, compromise, surrender, release, renewal or extension, and notwithstanding also that the Secured Obligations may, at any time, exceed the aggregate principal amount thereof set forth in the Secured Note, or any other agreement governing any Secured Obligations. Pledgor

 

14


hereby waives notice of acceptance of this Agreement, and also presentment, demand, protest and notice of dishonor of any and all of the Secured Obligations, and promptness in commencing suit against any party hereto or liable hereon, and in giving any notice to or of making any claim or demand hereunder upon Pledgor. No act or omission of any kind on Secured Party’s part not in breach of this Agreement shall in any event affect or impair its rights under this Agreement.

(b) Pledgor hereby waives any and all notice of the creation, renewal, extension or accrual of any of the Secured Obligations and notice of or proof of reliance by Secured Party upon Pledgor’s obligations under this Agreement; the Secured Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon Pledgor’s obligations under this Agreement; and all dealings between Pledgor, on the one hand, and Secured Party, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon Pledgor’s obligations under this Agreement.

(c) Pledgor hereby waives diligence, presentment, demand or protest (to the extent permitted by applicable law) of any kind in connection with this Agreement or any collateral securing the Secured Obligations, including, without limitation, the Pledged Collateral. Except for notices provided for herein, Pledgor hereby waives notice (to the extent permitted by applicable law) of any kind in connection with this Agreement or any collateral securing the Secured Obligations, including, without limitation, the Pledged Collateral. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against Pledgor, Secured Party may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against Pledgor or any other Person or against any collateral security or guarantee for the Secured Obligations or any right of offset with respect thereto, and any failure by Secured Party to make any such demand, to pursue such other rights or remedies or to collect any payments from Pledgor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of Pledgor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve Pledgor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of Secured Party against Pledgor. For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.

13. Reinstatement . This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Pledgor or Pledged Entity for liquidation or reorganization, should Pledgor or Pledged Entity become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Pledgor’s or Pledged Entity’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference”, “fraudulent conveyance”, or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

 

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14. Miscellaneous .

(a) Secured Party may execute any of its duties hereunder by or through agents or employees and shall be entitled to advice of counsel concerning all matters pertaining to its duties hereunder.

(b) Pledgor agrees to promptly reimburse Secured Party for actual out-of-pocket expenses, including, without limitation, reasonable counsel fees, incurred by Secured Party in connection with the administration and enforcement of this Agreement.

(c) THIS AGREEMENT SHALL BE BINDING UPON PLEDGOR AND ITS SUCCESSORS AND ASSIGNS (INCLUDING A DEBTOR-IN-POSSESSION ON BEHALF OF PLEDGOR), AND SHALL INURE TO THE BENEFIT OF, AND BE ENFORCEABLE BY, SECURED PARTY AND ITS SUCCESSORS AND ASSIGNS AND NONE OF THE TERMS OR PROVISIONS OF THIS AGREEMENT MAY BE WAIVED, ALTERED, MODIFIED OR AMENDED EXCEPT IN WRITING DULY SIGNED FOR AND ON BEHALF OF SECURED PARTY AND PLEDGOR. THIS AGREEMENT AND ANY CLAIM OR CONTROVERSY ARISING OUT OF THE SUBJECT MATTER HEREOF (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE) SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (OTHER THAN ANY CHOICE OF LAW RULES THAT WOULD RESULT IN THE APPLICATION OF LAWS OTHER THAN THE LAW OF THE STATE OF NEW YORK).

(d) EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW YORK AND OF THE FEDERAL COURTS LOCATED IN NEW YORK CITY, NEW YORK IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.

15. Severability . If for any reason any provision or provisions hereof are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or effect those portions of this Agreement which are valid.

16. Notices . Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon any other a communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and either shall be delivered in person or sent by registered or certified mail, return receipt requested, with proper postage prepaid, or by facsimile transmission and confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided herein:

(a) If to Secured Party, at:

Biomed Realty Holdings, Inc.

17190 Bernardo Center Drive

San Diego, CA 92128

 

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Attn: Corporate Legal

(b) If to Pledgor, at:

Zosano Pharma, Inc.

34790 Ardentech Court

Fremont, CA 94555

Attn: Chief Executive Officer

or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly served, given or delivered (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 16 ), (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid, or (d) when delivered, if hand-delivered by messenger. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication.

17. Section Titles . The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

18. Counterparts . This Agreement may be executed in any number of counterparts, which shall, collectively and separately, constitute one agreement.

19. Benefit of Secured Party . All security interests granted or contemplated hereby shall be for the benefit of Secured Party, and all proceeds or payments realized from the Pledged Collateral in accordance herewith shall be applied to those obligations owed to Secured Party under or in connection with the terms of the Secured Note or any of the other Transaction Documents entered into in connection therewith.

( signature page follows )

 

17


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above.

 

ZOSANO PHARMA, INC.
By:  

 

Name:  

 

Title:  

 

BIOMED REALTY HOLDINGS, INC.
By:  

 

Name:  

 

Title:  

 


SCHEDULE I

Initial Pledged LLC Interests

50 units of membership interest in ZP Group LLC, a Delaware limited liability company.


Exhibit 3

Form of Support Agreement


SUPPORT AGREEMENT

This SUPPORT AGREEMENT, dated as of April 26, 2012 (this “ Agreement ”) is entered into among Zosano Pharma, Inc., a Delaware corporation (“ Zosano ”), BioMed Realty Holdings, Inc., a Maryland corporation (“ BioMed ”), ZP Group LLC, a Delaware limited liability company (the “ Company ”), AKP USA, Inc., a Delaware corporation (“ AKP ”), and Vikram Lamba solely in his capacity as the Zosano Board Designee (as defined below).

W I T N E S S E T H:

WHEREAS, Zosano and AKP own all of the limited liability company membership interests of the Company, and have each entered into that certain Limited Liability Company Agreement dated as of April 1, 2012 by and among the Company, AKP, and Zosano (including all annexes, exhibits and schedules thereto, and as from time to time amended, supplemented or otherwise modified, the “ LLC Agreement ”); and

WHEREAS, Zosano and ZP Holdings, Inc. (“ ZP Holdings ”) have each agreed to enter into that certain Secured Promissory Note of even date hereof with BioMed (including all exhibits and schedules thereto, and as from time to time amended, supplemented or otherwise modified, the “ Secured Note ”);

NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and to induce BioMed to enter into the Secured Note, the parties each agree as follows:

20. Covenants .

(a) Negative Covenants . Without BioMed’s prior written consent, Zosano shall neither permit the Company to approve nor direct or permit the manager of the Company designated by Zosano pursuant to Section 2.2(a) of the LLC Agreement (the “ Zosano Board Designee ”) to approve, and the Zosano Board Designee shall not approve, any of the actions requiring unanimous approval set forth in Sections 2.6(d)(i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi), (xiii) and (xiv) of the LLC Agreement as in effect on the date hereof.

(b) Acknowledgement and Release .

(a) Each of the Company and AKP acknowledges the restrictions on Zosano and the Zosano Board Designee pursuant to BioMed’s consent right under Section 1.1 above, and, in consideration of good and valuable consideration, each of the Company and AKP hereby unconditionally releases and forever discharges each of Zosano and the Zosano Board Designee from any and all claims of liability, whether legal or equitable, for any act or omission by the Zosano Board Designee (in his capacity as a manager of the Company) arising out of or resulting from the restrictions on Zosano and the Zosano Board Designee pursuant to BioMed’s consent right under Section 1.1 of this Agreement.

(b) In consideration of the covenant made by the Zosano Board Designee in Section 1.1 hereof and other good and valuable consideration, BMR hereby unconditionally releases and forever discharges the Zosano Board Designee from any and all claims of legal liability,

 

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including but not limited to monetary damages, with respect to any breach or non-fulfillment (or alleged breach or non-fulfillment) of Section 1.1 hereof; provided, however, that the Zosano Board Designee agrees that the covenant made by it in Section 1.1 shall be specifically enforceable against the Zosano Board Designee in his capacity as a manager of the Company.

21. Waiver; Equitable Remedies . No delay on BioMed’s part in exercising any right hereunder, and no notice or demand which may be given to or made upon Zosano, the Company or AKP by BioMed with respect to any right hereunder, shall constitute a waiver thereof, or limit or impair BioMed’s right to take any action or to exercise right hereunder, without notice or demand, or prejudice BioMed’s rights in any respect. The parties agree that BioMed shall have no adequate remedy at law in respect of the breach of any of the covenants contained in Section 1.1 or Section 6 hereof and, as a consequence, agree that each and every covenant contained in Section 1.1 and Section 6 hereof shall be specifically enforceable against the applicable party or parties, and each such party hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that the Obligations pursuant to the Secured Note have been satisfied in accordance with the Secured Note (and, in the case of the Zosano Board Designee, that he was not a manager of the Company at the time of such breach).

22. Assignment . The provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. No party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other parties, provided that (i) BioMed may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other parties to the acquirer, the surviving entity or the entity that controls such surviving entity in the event of BioMed’s merger or consolidation or change in control or similar transaction of BioMed and (ii) the LLC Manager may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other parties to any successor manager of the Company designated by Zosano pursuant to Section 2.2(a) of the LLC Agreement.

23. Termination . This Agreement shall terminate and, except as otherwise provided herein, all of the parties’ obligations hereunder shall terminate upon the earlier of (i) payment in full and/or satisfaction of any and all Obligations pursuant to the Secured Note and (ii) such time following the transfer of AKP’s limited liability company membership interest in the Company to Zosano pursuant to Section 9.3 of the LLC Agreement as the Company, in accordance with Section 6(b) of the Pledge Agreement, becomes party to the Secured Note, its assets become subject to the related security obligations, and it takes all actions necessary to further the obligations of either ZP Holdings or Zosano to BioMed pursuant to such Secured Note.

24. Reinstatement . This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any of the parties for liquidation or reorganization, should any of the parties become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of any such party’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the obligations hereunder, is, pursuant to applicable law, rescinded or limited, or any payments related thereto must otherwise be restored or returned by any obligee any such obligations or payments, whether as a “voidable preference”, “fraudulent conveyance”, or otherwise, all as though such payment or performance had not been made. In

 

22


the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the obligations hereunder shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

25. Lien Priority . Notwithstanding anything to the contrary set forth in the LLC Agreement, until all of the Obligations have been fully and forever satisfied, each of Zosano, the Company and AKP hereby agrees that (i) BioMed shall have a first priority security interest in and to all right, title and interest in any membership units of the Company held by Zosano and (ii) each of Zosano, the Company and AKP shall forbear from taking any action pursuant to the LLC Agreement or otherwise in contravention of the forgoing clause (i) of this Section 6. BioMed hereby acknowledges the restrictions on transfer of the limited liability company membership interests of the Company set forth in Article 9 of the LLC Agreement as in effect on the date hereof.

 

26. Miscellaneous .

(a) None of the terms or provisions of this Agreement may be waived, altered, modified or amended except in writing duly signed for and on behalf of each of the parties hereto. Zosano agrees to promptly reimburse BioMed for actual out-of-pocket expenses, including, without limitation, reasonable counsel fees, incurred by BioMed in connection with the enforcement of this Agreement against Zosano. Neither BioMed, nor any of its respective officers, directors, employees or agents shall be liable for any action lawfully taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own gross negligence or willful misconduct, or (in the case of only BioMed) in breach of this Agreement.

(b) THIS AGREEMENT AND ANY CLAIM OR CONTROVERSY ARISING OUT OF THE SUBJECT MATTER HEREOF (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE) SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (OTHER THAN ANY CHOICE OF LAW RULES THAT WOULD RESULT IN THE APPLICATION OF LAWS OTHER THAN THE LAW OF THE STATE OF NEW YORK). EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW YORK AND OF THE FEDERAL COURTS LOCATED IN NEW YORK CITY, NEW YORK IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.

(c) If for any reason any provision or provisions hereof are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or effect those portions of this Agreement which are valid. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. This Agreement may be executed in any number of counterparts, which shall, collectively and separately, constitute one agreement.

( signature page follows )

 

23


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above.

 

ZP GROUP LLC
By:  

 

Name:  

 

Title:  

 

AKP USA, INC.
By:  

 

Name:  

 

Title:  

 

ZOSANO PHARMA, INC.
By:  

 

Name:  

 

Title:  

 

BIOMED REALTY HOLDINGS, INC.
By:  

 

Name:  

 

Title:  

 

LLC MANAGER:

 

Vikram Lamba


Exhibit 4

UCC-1 Financing Statement

[See attached]

Exhibit 10.7

ZP HOLDINGS, INC.

INTELLECTUAL PROPERTY SECURITY AGREEMENT

THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (this “ Agreement ”) is entered into as of April 26, 2012 by and among ZP Holdings, Inc., a Delaware corporation, (“ Grantor ”), and BioMed Realty Holdings, Inc., a Maryland corporation (“ Secured Party ”).

RECITALS

A. Secured Party has made certain financial accommodations to Grantor as evidenced by that certain Secured Promissory Note dated as of even date herewith executed by Grantor in favor of Secured Party (the “ Note ”), such financial accommodations being referred to herein as the “ Loan . ” Secured Party is willing to make the Loan to Grantor, but only upon the condition, among others, that Grantor grant to Secured Party a security interest in certain Intellectual Property of Grantor to secure the obligations of Grantor under the Note, the Security Agreement, the Pledge Agreement, the Support Agreement and this Agreement (collectively, the “ Loan Documents ”).

B. Pursuant to the terms of that certain Security Agreement, dated of even date herewith, by and among Grantor and Secured Party (as the same may be amended, restated, modified or supplemented from time to time, the “ Security Agreement ”), Grantor has granted to Secured Party a security interest in all of Grantor’s right, title and interest in, to or under all of the Grantor’s assets. All capitalized terms used but not otherwise defined herein shall have the respective meanings assigned to them in the Security Agreement.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, and intending to be legally bound, Grantor hereby represents, warrants, covenants and agrees as follows:

As collateral security for the full, prompt, complete and final payment when due (whether at stated maturity, by acceleration or otherwise) of all of the Secured Obligations, Grantor hereby grants and pledges to Secured Party a security interest in all of Grantor’s right, title and interest in, to and under its Intellectual Property (including without limitation those Copyrights, Patents and Trademarks (and applications thereof) listed on Exhibits A , B , and C hereto), including without limitation the right to sue or otherwise recover for any past, present and future infringement, dilution, misappropriation, or other violation or impairment thereof, including the right to receive all proceeds therefrom, including without limitation license fees, royalties, income, payments, claims, damages and proceeds of suit, now or hereafter due and/or payable with respect thereto. Grantor may not sell, lease transfer or otherwise dispose of any Intellectual Property without the consent of Secured Party, other than (a) the granting of Licenses in the ordinary course of business (including exclusive licenses where such exclusivity applies only with respect to the practice of Grantor’s technology platform to develop, manufacture and/or commercialize a particular product, whether on a worldwide basis or in particular geographic areas), in each case upon commercially reasonable terms that are not materially less favorable to Grantor than would be obtained in an arms-length transaction with a non-affiliated Person, where


such licenses or similar arrangements do not comprise the disposition, in a single transaction or series of related transactions, of all or substantially all the assets of Grantor (other than in connection with a Sale (as defined in the Note) in which all of the Obligations (as defined in the Note) are fully satisfied) or (b) pursuant to a Sale (as defined in the Note) in which all of the Obligations (as defined in the Note) are fully satisfied; provided that if Grantor sells, leases, transfers or otherwise disposes of any Intellectual Property upon consent of Secured Party, Secured Party shall retain a security interest in any proceeds that are received in connection with such sale, lease, transfer or other disposition of Intellectual Property.

Notwithstanding the foregoing, the grant, assignment and transfer of a security interest as provided herein shall not extend to “intent-to-use” trademarks at all times prior to the first use thereof, whether by the actual use thereof in commerce, the recording of a statement of use with the United States Patent and Trademark Office or otherwise.

This security interest is granted in conjunction with the security interest granted to Secured Party under the Security Agreement, which is incorporated herein by reference (including, without limitation, Section 11.2 of the Security Agreement). The rights and remedies of Secured Party with respect to the security interest granted hereby are subject to the terms of the Security Agreement and are in addition to those set forth in the Security Agreement and the other Loan Documents, and those which are now or hereafter available to Secured Party as a matter of law or equity. Each right, power and remedy of Secured Party provided for herein or in the Security Agreement or any of the other Loan Documents, or now or hereafter existing at law or in equity shall be cumulative and concurrent and shall be in addition to every right, power or remedy provided for herein and the exercise by the Secured Party of any one or more of the rights, powers or remedies provided for in this Agreement, the Security Agreement or any of the other Loan Documents, or now or hereafter existing at law or in equity, shall not preclude the simultaneous or later exercise by any person, including Secured Party, of any or all other rights, powers or remedies. In the event that any provision of this Agreement is deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall control.

Grantor represents and warrants that Exhibits A , B , and C attached hereto set forth any and all intellectual property rights in connection to which Grantor has registered or filed an application with either the United States Patent and Trademark Office or the United States Copyright Office, as applicable, as of the date first written above.

None of the terms or provisions of this Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by Grantor and Secured Party.

This Agreement and all obligations of Grantor hereunder shall be binding upon the successors and assigns of Grantor, and shall, together with the rights and remedies of Secured Party hereunder, inure to the benefit of Secured Party, any future holder of any of the Secured Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Secured Obligations or any portion thereof or interest therein shall in any manner affect the lien granted to Secured Party hereunder.

In all respects, including all matters of construction, validity and performance, this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the

 

2.


State of New York applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, except to the extent that the UCC provides for the application of the law of a different jurisdiction.

( Signature Pages Follow )


I N W ITNESS W HEREOF , each of Grantor and Secured Party has caused this Agreement to be duly executed by its officers thereunto duly authorized as of the first date written above.

 

GRANTOR:

ZP HOLDINGS, INC.

a Delaware corporation

By:  

/s/ Vikram Lamba

Name:  

 

Title:  

 

Address:
 

34790 Ardentech Court

 

Fremont, CA 94555

 

( Signature Page to IP Security Agreement )


SECURED PARTY

BIOMED REALTY HOLDINGS, INC.

a Maryland corporation

By:  

/s/ Greg N. Lubushkin

Name:  

Greg N. Lubushkin

Title:  

CFO

 

( Signature Page to IP Security Agreement )


Exhibit A

Copyrights

 

ZP Holdings, Inc. Copyrights:   None.
Zosano Pharma, Inc. Copyrights:   None.


Exhibit B

Patents

 

ZP Holdings, Inc. patents:   None.
Zosano Pharma, Inc. patents:   Patent rights licensed pursuant to:
 

•   

  Intellectual Property License Agreement, dated October 5, 2006, by and between the Company and ALZA Corporation.
 

•   

  License Agreement Amendment No. 1, dated October 5, 2006, by and among ALZA Corporation, Carnegie Mellon University and the Company and related Sublicense Agreement by and between the Company and ALZA Corporation, dated October 5, 2006.


Exhibit C

Trademarks

 

ZP Holdings, Inc. trademarks:   None.
Zosano Pharma, Inc. trademarks:   “Zosano Pharma”

Exhibit 10.8

GUARANTY

This Guaranty (this “ Guaranty ”) is made by ZP HOLDINGS, INC. , a Delaware corporation (“ Guarantor ”), in favor of BMR-34790 Ardentech Court LP, a Delaware limited partnership (“ Obligee ,” f.k.a. BMR-34790 Ardentech Court LLC), as of April 1, 2012. All capitalized terms used but not otherwise defined herein shall have the meanings given them in that certain Lease dated as of May 1, 2007, as amended by that certain First Amendment to Lease dated as of June 20, 2008, that certain Second Amendment to Lease dated as of October 16, 2008, that certain Third Amendment to Lease dated as of April 29, 2011, that certain Fourth Amendment to Lease dated as of July 31, 2011, and that certain Fifth Amendment to Lease dated on or about the date hereof (the “ Fifth Amendment ” and, collectively, and as the same may have been further amended, amended and restated, supplemented or modified from time to time, the “ Lease ”), by and between Obligee and Zosano Pharma, Inc., a Delaware corporation (“ Obligor ,” as successor in interest to The Macroflux Corporation.

RECITALS

A. WHEREAS, Obligor is a wholly-owned subsidiary of Guarantor;

B. WHEREAS, Obligor is in default under the Lease and under that certain Amended and Restated Convertible Unsecured Promissory Note dated as of July 31, 2011 (the “ Note ”);

C. WHEREAS, Landlord and Obligor are entering into the Fifth Amendment and other documentation in order to, among other things, settle such defaults and cancel the Note; and

D. WHEREAS, as a material inducement to Obligee to enter into the Fifth Amendment with Obligor, Guarantor now enters into this Guaranty in order to guaranty the payment and performance in full of Obligor’s obligations under the Lease (the “ Obligations ”).

AGREEMENT

NOW, THEREFORE, for good and valuable consideration (including (without limitation) the understanding that Obligee would not enter into the Fifth Amendment were it not for the delivery of this Guaranty by Guarantor), the receipt and adequacy of which are hereby acknowledged, Guarantor hereby agrees as follows:

1. Guarantor unconditionally, absolutely and irrevocably promises to pay and perform all of the Obligations, as and when due. This Guaranty is a continuing Guaranty of the Obligations, including any and all Obligations that are renewed, extended, compromised or restructured from time to time, it being understood, however, that this is a Guaranty of payment and performance and not of collection. This Guaranty is not conditioned or contingent upon the validity or enforceability of the Lease or the pursuit by Obligee of any remedies that it now has or may hereafter have with respect thereto. This Guaranty shall remain effective until the Obligations have been fully paid, performed and discharged and the Obligee has given written notice of that fact to Guarantor; provided , however, that if all or any portion of the Obligations are paid by Obligor or performed by Obligor, then the obligations of Guarantor hereunder shall continue and remain in full force and effect with respect to such payment(s) or performance(s) if all or any part of such payment(s) or performance(s) is avoided or recovered directly or indirectly from Obligor as a preference, fraudulent transfer or otherwise. Guarantor agrees that it is directly and primarily liable to Obligee, that its obligations hereunder are independent of the Obligations and that a separate action or actions may be brought and prosecuted against Guarantor, whether action is brought against Obligor or whether Obligor is joined in any such action or actions.

2. Guarantor hereby authorizes Obligee, without notice or demand upon Guarantor or any other person, without Guarantor’s consent and without affecting Guarantor’s liability hereunder, from time to time to:

(a) renew, compromise, extend, accept partial payments of or restructure the Obligations, or otherwise change the time for payment or the terms of any of the Obligations or any part thereof, including (without limitation) increasing or decreasing any rate of interest applicable to accrual of interest thereon;


(b) waive, amend, rescind or modify any of the terms or provisions of the Lease or any other documents pertaining to the Obligations;

(c) settle, release, compromise, collect or otherwise liquidate the Obligations or any part thereof in any manner as Obligee may determine in its sole discretion; and

(d) assign this Guaranty and Obligee’s rights hereunder without notice in whole or in part to an assignee to whom Obligee’s rights under the Lease are assigned in accordance with the Lease.

Obligee may do any one or all of the foregoing in such a manner, upon such terms and at such times as Obligee, in its sole discretion, deems advisable, without, in any way or respect, impairing, affecting, reducing or releasing Guarantor from its undertakings hereunder, and Guarantor hereby consents to each and all of the foregoing acts, events and occurrences.

3. Guarantor further irrevocably and unconditionally waives each of the following:

(a) Any of Guarantor’s rights of subrogation, reimbursement, indemnification or contribution against Obligor or any other person or entity, and any other rights or defenses that are or may become available to Guarantor or any other person or entity by reason of Sections 2787-2855 (inclusive) of the California Civil Code; and

(b) Any rights or defenses that may be available by reason of any election of remedies by Obligee, including (without limitation) any such election that in any manner impairs, affects, reduces, releases, destroys or extinguishes Guarantor’s subrogation rights, rights to proceed against Obligor for reimbursement, or any other rights of Guarantor to proceed against any other person, entity or security.

4. Guarantor further irrevocably and unconditionally waives all presentments, demands for performance, notices of non-performance, protests, notices of protest, notices of dishonor, notices of default, notices of acceptance of this Guaranty, diligence and notices of the existence, creation or incurrence of the obligations, and all other notices or formalities to which Guarantor otherwise might be entitled under applicable law. Further, as a condition to enforcement of this Guaranty, Obligee shall not be required to, and Guarantor hereby irrevocably and unconditionally waives any and all rights to require Obligee to, prosecute or seek to enforce any remedies against Obligor or any other person or entity liable with respect to the Obligations. This Guaranty shall not be released, modified or affected by any release of any person liable under the terms of the Lease.

5. Any and all present and future obligations of Obligor to Guarantor are hereby irrevocably and unconditionally subordinated to the full payment and performance of this Guaranty.

6. Guarantor represents and warrants that it is informed of the financial condition of Obligor and of all other circumstances that a diligent inquiry would reveal and that bear upon the risk of non-payment of the Obligations. Guarantor further covenants that it shall assume full responsibility for keeping itself informed with respect to Obligor’s financial condition and any other circumstances that might upon bear the risk of non-payment or non-performance of the Obligations. Obligee shall have no obligation to provide Guarantor with notice of any facts or circumstances that may now be known by Obligee, or in the future may be discovered by Obligee, that might bear upon the financial condition of Obligor or the risk of non-payment or non-performance of the Obligations.

7. The obligations of Guarantor under this Guaranty shall not be altered, limited or affected by any case, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Obligor (collectively, “Obligor Insolvency Proceeding”), or any defense that Obligor may have by reason of any order, decree or decision of any court or administrative body resulting from any such case. Any payment that accrues with respect to the Obligations after the commencement of any such proceeding (or, if any such payment ceases to accrue by operation of law by reason of the commencement of such proceeding, such payment as would have accrued if said proceedings had not been commenced) shall be included in Guarantor’s obligations hereunder. In any Obligor Insolvency Proceeding, Guarantor hereby permits any trustee in bankruptcy, receiver, debtor-in-possession, assignee for the benefit of creditors or similar person to pay Obligor, or allow the claim of Obligor in respect

 

2


of, any such payment accruing after the date on which such proceeding is commenced. Guarantor hereby assigns to Obligor, solely to the extent of any payment that accrues with respect to the Obligations that is due and owing but not paid by Obligor or Guarantor, Guarantor’s rights to receive in any Obligor Insolvency Proceeding any payments from any trustee in bankruptcy, receiver, debtor-in-possession, assignee for the benefit of creditors or similar person by way of dividend, adequate protection payment or otherwise.

8. The recitals set forth above are incorporated herein in full. This Guaranty shall be enforced under the laws of the State of California. Guarantor agrees to pay all reasonable attorneys’ fees and all other reasonable costs and out-of-pocket expenses that may be incurred by Obligee in the enforcement or collection of this Guaranty and the Obligations, whether or not suit is filed. Such fees and expenses shall include reasonable fees or expenses incurred as a consequence of or in connection with a bankruptcy of Obligor or Guarantor. All amounts required to be paid to Obligee by Obligor pursuant to the provisions of the Guaranty shall bear interest from and after the date due at a rate of ten percent (10%) per annum. This Guaranty embodies the entire agreement of the parties pertaining to the subject matter hereof. This Guaranty may be amended, modified or supplemented only by a writing executed by each of the parties. The parties agree that any suit, action or proceeding arising out of or relating to this Guaranty, or the interpretation, performance or breach of this Guaranty, shall be instituted in the United States District Court for the Northern District of California or any court of the State of California located in Alameda County, and each party irrevocably submits to the jurisdiction of these courts and waives any and all objections to jurisdiction or venue that it might have under the laws of the State of California or otherwise. Time is of the essence with respect to each provision of this Guaranty. The invalidity or unenforceability of any particular provision of this Guaranty shall not affect the other provisions, and this Guaranty shall be construed in all respects as if any invalid or unenforceable provision were omitted. Each party agrees to perform any and all further acts and to execute and deliver any and all further documents that may be reasonably necessary or requested to effect the provisions of this Guaranty. This Guaranty shall be binding upon Guarantor and Guarantor’s successors and assigns, and shall inure to the benefit of and be enforceable by Obligor and its successors, endorsees and assigns.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as of the date and year first above written.

 

GUARANTOR :

ZP HOLDINGS, INC.,

a Delaware corporation

By:  

/s/ Vikram Lamba

Name:  

 

Its:  

 

Acknowledged and agreed :

BMR-34790 ARDENTECH COURT LP,

a Delaware limited partnership

By:  

/s/ Kevin M. Simonsen

Name:  

Kevin M. Simonsen

Its:  

VP, Real Estate Counsel

 

S IGNATURE P AGE TO G UARANTY

Exhibit 10.9

LEASE

by and between

BMR-34790 ARDENTECH COURT LLC,

a Delaware limited liability company

and

THE MACROFLUX CORPORATION,

a Delaware corporation


LEASE

THIS LEASE (this “ Lease ”) is entered into as of this 1 st day of May, 2007 (the “ Execution Date ”), by and between BMR-34790 ARDENTECH COURT LLC, a Delaware limited liability company (“ Landlord ”), and THE MACROFLUX CORPORATION, a Delaware corporation (“ Tenant ”).

RECITALS

WHEREAS, Landlord owns certain real property (the “ Land ”) and the building improvements thereon located at 34790 Ardentech Court in Fremont, California, including the building located thereon (the “ Building ”) in which the Premises (as defined below) are located (the Land, the Building and any other improvements located on the Land are referred to herein as the “ Property ”); and

WHEREAS, Landlord wishes to lease to Tenant, and Tenant desires to lease from Landlord, the Premises (as defined below) pursuant to the terms and conditions of this Lease, as detailed below.

AGREEMENT

NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:

1. Lease of Premises . Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the premises, which shall consist of the Building (the “ Premises ”).

2. Basic Lease Provisions . For convenience of the parties, certain basic provisions of this Lease are set forth herein. The provisions set forth herein are subject to the remaining terms and conditions of this Lease and are to be interpreted in light of such remaining terms and conditions.

2.1 This Lease shall take effect upon the date of execution and delivery hereof by all parties hereto and, except as specifically otherwise provided within this Lease, each of the provisions hereof shall be binding upon and inure to the benefit of Landlord and Tenant from the date of execution and delivery hereof by all parties hereto; provided, however, and notwithstanding the provisions of Section 3.1 , Tenant’s repair obligations with respect to the Property shall not commence until the Tenant begins to occupy the Premises as provided in Section 4.4 below.

2.2 Rentable Area of the Premises: 55,588 sq. ft., subject to adjustment pursuant to the terms hereof

2.3 [Intentionally omitted]

2.4 [Intentionally omitted]

2.5 [Intentionally omitted]

2.6 Initial Monthly Rental Installments of Basic Annual Rent: 55,588 s.f. x $2.49 per s.f. = $138,414.12, subject to adjustment pursuant to the terms hereof

2.7 Initial Basic Annual Rent: 55,588 s.f. x $2.49 per s.f. x 12 months = $1,660,969.44, subject to adjustment pursuant to the terms hereof

2.8 Estimated Term Commencement Date: January 1, 2008

2.9 Rent Commencement Date: Nine (9) months after the Term Commencement Date.

2.10 Estimated Term Expiration Date: December 31, 2017


2.11 Security Deposit: $415,242.36

2.12 Permitted Use: General office, research and development, engineering, laboratory, manufacturing, assembly, warehousing and related uses in conformity with Applicable Laws (as defined below)

 

2.13 Address for Rent Payment:

   BMR-34790 Ardentech Court LLC
   P.O. Box 511215
   Los Angeles, California 90051-2997

2.14 Address for Notices to Landlord:

   BMR-34790 Ardentech Court LLC
   17140 Bernardo Center Drive, Suite 222
   San Diego, California 92128
   Attn: General Counsel

2.15 Address for Notices to Tenant:

   Prior to Tenant’s occupancy in the Premises:
   2000 Charleston Road
   Mountain View, California 94043
   Attn: Doran Donnelly; and
   Attn: Scott Hipsley
   After Tenant’s occupancy of the Premises:
   At the Premises
   Attn: Chief Financial Officer; and
   Attn: Director of Facilities

2.16 The following Exhibits are attached hereto and incorporated herein by reference:

 

 

Exhibit A

   Rules and Regulations
 

Exhibit B

   Form of Estoppel Certificate
 

Exhibit C

   Work Letter
 

Exhibit D

   Acknowledgement of Occupancy Date with Respect to Early Access Premises
 

Exhibit E

   Form of Additional Tenant Improvement Allowance Acceptance Letter
 

Exhibit F

   Form of Acknowledgement of Term Commencement Date and Term Expiration Date

3. Term .

3.1 This Lease shall take effect upon the date of execution and delivery hereof by all parties hereto and, except as specifically otherwise provided within this Lease, each of the provisions hereof shall be binding upon and inure to the benefit of Landlord and Tenant from the date of execution and delivery hereof by all parties hereto.

3.2 The actual term of this Lease (the “ Term ”) shall be that period from the actual Term Commencement Date as defined in Section 4.2 below through the Term Expiration Date, subject to earlier termination of this Lease as provided herein.

3.3 Tenant shall have the right to terminate this Lease at any time effective after the seventh (7 th ) anniversary of the Term Commencement Date upon twelve (12) months’ prior written notice to Landlord; provided that Tenant shall pay to Landlord prior to the effective date of such termination (a) an early termination fee equal to One Million Dollars ($1,000,000) and (b) the unamortized portion (amortized on a straight line basis over the Term) of (i) any leasing commissions and (ii) the Total TI Allowance (as defined below). Notwithstanding the foregoing, if Tenant exercises the Expansion Option (as defined below), then this Section 3.3 shall therafter be void and of no further force or effect.

 

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4. Possession and Term Commencement Date .

4.1 Landlord shall tender possession on the Execution Date. Upon completion of Tenant’s Work (as defined in the Work Letter attached as Exhibit C hereto (the “ Work Letter ”)), Tenant shall deliver to Landlord (y) a certificate of occupancy for the Premises suitable for the Permitted Use and (z) a Certificate of Substantial Completion in the form of the American Institute of Architects document G704, executed by the project architect and the general contractor.

4.2 This Lease shall commence (the “ Term Commencement Date ”) on the earlier of (a) substantial completion of the Tenant Improvements (as defined below) and (b) January 1, 2008. Tenant shall execute and deliver to Landlord written acknowledgment of the actual Term Commencement Date and the Term Expiration Date within ten (10) days after the Term Commencement Date, in the form attached as Exhibit F hereto. Failure to execute and deliver such acknowledgment, however, shall not affect the Term Commencement Date or Landlord’s or Tenant’s liability hereunder. Failure by Tenant to obtain validation by any medical review board or other similar governmental licensing of the Premises required for the Permitted Use by Tenant shall not serve to extend the Term Commencement Date.

4.3 Prior to entering upon the Premises, Tenant shall furnish to Landlord evidence satisfactory to Landlord that insurance coverages required of Tenant under the provisions of Section 21 are in effect, and such entry shall be subject to all the terms and conditions of this Lease other than the payment of Basic Annual Rent or Additional Rent (as defined below).

4.4 Tenant shall have the right, subject to the terms and conditions of this Lease and the obtaining of the items in Section 41.17 , to occupy (a) the Premises for purposes of planning and constructing the Tenant Improvements (as defined below) and (b) portions, but not the entirety, of the office and laboratory areas of the Premises (such portions under (b), the “ Early Access Premises ”) for the office, research and laboratory uses consistent with the Permitted Use prior to the Term Commencement Date; provided that (x) Tenant has provided Landlord with evidence of insurance as required by this Lease, (y) Tenant pays to Landlord as Additional Rent Five Thousand Dollars ($5,000) per month (prorated for the first (1 st ) month if a partial month) for any time during which Tenant uses the Early Access Premises pursuant to this Section 4.4 and (z) with respect to (b) above, (i) Tenant has substantially completed the Tenant Improvements with respect to the Early Access Premises, (ii) Tenant has provided Landlord with a copy of a temporary certificate of occupancy for the Early Access Premises, (iii) Tenant’s obligation to pay for Building utilities with respect to the Early Access Premises shall commence as of the date Tenant takes occupancy of the Early Access Premises and (iv) Tenant has provided Landlord with a signed copy of the acknowledgement attached as Exhibit D hereto.

4.5 Tenant Improvements .

(a) Tenant shall cause to be constructed the tenant improvements in the Premises (the “ Tenant Improvements ”) pursuant to the Work Letter at a cost to Landlord (the “ Tenant Improvement Allowance ”) not to exceed Four Million One Hundred Sixty-Nine Thousand One Hundred Dollars ($4,169,100) (based upon Seventy-Five Dollars ($75) per rentable square foot), which amount shall include the costs of (a) construction (including interior demolition and demolition of the outdoor utility shed in the service yard and required off-site utilities), (b) project management by Landlord (which fee shall not exceed two percent (2%) of the Total TI Allowance, up to a maximum of One Hundred Thousand Dollars ($100,000)), (c) space planning, architect, construction management, engineering and other related services and (d) building permits and other planning and inspection fees.

(b) In addition to the Tenant Improvement Allowance, Landlord shall, upon Tenant’s written request in the form of Exhibit E attached hereto, make available to Tenant for construction of the initial Tenant Improvements (i) One Million Three Hundred Eighty-Nine Thousand Seven Hundred Dollars ($1,389,700), based upon Twenty-Five Dollars ($25) per rentable square foot (the “ First Additional TI Allowance ”), (ii) an additional One Million Three Hundred Eighty-Nine Thousand Seven Hundred Dollars ($1,389,700), based upon Twenty-Five Dollars ($25) per rentable square foot (the “ Second Additional TI Allowance ”), and (iii) an additional One Million Three Hundred Eighty-Nine Thousand Seven Hundred Dollars ($1,389,700), based upon Twenty-Five Dollars ($25) per rentable square foot (the “ Third

 

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Additional TI Allowance ” and, collectively with the Tenant Improvement Allowance and the First Additional TI Allowance and Second Additional TI Allowance, the “ Total TI Allowance ”). Tenant shall repay to Landlord, in equal monthly installments as Additional Rent (as defined below), (x) any amount of the First Additional TI Allowance drawn by Tenant amortized at a rate of nine percent (9%) over the period (i) commencing on the date on which Landlord funds the final portion of the First Additional TI Allowance drawn by Tenant and (ii) ending upon expiration of the initial Term, (y) any amount of the Second Additional TI Allowance drawn by Tenant amortized at a rate of nine and one-half percent (9.5%) over the period (i) commencing on the date on which Landlord funds the final portion of the Second Additional TI Allowance drawn by Tenant and (ii) ending upon expiration of the initial Term, and (z) any amount of the Third Additional TI Allowance drawn by Tenant amortized at a rate of ten percent (10%) over the period (i) commencing on the date on which Landlord funds the final portion of the Third Additional TI Allowance drawn by Tenant and (ii) ending upon expiration of the initial Term. If the total cost of the Tenant Improvements exceeds Eight Million Three Hundred Thirty-Eight Thousand Two Hundred Dollars ($8,338,200), then the overage shall be paid by Tenant. Tenant shall have until August 1, 2008, to expend the unused portion of the Total TI Allowance, after which date Landlord’s obligation to fund such costs shall expire.

5. Rent .

5.1 Tenant shall pay to Landlord as Basic Annual Rent for the Premises, commencing on the Rent Commencement Date, the sum set forth in Section 2.7 , subject to the rental adjustments provided in Section 6 hereof. Basic Annual Rent shall be paid in equal monthly installments as set forth in Section 2.6 , subject to the rental adjustments provided in Section 6 hereof, each in advance on the first day of each and every calendar month during the Term. The Rentable Area of the Premises shall be deemed the square footage of the Building for purposes of this Lease, including determination of Basic Annual Rent and any other costs allocated to Tenant on the basis of the square footage of the Premises or the Building.

5.2 In addition to Basic Annual Rent, Tenant shall pay to Landlord as additional rent (“ Additional Rent ”) at times hereinafter specified in this Lease (a) amounts of Insurance Costs and Taxes (each as defined below) and (b) any other amounts that Tenant assumes or agrees to pay under the provisions of this Lease that are owed to Landlord, including, without limitation, any and all other sums that may become due by reason of any default of Tenant or failure on Tenant’s part to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after notice and the lapse of any applicable cure periods.

5.3 Basic Annual Rent and Additional Rent shall together be denominated “ Rent .” Rent shall be paid to Landlord, without abatement, deduction or offset (except as expressly provided in this Lease), in lawful money of the United States of America at the office of Landlord as set forth in Section 2.13 or to such other person or at such other place as Landlord may from time designate in writing. In the event the Term commences or ends on a day other than the first day of a calendar month, then the Rent for such fraction of a month shall be prorated for such period on the basis of the number of days in that month and shall be paid at the then-current rate for such fractional month.

6. Rent Adjustments . The Basic Annual Rent shall be subject to an annual upward adjustment of three percent (3%) of the then-current Basic Annual Rent. The first such adjustment shall become effective commencing with that monthly rental installment that is due on or after the first (1 st ) annual anniversary of the Term Commencement Date, and subsequent adjustments shall become effective on every successive annual anniversary for so long as this Lease continues in effect.

7. Taxes .

7.1 Commencing with the Rent Commencement Date and continuing for each calendar year or, at Landlord’s option, tax year (each such “tax year” being a period of twelve (12) consecutive calendar months for which the applicable taxing authority levies or assesses Taxes), for the balance of the Term, Tenant shall pay to Landlord the amount of all Taxes levied and assessed for any such year upon the Property. “ Taxes ” shall mean all government

 

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impositions including, without limitation, property tax costs consisting of real and personal property taxes and assessments (including amounts due under any improvement bond upon the Property or any portion thereof, including the parcel or parcels of real property upon which the Building is located or assessments levied in lieu thereof) imposed by any federal, state, regional, local or municipal governmental authority, agency or subdivision (each, a “ Governmental Authority ”) on the Property or improvements thereon, any tax on or measured by gross rentals received from the rental of space in the Building, or tax based on the square footage of the Premises or the Building as well as any parking charges, utilities surcharges, or any other costs levied, assessed or imposed by, or at the direction of, or resulting from statutes or regulations, or interpretations thereof, promulgated by any Governmental Authority in connection with the use or occupancy of the Premises or the parking facilities serving the Premises; any tax on this transaction or this Lease; provided , however, that “ Taxes ” shall in no event include any franchise or income tax or any tax based on net rentals received from the rental of space in the Building. In addition, “ Taxes ” shall not include and Tenant shall not be required to pay any portion of any tax or assessment expense or any increase therein (a) levied on Landlord’s rental income, unless such tax or assessment is imposed in lieu of real property taxes; (b) imposed on land other than the Land or on improvements other than those located on the Land; or (c) attributable to Landlord’s net income, inheritance, gift, transfer, estate or state income taxes. Any amount paid by Tenant for any partial year of the Term shall be prorated on the basis of the number of days of such partial year. Payment shall be made in the following manner: Tenant shall pay to Landlord the amounts owed under this Section 7 within thirty (30) days after Landlord gives notice to Tenant of the amount of such Taxes payable by Tenant (or not less than twenty (20) days prior to delinquency, whichever is later). Landlord also shall provide Tenant with a copy of the applicable tax bill or tax statement from the relevant taxing authority. Notwithstanding the foregoing, if Applicable Laws allow any such Taxes to be paid in installments, then Tenant may make such payments to Landlord in installments, provided that each such installment shall be payable to Landlord not less than twenty (20) days prior to the date upon which payment of the applicable installment to the taxing authority becomes delinquent. In addition to any other amounts due from Tenant to Landlord, if Tenant fails to pay Taxes to Landlord as herein required, Tenant shall pay to Landlord the amount of any interest, penalties or late charges imposed for late payment. “ Applicable Laws ” means all laws, codes, ordinances, rules and regulations of Governmental Authorities having jurisdiction over the Property or any portion thereof, or over Landlord or Tenant.

(a) If the Premises are separately assessed, Tenant shall have the right, by appropriate proceedings, to protest or contest in good faith any assessment or reassessment of Taxes, any special assessment, or the validity of any Taxes or of any change in assessment or tax rate; provided , however, that prior to any such challenge Tenant must either (i) pay the Taxes alleged to be due in their entirety and seek a refund from the appropriate authority or (ii) post a bond in an amount sufficient to ensure full payment of the Taxes, including any potential interest, late charges and penalties. Upon a final determination with respect to any such contest or protest, Tenant shall promptly pay to the appropriate Governmental Authority all sums found to be due with respect thereto. In any such protest or contest, Tenant may act in its own name, and at the request of Tenant, Landlord shall cooperate with Tenant in any way Tenant may reasonably require in connection with such contest or protest, including signing such documents as Tenant reasonably shall request, provided that such cooperation shall be at no expense to Landlord and shall not require Landlord to attend any appeal or other hearing. Any such contest or protest shall be at Tenant’s sole expense, and if any penalties, interest or late charges become payable with respect to the Taxes as a result of such contest or protest, Tenant shall pay the same.

(b) If Tenant obtains a refund as the result of Tenant’s protest or contest, and subject to Tenant’s obligation to pay Landlord’s costs (if any) associated therewith, Tenant shall be entitled to such refund to the extent it relates to the Premises during the Term.

7.2 Tenant shall be solely responsible for the payment of any and all taxes levied upon personal property and trade fixtures located upon the Premises, and shall pay the same at least twenty (20) days prior to delinquency.

 

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7.3 If, at any time during the Term under the laws of any Governmental Authority, a tax or excise on rent or any other tax howsoever described is levied or assessed by any such political body against Landlord on account of rentals payable to Landlord hereunder, such tax or excise, to the extent assessed in lieu of real property taxes, shall be considered “ Taxes ” for the purposes of this Section 7 , although any amount assessed against Landlord as state or federal income tax shall not be deemed “ Taxes .”

7.4 To the extent Landlord is required by a lender, Tenant shall timely pay all tax and insurance impound payments due on the Property.

7.5 Within five (5) business days after the end of each calendar month, Tenant shall submit to Landlord an invoice, or, in the event an invoice is not available, an itemized list, of all costs and expenses that (a) Tenant has incurred (either internally or by employing third parties) during the prior month and (b) for which Tenant reasonably believes it is entitled to reimbursements from Landlord pursuant to the terms of this Lease or that Tenant reasonably believes is the responsibility of Landlord pursuant to this Lease or the Work Letter.

8. Rentable Area .

8.1 The term “ Rentable Area ” as set forth in Section 2 and as referenced within the Work Letter, and as may otherwise be referenced within this Lease, shall reflect such area as has been reasonably calculated by Landlord’s architect and is deemed to be 55,588 square feet.

8.2 The “ Rentable Area ” of the Building is generally determined by making separate calculations of Rentable Area applicable to each floor within the Building and totaling the Rentable Area of all floors within the Building. The Rentable Area of a floor is computed by measuring to the outside finished surface of the permanent outer Building walls. The full area calculated as previously set forth is included as Rentable Area, without deduction for columns and projections or vertical penetrations, including stairs, elevator shafts, flues, pipe shafts, vertical ducts and the like, as well as such items’ enclosing walls.

9. Security Deposit .

9.1 Tenant has deposited with Landlord a letter of credit in the sum set forth in Section 2.11 (the “ Security Deposit ”), which letter of credit shall be held by Landlord as security for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease to be kept and performed by Tenant during the period commencing on the Execution Date and ending upon the expiration or termination of this Lease. If Tenant defaults beyond applicable notice and cure periods with respect to any provision of this Lease, including, but not limited to, any provision relating to the payment of Rent, then Landlord may (but shall not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any Rent or any other sum in default, or to compensate Landlord for any other loss or damage that Landlord may suffer by reason of Tenant’s default. If any portion of the Security Deposit is so used or applied, then Tenant shall, within ten (10) days following demand therefor, deposit cash or a new or updated letter of credit with Landlord in an amount sufficient to restore the Security Deposit to its original amount, and Tenant’s failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this Security Deposit separate from its general fund, and Tenant shall not be entitled to interest on the Security Deposit. In lieu of a letter of credit, Tenant may deposit cash with Landlord.

9.2 In the event of bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of Rent and other charges due Landlord for all periods prior to the filing of such proceedings.

9.3 Landlord may deliver to any purchaser of Landlord’s interest in the Premises the funds deposited hereunder by Tenant, and thereupon, provided the purchaser assumes in writing all of Landlord’s obligations under this Lease, Landlord shall be discharged from any further liability with respect to such deposit. This provision shall also apply to any subsequent transfers.

9.4 Provided Tenant has surrendered the Premises to Landlord, the Security Deposit, or any balance thereof (after Landlord has made appropriate deductions, if any, to restore the

 

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condition of the Premises to that required by the Lease and to cure any other defaults by Tenant under the Lease), shall be returned to Tenant (or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder) within thirty (30) days after the expiration or earlier termination of this Lease.

10. Use .

10.1 Tenant shall use the Premises only for the purpose set forth in Section 2.12 , and shall not use the Premises, or permit or suffer the Premises to be used, for any other purpose without Landlord’s prior written consent, which consent Landlord may withhold in its reasonable discretion.

10.2 Tenant shall not use or occupy the Premises in violation of Applicable Laws; zoning ordinances; or the certificate of occupancy issued for the Building, and shall, upon five (5) days’ written notice from Landlord, discontinue any use of the Premises that is declared or claimed by any Governmental Authority having jurisdiction to be a violation of any of the above, or that in Landlord’s reasonable opinion violates any of the above. Tenant shall comply with any direction of any Governmental Authority having jurisdiction that shall, by reason of the nature of Tenant’s use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupation thereof.

10.3 Tenant shall not do or permit to be done anything that will invalidate or increase the cost (unless Tenant pays such increase) of any fire, environmental, extended coverage or any other insurance policy covering the Property, and shall comply with all rules, orders, regulations and requirements of the insurers of the Property, and Tenant shall promptly, upon demand, reimburse Landlord for any additional premium charged for such policy by reason of Tenant’s failure to comply with the provisions of this Section.

10.4 Tenant shall keep all doors opening onto public corridors closed, except when in use for ingress and egress.

10.5 No additional locks or bolts of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any changes be made to existing locks or the mechanisms thereof without Landlord’s prior written consent; provided , however, subject to Landlord’s consent as to the details thereof, which consent shall not be unreasonably withheld or delayed, Landlord Tenant shall be permitted to modify or add to the current security system and master key system for the Premises. Tenant shall, upon termination of this Lease, return to Landlord all keys to offices and restrooms either furnished to or otherwise procured by Tenant. In the event any key so furnished to Tenant is lost, Tenant shall pay to Landlord the cost of replacing the same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such change.

10.6 No awnings or other projections shall be attached to any outside wall of the Building. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord’s standard window coverings without Landlord’s prior written consent, which shall not be unreasonably withheld or delayed. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without Landlord’s prior written consent which shall not be unreasonably withheld or delayed, nor shall any bottles, parcels or other articles be placed on the windowsills. No equipment, furniture or other items of personal property shall be placed on any exterior balcony without Landlord’s prior written consent which shall not be unreasonably withheld or delayed.

10.7 No sign, advertisement or notice shall be exhibited, painted or affixed by Tenant on any part of the exterior of the Building or on the Property without Landlord’s prior written consent. Tenant shall have the right to signage that is both (a) approved in advance by Landlord and (b) in compliance with Applicable Laws, including, without limitation, City of Fremont codes.

10.8 Tenant shall cause any office equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations therefrom from extending into other offices in the Building.

 

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10.9 Tenant shall not use or allow the Property to be used for immoral, unlawful or objectionable purposes, nor shall Tenant knowingly cause, maintain or permit any nuisance or waste in, on or about the Property.

10.10 Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for all liabilities, costs and expenses arising out of or in connection with the compliance of the Premises with the Americans with Disabilities Act, 42 U.S.C. § 12101, et seq. (together with regulations promulgated pursuant thereto, the “ ADA ”), and Tenant shall indemnify, defend and hold harmless Landlord from and against any loss, cost, liability or expense (including reasonable attorneys’ fees and disbursements) arising out of any failure of the Premises to comply with the ADA. The provisions of this Section 10.10 shall survive the expiration or earlier termination of this Lease. Landlord shall be responsible for causing the Building core and shell and outdoor walkways to be delivered to Tenant in compliance with Applicable Laws, taking into account the core and shell condition of the Building. From and after such date, Tenant shall be responsible for causing the Building and outdoor walkways to comply with Applicable Laws. Notwithstanding anything to the contrary herein, if such work, if characterized as a repair or replacement, would be the obligation of Landlord to perform under Section 18.4 hereof, then Landlord shall perform such work and Tenant shall reimburse Landlord for such costs, amortized over the useful life of such improvements as Landlord shall reasonably determine, in equal monthly payments on the first day of each month for the remainder of the then-current Term. In all other cases, Tenant shall pay the costs of such compliance directly.

11. Brokers .

11.1 Landlord and Tenant each represent and warrant to the other that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease other than CRESA Partners (“ Tenant’s Broker ”), which represented Tenant, and NAI BT Commercial (collectively with Tenant’s Broker, “ Brokers ”), and that it knows of no other real estate broker or agent that is or might be entitled to a commission in connection with this Lease. Landlord shall compensate Tenant’s Broker in relation to this Lease pursuant to a separate agreement between Landlord and Tenant’s Broker.

11.2 Tenant represents and warrants that no broker or agent has made any representation or warranty relied upon by Tenant in Tenant’s decision to enter into this Lease, other than as contained in this Lease.

11.3 Tenant acknowledges and agrees that the employment of brokers by Landlord is for the purpose of solicitation of offers of leases from prospective tenants and that no authority is granted to any broker to furnish any representation (written or oral) or warranty from Landlord unless expressly contained within this Lease. Landlord is executing this Lease in reliance upon Tenant’s representations and warranties contained within Sections 11.1 and 11.2 .

12. Holding Over .

12.1 If, with Landlord’s prior written consent, Tenant holds possession of all or any part of the Premises after the Term, Tenant shall become a tenant from month to month after the expiration or earlier termination of the Term, and in such case Tenant shall continue to pay (a) the Basic Annual Rent in accordance with Section 5 , as adjusted in accordance with Section 6 , and (b) any amounts for which Tenant would otherwise be liable under this Lease if this Lease were still in effect, including, without limitation, payments for Taxes and insurance. Any such month-to-month tenancy shall be subject to every other term, covenant and agreement contained herein.

12.2 Notwithstanding the foregoing, if Tenant remains in possession of the Premises after the expiration or earlier termination of the Term without Landlord’s prior written consent, Tenant shall become a tenant at sufferance subject to the terms and conditions of this Lease, except that the monthly base rent shall be equal to one hundred fifty percent (150%) of the Basic Annual Rent in effect during the last thirty (30) days of the Term.

12.3 Acceptance by Landlord of Rent after the expiration or earlier termination of the Term shall not result in an extension, renewal or reinstatement of this Lease.

 

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12.4 The foregoing provisions of this Section 12 are in addition to and do not affect Landlord’s right of reentry or any other rights of Landlord hereunder or as otherwise provided by Applicable Laws.

13. Property Management Fee . Tenant shall pay to Landlord on the first day of each calendar month of the Term, as Additional Rent, the “ Property Management Fee ,” which shall equal two percent (2%) of all Rent due from Tenant; provided , however, that the Property Management Fee shall not apply to amounts owed by Tenant pursuant to Section 4.5(b) or to reimbursements made by Tenant to Landlord for Tenant’s use of utilities.

14. Condition of Premises . Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of the Premises, or with respect to the suitability of the Premises for the conduct of Tenant’s business. Tenant’s taking of possession of the Premises shall, except as otherwise agreed to in writing by Landlord and Tenant, conclusively establish that the Premises were at such time in good, sanitary and satisfactory condition and repair. Notwithstanding the foregoing, Landlord shall deliver possession of the Premises to Tenant in compliance with all Applicable Laws, taking into account the core and shell condition of the Building.

15. Exterior Areas and Parking Facilities .

15.1 Tenant shall have the exclusive right to use the any areas on the Property outside of the Premises, subject to the rules and regulations adopted by Landlord and attached hereto as Exhibit A , together with such other reasonable and nondiscriminatory rules and regulations as are hereafter promulgated by Landlord in its reasonable discretion (the “ Rules and Regulations ”). Landlord expressly acknowledges that Tenant has the right to use (a) certain areas of the Property for exterior process-related components, including the current equipment yard and any reasonable area immediately adjacent thereto, subject to Landlord’s prior written consent, which Landlord shall not unreasonably withhold or delay, and (b) the roof for installation of equipment, including a satellite dish, provided that Tenant complies with Applicable Laws and any recorded covenants, conditions or restrictions governing the Property. Tenant shall faithfully observe and comply with the Rules and Regulations. Notwithstanding the foregoing, Tenant shall not be required to comply with any new rule or regulation unless the same does not unreasonably interfere with Tenant’s use of the Premises or Tenant’s parking rights and does not materially increase the obligations or decrease the rights of Tenant under this Lease; provided , however, that Tenant shall comply with any new rule or regulation that results from a change in Applicable Laws or is reasonably required by the insurance company providing insurance to Landlord in accordance with this Lease.

15.2 Tenant shall have a license to use all of the parking facilities on the Property. Tenant shall have the right to use all of the parking on the Property for its sole and exclusive use at no additional cost.

15.3 [Intentionally omitted]

15.4 Landlord reserves the right to reasonably modify the exterior areas of the Property, including the right to add or remove exterior landscaping and to subdivide real property.

16. Utilities and Services .

16.1 Tenant shall, at its sole cost and expense, promptly and properly observe and comply with (including in the making by Tenant of any alterations to the Premises) all present and future orders, regulations, directions, rules, laws, ordinances, and requirements of all Governmental Authorities arising from the use or occupancy of, or applicable to, the Premises or any portion thereof, except to the extent that such compliance is the responsibility of Landlord pursuant to Section 10.10 hereof.

16.2 Tenant shall, at Tenant’s sole cost and expense, procure and maintain contracts, with copies furnished promptly to Landlord after execution thereof, in customary form and substance for, and with contractors specializing and experienced in, the maintenance of the

 

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following equipment and improvements, if any, if and when installed on the Premises (a) HVAC equipment, (b) boilers and pressure vessels, (c) fire extinguishing systems, including fire alarm and smoke detection devices, (d) landscaping and irrigation systems, (e) roof coverings and drains, (f) clarifiers, (g) basic utility feeds to the perimeter of the Building and (h) any other equipment reasonably required by Landlord. Notwithstanding the foregoing, Landlord reserves the right, upon notice to Tenant, to procure and maintain any or all of such service contracts on commercially reasonable terms, and if Landlord so elects, Tenant shall reimburse Landlord, upon demand, for the costs thereof.

(a) Within sixty (60) days after the Rent Commencement Date, and within sixty (60) days after the beginning of each calendar year during the Term, Landlord shall give Tenant a written estimate for such calendar year of the cost of utilities, if not separately metered, Taxes and insurance provided by Landlord (“ Insurance Costs ”). Tenant shall pay such estimated amount to Landlord in advance in equal monthly installments beginning on the Rent Commencement Date. Within ninety (90) days after the end of each calendar year, Landlord shall furnish to Tenant a statement showing in reasonable detail the costs incurred by Landlord for Taxes, insurance and utilities, if applicable, during such year (the “ Annual Statement ”), and Tenant shall pay to Landlord the costs incurred in excess of the payments previously made by Tenant within thirty (30) days of receipt of the Annual Statement. In the event that the payments previously made by Tenant for the operation and maintenance of the Premises exceed Tenant’s obligation, such excess amount shall be credited by Landlord to the Rent or other charges next due and owing, provided that, if the Term has expired, Landlord shall remit such excess amount to Tenant. Tenant or its authorized representative shall have the right to inspect the books of Landlord at Landlord’s office, for the purpose of verifying the information contained in the Annual Statement. Notwithstanding anything to the contrary in this Lease, Tenant shall have no obligation to pay, perform, or reimburse Landlord for costs for which Landlord has received reimbursement from a third party; provided that Landlord shall use commercially reasonable efforts to collect reimbursements from third parties to which it is entitled. The parties acknowledge that casualty and condemnation are addressed in Sections 22 and 23 and that this Section 16.2 shall not apply to costs associated therewith.

16.3 Subject to the foregoing and this Section 16.4 , Landlord shall furnish water, gas, light, power, electricity, telephone, trash pick-up and sewer services and utilities to the Premises at all times as are reasonable and customary for tenants engaged in Tenant’s business at the Premises. Tenant shall make all arrangements for and pay for all water, sewer, gas, heat, light, power, telephone service and any other service or utility Tenant required at the Premises. Landlord shall not be liable for, nor shall any eviction of Tenant result from, the failure to furnish any utility or service, whether or not such failure is caused by accident; breakage; repair; strike, lockout or other labor disturbance or labor dispute of any character; governmental regulation, moratorium or other governmental action (collectively, “ Force Majeure ”). In the event of such failure, Tenant shall not be entitled to termination of this Lease, any abatement or reduction of Rent, or relief from the operation of any covenant or agreement of this Lease. Tenant shall pay for, prior to delinquency of payment therefor, any utilities and services that may be furnished to the Property during or, if Tenant occupies the Premises after the expiration or earlier termination of the Term, after the Term.

16.4 Tenant shall not, without Landlord’s prior written consent, use any device in the Premises (including, without limitation, data processing machines) that will in any way increase the amount of ventilation, air exchange, gas, steam, electricity or water beyond the existing capacity of the Building as usually furnished or supplied for the use set forth in Section 2.12 ; provided , however, that Tenant shall be permitted with Landlord’s prior written consent to make any upgrades required to increase the capacity of the Building to the extent necessary to accommodate any such devices so long as Tenant otherwise complies with the provisions of Section 17 below.

17. Alterations .

17.1 Tenant shall make no alterations, additions or improvements (“ Alterations ”) in or to the Property without Landlord’s prior written approval, which approval Landlord shall not unreasonably withhold; provided , however , that in the event any proposed alteration, addition or

 

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improvement affects (a) any structural portions of the Building, including exterior walls, roof, foundation or core of the Building, (b) the exterior of the Building or (c) any Building systems, including elevator, plumbing, air conditioning, heating, electrical, security, life safety and power, then Landlord may withhold its approval with respect thereto in its reasonable discretion. Tenant shall, in making any such alterations, additions or improvements, use only those architects, contractors, suppliers and mechanics of which Landlord has given prior written approval, which approval shall be in Landlord’s reasonable discretion. In seeking Landlord’s approval, Tenant shall provide Landlord, at least ten (10) days in advance of any proposed construction, with plans, specifications, bid proposals, work contracts, requests for laydown areas and such other information concerning the nature and cost of the alterations as Landlord may reasonably request. Notwithstanding the foregoing, Tenant may construct non-structural Alterations in the Premises without Landlord’s prior approval, if the cost of any such project does not exceed Fifty Thousand Dollars ($50,000); provided , however, that (y) Tenant shall notify Landlord in writing at least five (5) business days prior to commencing any such Alterations the cost of which exceeds Ten Thousand Dollars ($10,000) in each instance or Fifty Thousand Dollars ($50,000) in any twelve (12) month period and (z) at least once each year, Tenant shall provide Landlord with complete “as-built” drawing print sets and electronic CADD files on disc showing any changes in the Premises since the date of the most recent drawing print sets and electronic CADD files delivered by Tenant to Landlord.

17.2 Tenant shall not construct or permit to be constructed partitions or other obstructions that might interfere with free access to mechanical installation or service facilities of the Building, or interfere with the moving of Landlord’s equipment to or from the enclosures containing such installations or facilities.

17.3 Tenant shall accomplish any work performed on the Premises in such a manner as to permit any fire sprinkler system and fire water supply lines to remain fully operable at all times.

17.4 Any work performed on the Premises by Tenant or Tenant’s contractors shall be done at such times and in such manner as Landlord may from time to time designate. Tenant covenants and agrees that all work done by Tenant or Tenant’s contractors shall be performed in full compliance with Applicable Laws.

17.5 Before commencing any work, Tenant shall give Landlord at least fourteen (14) days’ prior written notice of the proposed commencement of such work.

17.6 All alterations, attached equipment, decorations, fixtures, trade fixtures, additions and improvements, subject to Section 17.8 , attached to or built into the Premises, made by either of the Parties, including, without limitation, all floor and wall coverings, built-in cabinet work and paneling, sinks and related plumbing fixtures, exterior venting fume hoods and walk-in freezers and refrigerators, ductwork, conduits, electrical panels and circuits, shall become the property of Landlord upon the expiration or earlier termination of the Term, and shall remain upon and be surrendered with the Premises as a part thereof.

17.7 Tenant shall repair any damage to the Premises caused by Tenant’s removal of any property from the Premises. During any such restoration period, Tenant shall pay Rent to Landlord as provided herein as if said space were otherwise occupied by Tenant. The provisions of this Section shall survive the expiration or earlier termination of this Lease.

17.8 Except with respect to those items paid for by Landlord (including as part of the Total TI Allowance), Tenant’s trade fixtures, furniture, equipment and other personal property installed in and upon the Premises (“ Tenant’s Property ”) shall at all times be and remain Tenant’s property, including Tenant’s process-related equipment that may be bolted to the floor or otherwise attached to the Premises but that can be removed without structural injury to the Premises or the Building. Landlord shall have no lien or other interest in any item of Tenant’s Property. Any Alterations performed by Tenant shall become the property of Landlord; provided , however, that, when Tenant submits plans for Alterations for Landlord’s approval, Tenant may request that Landlord, in which case Landlord shall be obligated to, indicate whether Tenant shall be required to or may remove such Alterations upon the expiration or earlier

 

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termination of this Lease. If Tenant shall fail to remove any of its effects from the Property prior to termination of this Lease that Landlord has directed Tenant to remove or fails to promptly repair all damage caused by such removal, then Landlord may, at its option, remove the same in accordance with Applicable Laws and store said effects without liability to Tenant for loss thereof or damage thereto, and Tenant shall pay Landlord, upon demand, any costs and expenses incurred due to such removal and storage or Landlord may, at its sole option and without notice to Tenant, sell such property or any portion thereof at private sale and without legal process for such price as Landlord may obtain and apply the proceeds of such sale against any (a) amounts due by Tenant to Landlord under this Lease and (b) any expenses incident to the removal, storage and sale of said personal property.

17.9 Notwithstanding any other provision of this Section 17 to the contrary, in no event shall Tenant remove any improvement from the Property as to which Landlord contributed payment, including, without limitation, the Tenant Improvements made pursuant to the Work Letter, without Landlord’s prior written consent, which consent Landlord may withhold in its sole and absolute discretion.

17.10 With regard to any Alterations performed by Tenant, Tenant shall (a) reimburse Landlord for Landlord’s out-of-pocket expenses incurred for plan review, coordination, scheduling and supervision thereof (which amount, for each set of Alterations, shall not exceed two percent (2%) of the costs incurred by Tenant to complete such Alterations) plus (b) for any set of Alterations costing in excess of One Hundred Thousand Dollars ($100,000), pay Landlord an additional fee of One Thousand Five Hundred Dollars ($1,500) (which amount, for each set of Alterations, shall not exceed two percent (2%) of the costs incurred by Tenant to complete such Alterations). For purposes of payment of the sum in Subsection (a)  of this Section 17.10 , Tenant shall submit to Landlord copies of all bills, invoices and statements covering the costs of such charges, accompanied by payment to Landlord of the fee set forth in this Section.

17.11 Within sixty (60) days after final completion of the Tenant Improvements (or any other alterations, improvement or additions performed by Tenant with respect to the Property), Tenant shall submit to Landlord documentation showing the amounts expended by Tenant (other than funds that constitute a portion of the Total TI Allowance) with respect to such Tenant Improvements (or any other alterations, improvement or additions performed by Tenant with respect to the Property), together with supporting documentation reasonably acceptable to Landlord.

17.12 Tenant shall require its contractors and subcontractors performing work on the Premises to name Landlord and its affiliates and lenders as additional insureds on their respective liability insurance policies.

18. Repairs and Maintenance .

18.1 Except as provided in Section 18.4 below, Tenant, at its sole cost and expense, shall maintain and keep the Property, and all appurtenances thereto, including but not limited to the Building, the Premises, sidewalks, parking areas, curbs, roads, driveways, lighting standards, landscaping, sewers, water, gas and electrical distribution systems and facilities, drainage facilities, and all signs, both illuminated and non-illuminated that are now or hereafter on the Property, in good condition and in a manner consistent with the Permitted Use. Subject to Section 18.4 , Tenant shall make all repairs, replacements and improvements required (excluding those for the Building foundation, exterior walls (but including exterior painting and sealing), footings, Building slab and structural roof elements, for which Landlord shall make all necessary repairs, replacements and improvements (collectively, “ Landlord’s Obligations ”)) and shall keep the same free and clear from all rubbish and debris. All repairs made by Tenant shall be at least equal in quality to the original work, and shall be made only by a licensed, bonded contractor approved in advance by Landlord; provided , however, that such contractor need not be bonded or approved by Landlord if the non-structural alterations, repairs, additions or improvements to be performed do not exceed Fifty Thousand Dollars ($50,000) in value. Landlord may impose reasonable restrictions and requirements with respect to such repairs. Tenant shall not take or omit to take any action, the taking or omission of which shall cause waste, damage or injury to the Property. Tenant shall indemnify, defend (by legal counsel acceptable to Landlord) and hold

 

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harmless Landlord from and against any and all Claims (as defined below) arising out of the failure of Tenant or Tenant’s Agents to perform the covenants contained in this paragraph. “ Tenant’s Agents ” shall be defined to include Tenant’s officers, employees, agents, contractors, invitees, customers and subcontractors.

18.2 Tenant shall maintain the lines designating the parking spaces in good condition and paint the same as often as may be necessary, so that they are easily discernable at all times; resurface the parking areas as necessary to maintain them in good condition; paint any exterior portions of the Building as necessary to maintain them in good condition; maintain the roof and landscaping in good condition; maintain sightly screens, barricades or enclosures around any waste or storage areas; and take all reasonable precautions to insure that the drainage facilities of the roof are not clogged and are in good and operable condition at all times.

18.3 There shall be no abatement of Rent and no liability of Landlord by reason of any injury to or interference with Tenant’s business arising from the making of any repairs, alterations or improvements in or to any portion of the Property, or in or to improvements, fixtures, equipment and personal property therein.

18.4 During the Term, Landlord shall not be required to maintain or make any repairs or replacements of any nature or description whatsoever to the Property, except that Landlord shall be obligated to perform repairs and replacements at its sole cost and expense with respect to Landlord’s Obligations. In addition to Landlord’s Obligations, if any repairs or replacements to the Property that could constitute capital expenditures under generally accepted accounting principles cost more than Fifty Thousand Dollars ($50,000), Landlord shall perform such repairs or replacements and Tenant shall reimburse Landlord in equal monthly payments (including during any extension terms) on the first day of each month for the remainder of the then-current Term for any capital repairs or replacements the cost of which is greater than Fifty Thousand Dollars ($50,000) amortized over the useful life of such capital repairs or replacements as Landlord shall reasonably determine. Tenant hereby expressly waives the right to make repairs at the expense of Landlord as provided for in any Applicable Laws in effect at the time of execution of this Lease, or in any other Applicable Laws that may hereafter be enacted, and waives its rights under Applicable Laws relating to a landlord’s duty to maintain its premises in a tenantable condition. Notwithstanding the foregoing, if Tenant shall fail, after reasonable notice, to maintain or to commence and thereafter to proceed with diligence to make any repair required of it pursuant to the terms of this Lease, Landlord, without being under any obligation to do so and without thereby waiving such default by Tenant, may so maintain or make such repair and may charge Tenant for the costs thereof. Any expense reasonably incurred by Landlord in connection with the making of such repairs may be billed by Landlord to Tenant monthly or, at Landlord’s option, immediately, and shall be due and payable within ten (10) days after such billing or, at Landlord’s option, may be deducted from the Security Deposit.

18.5 Subject to Section 32.3 below, Landlord and Landlord’s agents shall have the right to enter upon the Premises or any portion thereof for the purposes of performing any repairs or maintenance Landlord is required or permitted to make pursuant to this Lease, and of ascertaining the condition of the Premises or whether Tenant is observing and performing Tenant’s obligations hereunder, all without unreasonable interference from Tenant or Tenant’s Agents. Except for emergency maintenance or repairs, the right of entry contained in this paragraph shall be exercisable at reasonable times, at reasonable hours and on reasonable notice.

18.6 [Intentionally omitted]

18.7 Tenant shall, upon the expiration or sooner termination of the Term, surrender the Premises to Landlord in as good of a condition as when received, and with any Tenant Improvements in good working order and repair, ordinary wear and tear excepted, and subject to the provisions of this Lease regarding casualty, condemnation and Hazardous Materials, and subject to Tenant’s rights hereunder to remove certain Alterations. Except as expressly provided in this Lease, Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof.

 

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18.8 This Section 18 relates to repairs and maintenance arising in the ordinary course of operation of the Property and any related facilities. In the event of fire, earthquake, flood, vandalism, war or similar cause of damage or destruction, Section 22 shall apply in lieu of this Section 18 .

19. Liens .

19.1 Subject to the immediately succeeding sentence, Tenant shall keep the Property free from any liens arising out of work performed, materials furnished or obligations incurred by Tenant. Tenant further covenants and agrees that any mechanic’s lien filed against the Property for work claimed to have been done for, or materials claimed to have been furnished to, shall be discharged or bonded by Tenant within ten (10) days after the filing thereof, at Tenant’s sole cost and expense.

19.2 Should Tenant fail to discharge or bond against any lien of the nature described in Section 19.1 , Landlord may, at Landlord’s election, pay such claim or post a bond or otherwise provide security to eliminate the lien as a claim against title, and Tenant shall immediately reimburse Landlord for the costs thereof as Additional Rent.

19.3 In the event that Tenant leases or finances the acquisition of office equipment, furnishings or other personal property of a removable nature utilized by Tenant in the operation of Tenant’s business, Tenant warrants that any Uniform Commercial Code financing statement executed by Tenant shall, upon its face or by exhibit thereto, indicate that such financing statement is applicable only to removable personal property of Tenant located within the Premises. In no event shall the address of the Premises or the Property be furnished on a financing statement without qualifying language as to applicability of the lien only to removable personal property located in an identified suite leased by Tenant. Should any holder of a financing statement executed by Tenant record or place of record a financing statement that appears to constitute a lien against any interest of Landlord or against equipment that may be located other than within an identified suite leased by Tenant, Tenant shall, within ten (10) days after filing such financing statement, cause (a) a copy of the lender security agreement or other documents to which the financing statement pertains to be furnished to Landlord to facilitate Landlord’s ability to demonstrate that the lien of such financing statement is not applicable to Landlord’s interest and (b) Tenant’s lender to amend such financing statement and any other documents of record to clarify that any liens imposed thereby are not applicable to any interest of Landlord in the Premises or the Property.

20. Indemnification and Exculpation .

20.1 Tenant agrees to indemnify, defend and save Landlord harmless from and against any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages or judgments, and all reasonable expenses (including, without limitation, reasonable attorneys’ fees, charges and disbursements) incurred in investigating or resisting the same (collectively, “ Claims ”) arising from injury or death to any person or injury to any property occurring within or about the Property arising directly or indirectly out of Tenant’s or Tenant’s employees’, agents’ or guests’ use or occupancy of the Property or a breach or default by Tenant in the performance of any of its obligations hereunder, except to the extent caused by Landlord’s willful misconduct or negligence or breach of this Lease.

20.2 Notwithstanding any provision of Section 20.1 to the contrary, Landlord shall not be liable to Tenant for, and Tenant assumes all risk of, damage to personal property or scientific research, including, without limitation, loss of records kept by Tenant within the Premises and damage or losses caused by fire, electrical malfunction, gas explosion or water damage of any type (including, without limitation, broken water lines, malfunctioning fire sprinkler systems, roof leaks or stoppages of lines), unless any such loss is due to Landlord’s negligent or willful disregard of written notice by Tenant of need for a repair that Landlord is responsible to make for an unreasonable period of time. Tenant further waives any claim for injury to Tenant’s business or loss of income relating to any such damage or destruction of personal property as described in this Section 20.2 . Notwithstanding anything to the contrary in this Lease, Landlord shall not be released or indemnified from, and shall indemnify, defend, protect and hold harmless

 

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Tenant from, all losses, damages, liabilities, claims, attorneys’ fees, costs and expenses to the extent arising from the gross negligence or willful misconduct of Landlord or its agents, contractors, licensees or invitees, Landlord’s violation of any Applicable Laws, or a breach of Landlord’s obligations or representations under this Lease.

20.3 Landlord shall not be liable for any damages arising from any act, omission or neglect of any third party.

20.4 Tenant acknowledges that security devices and services, if any, while intended to deter crime, may not in given instances prevent theft or other criminal acts. Except to the extent resulting from Landlord’s gross negligence or willful misconduct, Landlord shall not be liable for injuries or losses caused by criminal acts of third parties, and Tenant assumes the risk that any security device or service may malfunction or otherwise be circumvented by a criminal. If Tenant desires protection against such criminal acts, then Tenant shall, at Tenant’s sole cost and expense, obtain appropriate insurance coverage.

20.5 The provisions of this Section 20 shall survive the expiration or earlier termination of this Lease.

21. Insurance; Waiver of Subrogation .

21.1 Landlord shall maintain insurance for the Property in amounts equal to full replacement cost (exclusive of the costs of excavation, foundations and footings, and without reference to depreciation taken by Landlord upon its books or tax returns) providing protection against any peril generally included within the classification “Fire and Extended Coverage,” together with insurance against sprinkler damage (if applicable), vandalism and malicious mischief. Landlord, subject to availability thereof, shall further insure, if Landlord deems it appropriate, coverage against flood, environmental hazard, loss or failure of building equipment, rental loss during the period of repairs or rebuilding, workmen’s compensation insurance and fidelity bonds for employees employed to perform services. So long as Tenant leases the entire Property, Tenant shall have the right to request that Landlord secure additional earthquake coverage for the Property above Landlord’s then existing coverage, if any. As soon as practicable after receiving such request, which request shall include the coverage Tenant desires and the maximum premium Tenant is willing to pay, Landlord shall use commercially reasonable efforts to secure bids from at least two insurance companies for such insurance, which may be in the form of a separate policy for the Property, and provide the terms of the bids to Tenant; provided however , Landlord shall not be required to comply with such request if (a) it has previously received a request within the last calendar year or (b) Landlord reasonably determines that such additional coverage would adversely affect any other insurance coverage carried by Landlord. If Tenant confirms in writing within ten (10) days following the receipt of the bids its willingness to pay the premium for such insurance, Landlord shall as soon as practicable commence carrying such insurance at Tenant’s sole cost and expense. Upon Tenant’s request, but not more than once every six months, Landlord shall provide Tenant evidence of Landlord’s then existing earthquake coverage for the Property. Notwithstanding the foregoing, Landlord may, but shall not be deemed required to, provide insurance for any improvements installed by Tenant or that are in addition to the standard improvements customarily furnished by Landlord, without regard to whether or not such are made a part of or are affixed to the Building.

21.2 In addition, Landlord shall carry public liability insurance with a single limit of not less than One Million Dollars ($1,000,000) for death or bodily injury, or property damage with respect to the Property.

21.3 Tenant shall, at its own cost and expense, procure and maintain in effect, beginning on the Term Commencement Date or the date of occupancy of any portion of the Premises or the date on which Tenant takes possession of the Premises in order to construct the Tenant Improvements, whichever occurs first, and continuing throughout the Term (and occupancy by Tenant, if any, after termination of this Lease) comprehensive public liability insurance with limits of not less than Two Million Dollars ($2,000,000) per occurrence for death, bodily injury or property damage with respect to the Premises (including $100,000 fire legal liability (each loss)).

 

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21.4 The insurance required to be purchased and maintained by Tenant pursuant to this Lease shall name Landlord, BioMed Realty, L.P., BioMed Realty Trust, Inc., and their respective officers, employees, agents, general partners, members, subsidiaries, affiliates and Lenders (“ Landlord Parties ”) as additional insureds. Said insurance shall be with companies having a rating of not less than policyholder rating of A- and financial category rating of at least Class IX in “Best’s Insurance Guide.” Tenant shall obtain for Landlord from the insurance companies or cause the insurance companies to furnish certificates of coverage to Landlord. No such policy shall be cancelable or subject to reduction of coverage or other modification or cancellation except after thirty (30) days’ prior written notice to Landlord from the insurer (except in the event of non-payment of premium, in which case ten (10) days written notice shall be given). All such policies shall be written as primary policies, not contributing with and not in excess of the coverage that Landlord may carry. Tenant’s policy may be a “blanket policy.” Tenant shall, at least twenty (20) days prior to the expiration of such policies, furnish Landlord with renewals or binders. Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to) procure said insurance on Tenant’s behalf and at its cost to be paid by Tenant as Additional Rent.

21.5 Tenant assumes the risk of damage to any fixtures, goods, inventory, merchandise, equipment and leasehold improvements, and Landlord shall not be liable for injury to Tenant’s business or any loss of income therefrom, relative to such damage, all as more particularly set forth within this Lease. Tenant shall, at Tenant’s sole cost and expense, carry such insurance as Tenant desires for Tenant’s protection with respect to personal property of Tenant or business interruption.

21.6 In each instance where insurance is to name Landlord Parties as additional insureds, Tenant shall, upon Landlord’s written request, also designate and furnish certificates evidencing such Landlord Parties as additional insureds to (a) any Lender of Landlord holding a security interest in the Property or any portion thereof, (b) the landlord under any lease whereunder Landlord is a tenant of the real property upon which the Building is located if the interest of Landlord is or shall become that of a tenant under a ground lease rather than that of a fee owner, and (c) any management company retained by Landlord to manage the Property.

21.7 Notwithstanding anything in this Lease to the contrary, Landlord and Tenant each hereby waive any and all rights of recovery against the other or against the officers, directors, employees, agents and representatives of the other on account of loss or damage occasioned by such waiving party or its property or the property of others under such waiving party’s control, in each case to the extent that such loss or damage is insured against under any fire and extended coverage insurance policy that either Landlord or Tenant may have in force at the time of such loss or damage or is required to be insured against under this Lease. Such waivers shall continue so long as their respective insurers so permit. Any termination of such a waiver shall be by written notice to the other party, containing a description of the circumstances hereinafter set forth in this Section 21.7 . Landlord and Tenant, upon obtaining the policies of insurance required or permitted under this Lease, shall give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. Such waivers shall continue so long as their respective insurers permit. If such waivers are no longer permitted by an insurer, the following provisions shall apply. If such policies shall not be obtainable with such waiver or shall be so obtainable only at a premium over that chargeable without such waiver, then the party seeking such policy shall notify the other of such conditions, and the party so notified shall have ten (10) days thereafter to either (a) procure such insurance with companies reasonably satisfactory to the other party or (b) agree to pay such additional premium. If the parties do not accomplish either (a) or (b), then this Section 21.7 shall have no effect during such time as such policies shall not be obtainable or the party in whose favor a waiver of subrogation is desired refuses to pay the additional premium. If such policies shall at any time be unobtainable, but shall be subsequently obtainable, then neither party shall be subsequently liable for a failure to obtain such insurance until a reasonable time after notification thereof by the other party. If the release of either Landlord or Tenant, as set forth in the first sentence of this Section 21.7 , shall contravene Applicable Laws, then the liability of the party in question shall be deemed not released but shall be secondary to the other party’s insurer.

 

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21.8 Landlord may require insurance policy limits required under this Lease to be raised to conform with requirements of Landlord’s Lender.

21.9 Any costs incurred by Landlord pursuant to this Section 21 shall be included as Insurance Costs payable by Tenant pursuant to this Lease, subject to the terms of Section 16.3.

22. Damage or Destruction .

22.1 In the event of a partial destruction (i.e., destruction of less than all or substantially all) of the Premises by fire or other perils covered by extended coverage insurance, if Landlord has received insurance proceeds therefor, Landlord shall commence and proceed diligently with the work of repair, reconstruction and restoration of the Premises, and this Lease shall continue in full force and effect. Any deductible amount paid by Landlord related to any such destruction shall constitute an Insurance Cost up to a maximum of Two Hundred Twenty Thousand Dollars ($220,000) per year and only if this Lease is not terminated as a result of such damage and Landlord restores such damage.

22.2 In the event of any damage to or destruction of the Premises other than as described in Section 22.1 , Landlord may elect to repair, reconstruct and restore the Premises, in which case this Lease shall continue in full force and effect. If Landlord elects not to repair the Premises, then this Lease shall terminate as of the date of such damage or destruction. Landlord shall not have the right to terminate this Lease if the damage to the Building is relatively minor (e.g., if the repair or restoration would cost less than ten percent (10%) of the replacement cost of the Building). In addition to the foregoing, Tenant shall have the right, following a casualty, to keep this Lease in effect and provide Landlord with funds sufficient to pay the costs in excess of ten percent (10%) of the replacement cost of the Building (less any insurance proceeds (less deductibles) actually collected by Landlord) to restore the Premises to their then-current or equivalent condition, in which event Landlord shall commence and proceed diligently with the work of repair, reconstruction and restoration of the Premises and this Lease shall not terminate.

22.3 Landlord shall give written notice to Tenant of its election not to repair, reconstruct or restore the Premises within sixty (60) days following the date of damage or destruction.

22.4 Upon any termination of this Lease under any of the provisions of this Section 22 , the parties shall be released thereby without further obligation to the other from the date possession of the Premises is surrendered to the Landlord, except with regard to (a) items occurring prior to the damage or destruction and (b) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof.

22.5 In the event of repair, reconstruction and restoration as provided in this Section 22 , all Rent to be paid by Tenant under this Lease shall be abated proportionately based on the extent to which Tenant’s use of the Premises is impaired during the period of such repair, reconstruction or restoration.

22.6 Notwithstanding anything to the contrary contained in this Section 22 , should Landlord be delayed or prevented from completing the repair, reconstruction or restoration of the damage or destruction to the Premises after the occurrence of such damage or destruction by Force Majeure, then the time for Landlord to commence or complete repairs shall be extended on a day-for-day basis. Notwithstanding the foregoing, by delivering written notice thereof to Landlord, Tenant shall be released from any obligations under this Lease (except with regard to those provisions that, by their express terms, survive the expiration or earlier termination hereof) if, on the date that is twelve (12) months after the date of damage or destruction, the repair, reconstruction or restoration required to be performed by Landlord to provide Tenant use of the Premises is not then Substantially Completed or Landlord reasonably estimates that the restoration cannot be substantially completed on or before the date that is twelve (12) months after the date of damage or destruction.

22.7 If Landlord is obligated to or elects to repair, reconstruct or restore as herein provided, then Landlord shall be obligated to make such repair, reconstruction or restoration only with regard to those portions of the Premises that were originally provided at Landlord’s

 

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expense; provided , however, that Landlord shall also restore all Tenant Improvements and Alterations (to the extent that such Alterations are affixed to or constitute a portion of the Building (but specifically excluding any personal property of Tenant)). The repair, reconstruction or restoration of improvements not originally provided by Landlord or at Landlord’s expense or constituting Tenant Improvements and Alterations shall be the obligation of Tenant. In the event Tenant has elected to upgrade certain improvements from the Building Standard, Landlord shall, upon the need for replacement due to an insured loss, provide the upgrades to such improvements.

22.8 Notwithstanding anything to the contrary contained in this Section 22 , Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Premises if the damage resulting from any casualty covered under this Section 22 occurs during the last six (6) months of the Term or any extension hereof.

22.9 Landlord’s obligation, should it elect or be obligated to repair or rebuild, shall be limited to the Premises; provided that Tenant may, at its expense, replace or fully repair all of Tenant’s personal property installed by Tenant existing at the time of such damage or destruction. If the Premises are to be repaired in accordance with the foregoing, Landlord shall make available to Tenant any portion of insurance proceeds it receives that are allocable thereto, provided Tenant is not then in default beyond applicable notice and cure periods under this Lease.

23. Eminent Domain .

23.1 In the event the whole of the Premises, or such part thereof as shall substantially interfere with the Tenant’s use and occupancy thereof, shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, Tenant or Landlord may terminate this Lease effective as of the date possession is required to be surrendered to said authority.

23.2 In the event of a partial taking of the Premises, or of drives, walkways or parking areas serving the Premises for any public or quasi-public purpose by any lawful power or authority by exercise of right of appropriation, condemnation, or eminent domain, or sold to prevent such taking, then, without regard to whether any portion of the Premises occupied by Tenant was so taken, Landlord may elect to terminate this Lease as of such taking if such taking is, in Landlord’s sole opinion, of a material nature such as to make it uneconomical to continue use of the unappropriated portion for purposes of renting office or laboratory space.

23.3 Tenant shall be entitled to any award that is specifically awarded as compensation for (a) the taking of Tenant’s personal property that was installed at Tenant’s expense and (b) the costs of Tenant moving to a new location and (c) lost profits, goodwill, and leasehold improvements paid for by Tenant. Except as set forth in the previous sentence, any award for such taking shall be the property of Landlord.

23.4 If, upon any taking of the nature described in this Section 23 , this Lease continues in effect, then Landlord shall promptly proceed to restore the Premises to substantially their same condition prior to such partial taking. To the extent such restoration is feasible, as determined by Landlord in its reasonable discretion, the Rent shall be decreased by a number, the numerator of which is the rental value of the Premises prior to such taking, and the denominator of which is the value of the Premises after such taking.

24. Defaults and Remedies .

24.1 Late payment by Tenant to Landlord of Rent and other sums due shall cause Landlord to incur costs not contemplated by this Lease, the exact amount of which shall be extremely difficult and impracticable to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges that may be imposed on Landlord by the terms of any mortgage or trust deed covering the Premises or the Property. Therefore, if any installment of Rent due from Tenant is not received by Landlord within five (5) days after the date such payment is due, Tenant shall pay to Landlord an additional sum of five percent (5%) of

 

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the overdue Rent as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord shall incur by reason of late payment by Tenant. In addition to the late charge, Rent not paid when due shall bear interest from the fifth (5 th ) day after the date due until paid at ten percent (10%) per annum. Notwithstanding the foregoing, before assessing a late charge or interest the first time in any twelve (12) month period, Landlord shall provide Tenant written notice of the delinquency, and shall waive such late charge if Tenant pays such delinquency within five (5) days thereafter.

24.2 No payment by Tenant or receipt by Landlord of a lesser amount than the Rent payment herein stipulated shall be deemed to be other than on account of the Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or pursue any other remedy provided in this Lease or in equity or at law. If a dispute shall arise as to any amount or sum of money to be paid by Tenant to Landlord hereunder, Tenant shall have the right to make payment “under protest,” such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of Tenant to institute suit for recovery of the payment paid under protest.

24.3 If Tenant fails to pay any sum of money (other than Basic Annual Rent or Rental Adjustments) required to be paid by it hereunder, or shall fail to perform any other act on its part to be performed hereunder, in each case within applicable notice and cure periods, Landlord may, without waiving or releasing Tenant from any obligations of Tenant, but shall not be obligated to, make such payment or perform such act. Tenant shall pay to Landlord as Additional Rent all sums so paid or incurred by Landlord, together with interest thereon, from the date such sums were paid or incurred, at the annual rate equal to ten percent (10%) per annum or highest rate permitted by Applicable Laws, whichever is less.

24.4 The occurrence of any one or more of the following events shall constitute a “ Default ” hereunder by Tenant:

(a) The abandonment of the Premises by Tenant;

(b) The failure by Tenant to make any payment of Rent, as and when due, where such failure shall continue for a period of five (5) days after written notice thereof from Landlord to Tenant;

(c) The failure by Tenant to observe or perform any obligation or covenant contained herein (other than described in Subsections 24.4(a) , 24.4(b) or 24.4(h) ) to be performed by Tenant, where such failure shall continue for a period of fourteen (14) days after written notice thereof from Landlord to Tenant; provided that, if the nature of Tenant’s default is such that it reasonably requires more than fourteen (14) days to cure, Tenant shall not be deemed to be in default if Tenant shall commence such cure (for the sake of clarity, Tenant (i) scheduling a qualified contractor or vendor to visit the Premises or (ii) requesting a proposal from a qualified contractor or vendor shall constitute commencement of a cure for purposes of this Subsection 24.4(c) ) within said fourteen (14) day period and thereafter diligently prosecute the same to completion; and provided , further, that such cure is completed no later than ninety (90) days from the date of Tenant’s receipt of written notice from Landlord;

(d) Tenant makes an assignment for the benefit of creditors;

(e) A receiver, trustee or custodian is appointed to or does take title, possession or control of all or substantially all of Tenant’s assets unless such receiver, trustee or custodian is discharged within thirty (30) days;

(f) Tenant files a voluntary petition under the United States Bankruptcy Code or any successor statute (the “ Bankruptcy Code ”) or an order for relief is entered against Tenant pursuant to a voluntary or involuntary proceeding commenced under any chapter of the Bankruptcy Code;

 

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(g) Any involuntary petition if filed against Tenant under any chapter of the Bankruptcy Code and is not dismissed within one hundred twenty (120) days;

(h) Failure to deliver an estoppel certificate in accordance with Section 29 ; provided that Tenant shall have three (3) business days after receipt of written notice from Landlord of failure to timely deliver such estoppel certificate; or

(i) Tenant’s interest in this Lease is attached, executed upon or otherwise judicially seized and such action is not released within one hundred twenty (120) days of the action.

(j) Notices given under this Section 24.4 shall specify the alleged default and shall demand that Tenant perform the provisions of this Lease or pay the Rent that is in arrears, as the case may be, within the applicable period of time, or quit the Premises. No such notice shall be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice.

24.5 In the event of a Default by Tenant, and at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy that Landlord may have, Landlord shall be entitled to terminate Tenant’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord shall have the immediate right to re-enter and remove all persons and property, and such property may be removed and stored in a public warehouse or elsewhere at the cost and for the account of Tenant, all without service of notice or resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage that may be occasioned thereby. In the event that Landlord shall elect to so terminate this Lease, then Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant’s default, including, without limitation:

(a) The worth at the time of award of any unpaid Rent that had accrued at the time of such termination; plus

(b) The worth at the time of award of the amount by which the unpaid Rent that would have accrued during the period commencing with termination of this Lease and ending at the time of award exceeds that portion of the loss of Landlord’s rental income from the Premises that Tenant proves could have been reasonably avoided; plus

(c) The worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds that portion of the loss of Landlord’s rental income from the Premises that Tenant proves could have been reasonably avoided; plus

(d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or that in the ordinary course of things would be likely to result therefrom, including, without limitation, the cost of restoring the Premises to the condition required under the terms of this Lease; plus

(e) At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by Applicable Laws.

As used in Subsections 24.5(a) and 24.5(b) , “worth at the time of award” shall be computed by allowing interest at the rate specified in Section 24.1 . As used in Subsection 24.5(c) above, the “worth at the time of the award” shall be computed by taking the present value of such amount, using the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus four (4) percentage points.

24.6 If Landlord does not elect to terminate this Lease as provided in Section 24.5 , then Landlord may, from time to time, recover all Rent as it becomes due under this Lease. At any time thereafter, Landlord may elect to terminate this Lease and to recover damages to which Landlord is entitled.

 

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24.7 In the event Landlord elects to terminate this Lease and relet the Premises, Landlord may execute any new lease in its own name. Tenant hereunder shall have no right or authority whatsoever to collect any Rent from such tenant. The proceeds of any such reletting shall be applied as follows:

(a) First, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord, including, without limitation, storage charges or brokerage commissions owing from Tenant to Landlord as the result of such reletting;

(b) Second, to the payment of the costs and expenses of reletting the Premises, including (i) alterations and repairs that Landlord deems reasonably necessary and advisable and (ii) reasonable attorneys’ fees, charges and disbursements incurred by Landlord in connection with the retaking of the Premises and such reletting;

(c) Third, to the payment of Rent and other charges due and unpaid hereunder; and

(d) Fourth, to the payment of future Rent and other damages payable by Tenant under this Lease.

24.8 All of Landlord’s rights, options and remedies hereunder shall be construed and held to be nonexclusive and cumulative. Landlord shall have the right to pursue any one or all of such remedies, or any other remedy or relief that may be provided by Applicable Laws, whether or not stated in this Lease. No waiver of any default of Tenant hereunder shall be implied from any acceptance by Landlord of any Rent or other payments due hereunder or any omission by Landlord to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect defaults other than as specified in said waiver.

24.9 Landlord’s termination of (a) this Lease or (b) Tenant’s right to possession of the Premises shall not relieve Tenant of any liability to Landlord that has previously accrued or that shall arise based upon events that occurred prior to the later to occur of (i) the date of Lease termination or (ii) the date Tenant surrenders possession of the Premises.

24.10 Landlord shall not be in default under this Lease unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event shall such failure to continue for more than thirty (30) days after written notice from Tenant specifying the nature of Landlord’s failure; provided , however , that if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. In the event Landlord fails to perform any of its obligations under the Lease and (except in case of emergency posing an immediate threat to persons or property, in which case no prior notice shall be required) fails to cure such default within thirty (30) days after written notice from Tenant specifying the nature of such default where such default could reasonably be cured within said thirty (30) day period), or fails to commence such cure within said thirty (30) day period and thereafter continuously with due diligence prosecute such cure to completion (where such default could not reasonably be cured within said thirty (30) day period), then Tenant may, in addition to its other remedies, cure any default of Landlord at Landlord’s cost and deduct the cost of such cure from Rent payable by Tenant to Landlord.

24.11 Landlord shall not be in default under this Lease unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event shall such failure to continue for more than thirty (30) days after written notice from Tenant specifying the nature of Landlord’s failure; provided , however , that if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion.

25. Assignment or Subletting .

25.1 Except as hereinafter provided, Tenant shall not, either voluntarily or by operation of Applicable Laws, directly or indirectly sell, hypothecate, assign, pledge, encumber or

 

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otherwise transfer this Lease, or sublet the Premises or any part hereof (each, a “ Transfer ”), without Landlord’s prior written consent, which consent Landlord may not unreasonably withhold, condition or delay; provided , however, that Tenant shall have the right to assign all or any portion of its interest under this Lease or sublet all or any portion of the Premises without Landlord’s consent to any parent, subsidiary or affiliate (i.e. any entity controlling, controlled by, or under common control with Tenant) of Tenant; or any party that results from a merger, nonbankruptcy reorganization, government action, or consolidation of Tenant; or any party that acquires all or substantially all of the assets or stock of Tenant (an “ Allowable Transfer ”). A sale or transfer of Tenant’s capital stock shall not be deemed an assignment, subletting or any other transfer of this Lease or the Premises. Any Transfer other than an Allowable Transfer shall be referred to herein as a “ Subject Transfer ”) Notwithstanding the foregoing, in no event shall Tenant be released from any of its obligations under this Lease.

25.2 In the event Tenant desires to effect a Transfer, then, at least twenty (20) but not more than ninety (90) days prior to the date when Tenant desires the Transfer to be effective (the “ Assignment Date ”), Tenant shall provide written notice to Landlord (the “ Assignment Notice ”) containing information (including references) naming the proposed transferee, assignee or sublessee; the Assignment Date; any ownership or commercial relationship between Tenant and the proposed transferee, assignee or sublessee; and the consideration and all other material terms and conditions of the proposed Transfer, all in such detail as Landlord shall reasonably require. Tenant shall also tender to Landlord reasonable attorneys’ fees and other costs or overhead expenses incurred by Landlord in reviewing Tenant’s request for such Transfer (not to exceed Two Thousand Five Hundred Dollars ($2,500)).

25.3 Landlord, in determining whether consent should be given to a proposed Subject Transfer, may give consideration to the financial strength of such transferee, assignee or sublessee (notwithstanding Tenant remaining liable for Tenant’s performance), any change in use that such transferee, assignee or sublessee proposes to make in the use of the Premises that is not a Permitted Use under this Lease, and Landlord’s desire to exercise its rights under Section 25.8 to cancel this Lease. In no event shall Landlord be deemed to be unreasonable for declining to consent to a Transfer to a transferee, assignee or sublessee of poor reputation, lacking financial qualifications, seeking a change in the Permitted Use, or jeopardizing directly or indirectly the status of Landlord or any of Landlord’s affiliates as a Real Estate Investment Trust under the Internal Revenue Code of 1986, as amended from time to time. Notwithstanding anything in this Section 25 to the contrary, Landlord agrees to reasonably evaluate the financial condition of any proposed transferee, assignee or sublessee, and shall only have the right to evaluate such financial condition in the event that (a) such sublease is for all or substantially all of the Premises or (b) Tenant no longer both occupies and leases a portion of the Premises.

25.4 As conditions precedent to Landlord’s consent to a Subject Transfer, Landlord may require any or all of the following:

(a) Tenant shall remain fully liable under this Lease during the unexpired Term;

(b) Subject to Section 25.3, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord respecting the relevant business experience and financial responsibility and status of the proposed transferee, assignee or sublessee;

(c) Tenant shall reimburse Landlord for Landlord’s actual costs and expenses, not to exceed Two Thousand Five Hundred Dollars ($2,500)), including, without limitation, reasonable attorneys’ fees, charges and disbursements incurred in connection with the review, processing and documentation of such request;

(d) If a Subject Transfer of the Premises or any portion thereof provides for the receipt by, on behalf of or on account of Tenant of any consideration of any kind whatsoever (including, without limitation, a premium rental for a sublease or lump sum payment for an assignment, but excluding Tenant’s reasonable costs in marketing and subleasing the Premises) in excess of the rental and other charges due to Landlord under this Lease, Tenant shall pay fifty percent (50%) of all of such excess to Landlord as and when received, after deductions for any

 

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transaction costs incurred by Tenant, including marketing expenses, tenant improvement allowances, alterations, cash concessions, brokerage commissions, attorneys’ fees and free rent and the unamortized value of any improvements to the Premises made by Tenant. If said consideration consists of cash paid to Tenant, payment to Landlord shall be made upon receipt by Tenant of such cash payment;

(e) The proposed transferee, assignee or sublessee shall agree that, in the event Landlord gives such proposed transferee, assignee or sublessee notice that Tenant is in Default under this Lease, such proposed transferee, assignee or sublessee shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments shall be received by Landlord without any liability being incurred by Landlord, except to credit such payment against those due by Tenant under this Lease, and any such proposed transferee, assignee or sublessee shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided , however , that in no event shall Landlord or its Lenders, successors or assigns be obligated to accept such attornment;

(f) Consent to any such Transfer shall be effected on Landlord’s reasonable forms;

(g) Tenant shall not then be in default hereunder in any respect, after the expiration of any applicable notice and cure periods;

(h) Such proposed transferee, assignee or sublessee’s use of the Premises shall be the same as the Permitted Use;

(i) Landlord shall not be bound by any provision of any agreement pertaining to the Transfer, except for Landlord’s written consent to the same;

(j) Tenant shall deliver to Landlord one executed copy of any and all written instruments evidencing or relating to the Transfer; and

(k) A list of Hazardous Materials (as defined in Section 39.7 below), certified by the proposed transferee, assignee or sublessee to be true and correct, that the proposed transferee, assignee or sublessee intends to use or store in the Premises. Additionally, Tenant shall deliver to Landlord, on or before the date any proposed transferee, assignee or sublessee takes occupancy of the Premises, all of the items relating to Hazardous Materials of such proposed transferee, assignee or sublessee as described in Section 39.2 .

25.5 Any Transfer that is not in compliance with the provisions of this Section 25 shall be void and shall, at the option of Landlord, terminate this Lease.

25.6 The consent by Landlord to a Subject Transfer shall not relieve Tenant or proposed transferee, assignee or sublessee from obtaining Landlord’s consent to any further Subject Transfer, nor shall it release Tenant or any proposed transferee, assignee or sublessee of Tenant from full and primary liability under this Lease.

25.7 Notwithstanding any Transfer, Tenant shall remain fully and primarily liable for the payment of all Rent and other sums due or to become due hereunder, and for the full performance of all other terms, conditions and covenants to be kept and performed by Tenant. The acceptance of Rent or any other sum due hereunder, or the acceptance of performance of any other term, covenant or condition thereof, from any person or entity other than Tenant shall not be deemed a waiver of any of the provisions of this Lease or a consent to any Transfer.

25.8 [Intentionally omitted]

25.9 If Tenant sublets the Premises or any portion thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenant’s obligations under this Lease, all rent from any such subletting, and appoints Landlord as assignee for Tenant, and Landlord (or a receiver for Tenant appointed on Landlord’s application) may collect such rent and apply it toward Tenant’s obligations under this Lease; provided that, until the occurrence of a Default by Tenant, Tenant shall have the right to collect such rent.

 

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26. Attorneys’ Fees . If either party commences an action against the other party arising out of or in connection with this Lease, then the prevailing party shall be entitled to have and recover from the non-prevailing party reasonable attorneys’ fees, charges and disbursements and costs of suit.

27. Bankruptcy . In the event a debtor, trustee or debtor in possession under the Bankruptcy Code, or another person with similar rights, duties and powers under any other Applicable Laws, proposes to cure any default under this Lease or to assume or assign this Lease and is obliged to provide adequate assurance to Landlord that (a) a default shall be cured, (b) Landlord shall be compensated for its damages arising from any breach of this Lease and (c) future performance of Tenant’s obligations under this Lease shall occur, then such adequate assurances shall include any or all of the following, as designated by Landlord in its reasonable discretion:

27.1 Those acts specified in the Bankruptcy Code or other Applicable Laws as included within the meaning of “adequate assurance,” even if this Lease does not concern a shopping center or other facility described in such Applicable Laws;

27.2 A prompt cash payment to compensate Landlord for any monetary defaults or actual damages arising directly from a breach of this Lease;

27.3 A cash deposit in an amount at least equal to the then-current amount of the Security Deposit; or

27.4 The assumption or assignment of all of Tenant’s interest and obligations under this Lease.

28. Definition of Landlord . With regard to obligations imposed upon Landlord pursuant to this Lease, the term “ Landlord ,” as used in this Lease, shall refer only to Landlord or Landlord’s then-current successor-in-interest. In the event of any transfer, assignment or conveyance of Landlord’s interest in this Lease or in Landlord’s fee title to or leasehold interest in the Land, as applicable, the Landlord herein named (and in case of any subsequent transfers or conveyances, the subsequent Landlord) shall be automatically freed and relieved, from and after the date of such transfer, assignment or conveyance, from all liability for the performance of any covenants or obligations contained in this Lease thereafter to be performed by Landlord (but only to the extent assumed in writing by the transferee) and, without further agreement, the transferee, assignee or conveyee of Landlord’s in this Lease or in Landlord’s fee title to or leasehold interest in the Land, as applicable, shall be deemed to have assumed and agreed to observe and perform any and all covenants and obligations of Landlord hereunder during the tenure of its interest in this Lease or the Land. Landlord or any subsequent Landlord may transfer its interest in the Premises, the Property or this Lease without Tenant’s consent.

29. Estoppel Certificate . Tenant shall, within ten (10) business days of receipt of written notice from Landlord, execute, acknowledge and deliver a statement in writing substantially in the form attached to this Lease as Exhibit B , or on any other form reasonably requested by a proposed Lender or purchaser, (a) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and effect) and the dates to which rental and other charges are paid in advance, if any, (b) acknowledging that there are not, to Tenant’s knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (c) setting forth such further information with respect to this Lease, the Premises and the Property as may be requested thereon. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. Tenant’s failure to deliver such statement within such the prescribed time shall, at Landlord’s option, constitute a Default under this Lease after expiration of all applicable notice and cure periods, and, in any event, shall be binding upon Tenant that this Lease is in full force and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.

30. Joint and Several Obligations . If more than one person or entity executes this Lease as Tenant, then:

 

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30.1 Each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed or performed by Tenant; and

30.2 The term “ Tenant ” as used in this Lease shall mean and include each of them, jointly and severally. The act of, notice from, notice to, refund to, or signature of any one or more of them with respect to the tenancy under this Lease, including, without limitation, any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted, so given or received such notice or refund, or so signed.

31. Limitation of Landlord’s Liability .

31.1 If Landlord is in default under this Lease and, as a consequence, Tenant recovers a monetary judgment against Landlord, the judgment shall be limited to the amount of Landlord’s interest in the Property, including (a) the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Landlord in the Property, (b) rent or other income from such real property receivable by Landlord, (c) the consideration received by Landlord from the sale, financing, refinancing or other disposition of all or any part of Landlord’s right, title or interest in the Property, or (d) the insurance or condemnation proceeds of the Property.

31.2 Landlord shall not be personally liable for any deficiency under this Lease. If Landlord is a partnership or joint venture, then the partners of such partnership shall not be personally liable for Landlord’s obligations under this Lease, and no partner of Landlord shall be sued or named as a party in any suit or action, and service of process shall not be made against any partner of Landlord except as may be necessary to secure jurisdiction of the partnership or joint venture. If Landlord is a corporation, then the shareholders, directors, officers, employees and agents of such corporation shall not be personally liable for Landlord’s obligations under this Lease, and no shareholder, director, officer, employee or agent of Landlord shall be sued or named as a party in any suit or action, and service of process shall not be made against any shareholder, director, officer, employee or agent of Landlord. If Landlord is a limited liability company, then the members of such limited liability company shall not be personally liable for Landlord’s obligations under this Lease, and no member of Landlord shall be sued or named as a party in any suit or action, and service of process shall not be made against any member of Landlord except as may be necessary to secure jurisdiction of the limited liability company. No partner, shareholder, director, employee, member or agent of Landlord shall be required to answer or otherwise plead to any service of process, and no judgment shall be taken or writ of execution levied against any partner, shareholder, director, employee or agent of Landlord.

31.3 Each of the covenants and agreements of this Section 31 shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by Applicable Laws and shall survive the expiration or earlier termination of this Lease.

32. Premises Control by Landlord .

32.1 Landlord reserves full control over the Premises to the extent not inconsistent with Tenant’s enjoyment of the same as provided by this Lease. This reservation includes, without limitation, Landlord’s right to subdivide the Land, convert the Building to condominium units, grant easements and licenses to third parties, and maintain or establish ownership of the Building separate from fee title to the Land. No exercise of such right shall materially interfere with the Permitted Use or materially increase Tenant’s obligations or decrease its rights under this Lease.

32.2 Tenant shall, at Landlord’s request, promptly execute such further documents as may be reasonably appropriate to assist Landlord in the performance of its obligations hereunder; provided that Tenant need not execute any document that creates additional liability for Tenant or that deprives Tenant of the quiet enjoyment and use of the Premises as provided by this Lease.

32.3 Landlord may, at any and all reasonable times during non-business hours (or during business hours if Tenant so requests), and upon one (1) business day’s prior notice

 

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( provided that no time restrictions shall apply or advance notice be required if an emergency necessitates immediate entry), enter the Premises to (a) inspect the same and to determine whether Tenant is in compliance with its obligations hereunder, (b) supply any service Landlord is required to provide hereunder, (c) show the Premises to prospective purchasers or tenants during the final year of the Term, (d) post notices of nonresponsibility and (e) access the telephone equipment, electrical substation and fire risers. In connection with any such alteration, improvement or repair as described in Subsection 32.3(f) above, Landlord may erect in the Premises scaffolding and other structures reasonably required for the alteration, improvement or repair work to be performed. In no event shall Tenant’s Rent abate as a result of Landlord’s activities pursuant to this Section 32.3 ; provided , however , that all such activities shall be conducted in such a manner so as to cause as little interference to Tenant as is reasonably possible. Landlord shall at all times retain a key with which to unlock all of the doors in the Premises. If an emergency necessitates immediate access to the Premises, Landlord may use whatever force is necessary to enter the Premises, and any such entry to the Premises shall not constitute a forcible or unlawful entry to the Premises, a detainer of the Premises, or an eviction of Tenant from the Premises or any portion thereof. Any entry by Landlord and Landlord’s agents shall not impair Tenant’s operations more than reasonably necessary, and shall comply with Tenant’s reasonable security measures. Notwithstanding the foregoing, Tenant shall have the right, upon written notice to Landlord, to reasonably designate certain limited areas of the Premises as “confidential,” upon which notice Landlord shall not have the right to access the designated areas.

33. Quiet Enjoyment . So long as Tenant is not in default under this Lease beyond applicable notice and cure periods, Landlord or anyone acting through or under Landlord shall not disturb Tenant’s occupancy of the Premises, except as permitted by this Lease.

34. Subordination and Attornment .

34.1 This Lease shall be subject and subordinate to the lien of any mortgage, deed of trust, or lease in which Landlord is tenant now or hereafter in force against the Premises or any portion thereof and to all advances made or hereafter to be made upon the security thereof without the necessity of the execution and delivery of any further instruments on the part of Tenant to effectuate such subordination. Prior to the Term Commencement Date, Landlord shall obtain from any lenders or ground lessors of the Premises a written agreement in form reasonably satisfactory to Tenant providing for recognition of Tenant’s interests under this Lease in the event of a foreclosure of the lender’s security interest or termination of the ground lease. Further, the subordination of this Lease to a ground lease or instrument of security shall be conditioned upon Tenant’s receipt from any such ground lessors or lenders such a recognition agreement.

34.2 Notwithstanding the foregoing, Tenant shall execute and deliver upon demand such further commercially reasonable instrument or instruments evidencing such subordination of this Lease to the lien of any such mortgage or mortgages or deeds of trust or lease in which Landlord is tenant as may be required by Landlord. However, if any such mortgagee, beneficiary or Landlord under lease wherein Landlord is tenant so elects, this Lease shall be deemed prior in lien to any such lease, mortgage, or deed of trust upon or including the Premises regardless of date and Tenant shall execute a statement in writing to such effect at Landlord’s request. If Tenant fails to execute any document required from Tenant under this Section within ten (10) days after written request therefor, Tenant hereby constitutes and appoints Landlord or its special attorney-in-fact to execute and deliver any such document or documents in the name of Tenant. Such power is coupled with an interest and is irrevocable.

34.3 Upon written request of Landlord and opportunity for Tenant to review, Tenant agrees to execute any Lease amendments not materially altering the terms of this Lease, if required by a mortgagee or beneficiary of a deed of trust encumbering real property of which the Premises constitute a part incident to the financing of the real property of which the Premises constitute a part. Any change affecting the amount or timing of the consideration to be paid by Tenant or modifying the Term of this Lease shall be deemed as materially altering the terms hereof.

 

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34.4 In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by the Landlord covering the Premises, the Tenant shall at the election of the purchaser at such foreclosure or sale attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Landlord under this Lease.

35. Surrender .

35.1 No surrender of possession of any part of the Premises shall release Tenant from any of its obligations hereunder, unless such surrender is accepted in writing by Landlord.

35.2 The voluntary or other surrender of this Lease by Tenant shall not effect a merger with Landlord’s fee title or leasehold interest in the Property or any portion thereof, unless Landlord consents in writing, and shall, at Landlord’s option, operate as an assignment to Landlord of any or all subleases.

35.3 The voluntary or other surrender of any ground or other underlying lease that now exists or may hereafter be executed affecting the Property or any portion thereof, or a mutual cancellation thereof or of Landlord’s interest therein by Landlord and its lessor shall not effect a merger with Landlord’s fee title or leasehold interest in the Property and shall, at the option of the successor to Landlord’s interest in the Property or any portion thereof operate as an assignment of this Lease.

36. Waiver and Modification . No provision of this Lease may be modified, amended or supplemented except by an agreement in writing signed by Landlord and Tenant. The waiver by Landlord of any breach by Tenant of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition herein contained.

37. Waiver of Jury Trial and Counterclaims . The parties waive trial by jury in any action, proceeding or counterclaim brought by the other party hereto related to matters arising out of or in any way connected with this Lease; the relationship between Landlord and Tenant; Tenant’s use or occupancy of the Property; or any claim of injury or damage related to this Lease or the Property.

38. [Intentionally omitted]

39. Hazardous Materials .

39.1 Tenant shall not cause or permit any Hazardous Materials (as hereinafter defined) to be brought upon, kept or used in or about the Property in violation of Applicable Laws by Tenant, its agents, employees, contractors or invitees. If Tenant breaches such obligation, or if the presence of Hazardous Materials as a result of such a breach results in contamination of the Property or any adjacent property, or if contamination of the Property or any adjacent property by Hazardous Materials otherwise occurs during the term of this Lease or any extension or renewal hereof or holding over hereunder as a result of the use of Hazardous Materials by Tenant, its agents, employees, contractors or invitees, then Tenant shall indemnify, save, defend and hold Landlord, its agents and contractors harmless from and against any and all claims, judgments, damages, penalties, fines, costs, liabilities and losses (including, without limitation, diminution in value of the Property or any portion thereof; damages for the loss or restriction on use of rentable or usable space or of any amenity of the Property; damages arising from any adverse impact on marketing of space in the Premises; and sums paid in settlement of claims, attorneys’ fees, consultants’ fees and experts’ fees) to the extent they arise during or after the Term as a result of such breach or contamination. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal or restoration work required by any Governmental Authority because of Hazardous Materials present in the air, soil or groundwater above, on or under the Property. Without limiting the foregoing, if the presence of any Hazardous Materials in, on, under or about the Property or any adjacent property caused by Tenant or its agents, employees, contractors or invitees results in any contamination of the Property or any adjacent property, then Tenant shall promptly take all actions at its sole cost and expense as are necessary

 

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to return the Property and any adjacent property to their respective condition existing prior to the time of such contamination; provided that Landlord’s written approval of such action shall first be obtained, which approval Landlord shall not unreasonably withhold; and provided , further, that it shall be reasonable for Landlord to withhold its consent if such actions could have a material adverse long-term or short-term effect on the Property.

39.2 Landlord acknowledges that it is not the intent of this Section 39 to prohibit Tenant from operating its business as described in Section 2.12 above. Tenant may operate its business according to the custom of Tenant’s industry so long as the use or presence of Hazardous Materials is strictly and properly monitored according to Applicable Laws. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord prior to the Term Commencement Date a list identifying each type of Hazardous Material to be present on the Property and setting forth any and all governmental approvals or permits required in connection with the presence of such Hazardous Material on the Property (the “ Hazardous Materials List ”). Tenant shall deliver to Landlord an updated Hazardous Materials List on or prior to each annual anniversary of the Term Commencement Date and shall also deliver an updated Hazardous Materials List before any new Hazardous Materials are brought onto the Property by Tenant or its agents, employees, contractors or invitees. Tenant shall deliver to Landlord true and correct copies of the following documents (hereinafter referred to as the “ Documents ”) relating to the handling, storage, disposal and emission of Hazardous Materials prior to the Term Commencement Date or, if unavailable at that time, concurrent with the receipt from or submission to any Governmental Authority: permits; approvals; reports and correspondence; storage and management plans; notices of violations of Applicable Laws; plans relating to the installation of any storage tanks to be installed in or under the Property ( provided that installation of storage tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent Landlord may withhold in its sole and absolute discretion); and all closure plans or any other documents required by any and all Governmental Authorities for any storage tanks installed in, on or under the Property by Tenant or its agents, employees, contractors or invitees for the closure of any such storage tanks. Tenant shall not be required, however, to provide Landlord with any portion of the Documents containing information of a proprietary nature that, in and of themselves, do not contain a reference to any Hazardous Materials or activities related to Hazardous Materials.

39.3 [Intentionally omitted]

39.4 At any time, and from time to time, prior to the expiration of the Term, Landlord shall have the right to conduct appropriate tests of the Property to demonstrate that Hazardous Materials are present or that contamination has occurred due to Tenant or Tenant’s agents, employees or invitees. Tenant shall pay all reasonable costs of such tests of the Property if such tests reveal that Tenant has breached its obligations under this Section 39 .

39.5 If underground or other storage tanks storing Hazardous Materials are placed on the Property by Tenant, Tenant shall monitor the storage tanks, maintain appropriate records, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other steps necessary or required under the Applicable Laws.

39.6 Tenant’s obligations under this Section 39 shall survive the expiration or earlier termination of this Lease. During any period of time needed by Tenant or Landlord after the termination of this Lease to complete the removal from the Property of any such Hazardous Materials, Tenant shall continue to pay Rent in accordance with this Lease, which Rent shall be prorated daily.

39.7 As used herein, the term “ Hazardous Material ” means any hazardous or toxic substance, material or waste that is or becomes regulated by any Governmental Authority, but shall not include office and janitorial supplies that Tenant uses in normal quantities and in accordance with Applicable Laws for the conduct of its business.

39.8 To the best knowledge of Landlord, made without inquiry, (a) no Hazardous Material is present on the Property or the soil, surface water or groundwater thereof except as set forth on the environmental report provided to Tenant by Landlord, (b) no underground storage

 

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tanks are present on the Land and (c) no action, proceeding or claim is pending or threatened regarding the Property concerning any Hazardous Material or pursuant to any environmental law. Under no circumstance shall Tenant be liable for, and Landlord shall indemnify, defend, protect and hold harmless Tenant, its agents, contractors, stockholders, directors, successors, representatives and assigns from and against all Claims directly or indirectly arising out of or in connection with any environmental conditions existing at, on or under the Property prior to the Execution Date to the extent not caused by Tenant or its agents, employees, contractors, subtenants or invitees. Tenant may engage, at its sole cost, an environmental consultant to conduct an environmental study in order to obtain a baseline of any pre-existing environmental conditions of the Property; provided that Landlord shall not be deemed to have affirmed any data or conclusions reported in such study.

40. Expansion Option . Tenant shall have the one-time option (the “ Expansion Option ”) to request that Landlord increase the size of the Building within the first forty-eight (48) months after Lease commencement by up to thirty thousand (30,000) rentable square feet (the “ Additional Premises ”), subject to Landlord and City approval, which consent by Landlord shall not be unreasonably withheld or delayed. The Additional Premises shall be a concrete tilt-up building shell comparable to the shell portion of the Premises and otherwise reasonably acceptable to Tenant (the “ Additional Work ”). Once Tenant notifies Landlord of its intent to exercise the Expansion Option, Landlord and Tenant shall amend this Lease to reflect such intent within thirty (30) business days of Landlord’s receipt of Tenant’s notice. Such amendment shall (a) extend the Term so that the Term Expiration Date for the Premises and Additional Premises shall mean the date that is ten (10) years after the date on which Tenant begins to pay Basic Annual Rent with respect to the Additional Premises, (b) Basic Annual Rent for the Additional Premises shall commence upon Landlord’s delivery of the Additional Premises to Tenant in the required condition, including the Additional Work being substantially complete and shall be based on a ten percent (10%) return on Landlord’s total costs incurred in development of the Additional Premises, increasing annually in accordance with Section 6 hereof, (c) require that Landlord promptly commence and diligently prosecute the completion of the Additional Work in a good and workmanlike manner using new materials of good quality and, promptly upon substantial completion thereof, deliver possession thereof to Tenant in good, broom clean condition, in compliance with all laws, and (d) decrease the parking ratio to take into account the increased size of the Premises. The total project cost of constructing the Additional Premises shall include a Fifty Dollar ($50) per square foot valuation on the Land on an F.A.R. basis, a One Hundred Twenty-Five Dollar ($125) per square foot tenant improvement allowance, and other amounts (for, by way of example and not of limitation, shell and core costs, soft costs, leasing commissions and financing costs) to be reasonably determined in good faith upon Tenant’s exercise and Landlord’s consent to the exercise of the Expansion Option. Prior to commencing construction of the Additional Work, Landlord shall deliver to Tenant Landlord’s definition of the total project cost. If Tenant does not agree with such definition in its sole discretion, Tenant may withdraw its exercise of the Expansion Option. If Tenant so withdraws its exercise, Tenant shall reimburse Landlord, within thirty (30) days of its receipt of invoices therefor, for all of the actual, reasonable, third party, out-of-pocket expenses incurred by Landlord between the time Tenant exercised its Expansion Option and Tenant withdrew its exercise of the Expansion Option in connection with the Additional Work as a result of Tenant’s exercise of such option.

41. Miscellaneous .

41.1 This Lease shall be deemed and construed to be an “absolute net lease” and, except as herein expressly provided, Landlord shall receive all payments required to be made by Tenant free from all charges, assessments, impositions, expenses and deductions of any and every kind or nature whatsoever. Landlord shall not be required to furnish any services or facilities or to make any repairs, replacements or alterations of any kind in or on the Property except as specifically provided herein. Tenant shall receive all invoices and bills relative to the Property and, except as otherwise provided herein, shall pay for all expenses directly to the person or company submitting a bill without first having to forward payment for the expenses to Landlord. Tenant shall at Tenant’s sole cost and expense be responsible for the management of the Property, shall maintain the landscaping and parking lot, and shall make those additional repairs and alterations required of Tenant hereunder to maintain the Property in first class condition.

 

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41.2 Where applicable in this Lease, the singular includes the plural and the masculine or neuter includes the masculine, feminine and neuter. The section headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof.

41.3 Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant.

41.4 Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.

41.5 Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition.

41.6 Whenever consent or approval of either party is required, that party shall not unreasonably withhold such consent or approval, except as may be expressly set forth to the contrary.

41.7 The terms of this Lease are intended by the parties as a final expression of their agreement with respect to the terms as are included herein, and may not be contradicted by evidence of any prior or contemporaneous agreement.

41.8 Any provision of this Lease that shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision hereof, and all other provisions of this Lease shall remain in full force and effect and shall be interpreted as if the invalid, void or illegal provision did not exist.

41.9 Landlord may, but shall not be obligated to, record this Lease or a short form memorandum hereof without Tenant’s consent. Neither party shall record this Lease. Tenant shall be responsible for the cost of recording any memorandum of this Lease by Tenant, including any transfer or other taxes incurred in connection with said recordation.

41.10 The language in all parts of this Lease shall be in all cases construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant.

41.11 Each of the covenants, conditions and agreements herein contained shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs; legatees; devisees; executors; administrators; and permitted successors, assigns, sublessees. Nothing in this Section 41.11 shall in any way alter the provisions of this Lease restricting assignment or subletting.

41.12 Any notice, consent, demand, bill, statement or other communication required or permitted to be given hereunder shall be in writing and shall be given by personal delivery, overnight delivery with a reputable nationwide overnight delivery service, or certified mail (return receipt requested), and if given by personal delivery, shall be deemed delivered upon receipt; if given by overnight delivery, shall be deemed delivered one (1) day after deposit with a reputable nationwide overnight delivery service; and, if given by certified mail (return receipt requested), shall be deemed delivered three (3) days after the time the notifying party deposits the notice with the United States Postal Service. Any notices given pursuant to this Lease shall be addressed to Landlord or Tenant at the addresses shown in Sections 2.14 and 2.15 , respectively. Either party may, by notice to the other given pursuant to this Section, specify additional or different addresses for notice purposes.

41.13 This Lease shall be governed by, construed and enforced in accordance with the laws of the State in which the Premises are located, without regard to such State’s conflict of law principles.

41.14 Landlord and Tenant each represent that the individual or those individuals signing this Lease on their respective behalf have the power, authority and legal capacity to sign this Lease on their behalf of and to bind all entities, corporations, partnerships, limited liability

 

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companies, joint venturers or other organizations and entities on whose behalf said individual or individuals have signed.

41.15 To induce Landlord to enter into this Lease, Tenant agrees that it shall promptly furnish to Landlord, from time to time, upon Landlord’s written request, the most recent audited year-end financial statements reflecting Tenant’s current financial condition (as of the date of such statements). Landlord shall hold such statements confidential. Tenant represents and warrants that all financial statements, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete in all respects.

41.16 This Lease may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.

41.17 This Lease is subject to (a) the written consent of Landlord’s lender and (b) Landlord negotiating and executing a lease termination agreement with the Building’s current tenant providing for the termination of such lease and the vacation of the Premises by such tenant in a form acceptable to Landlord in its sole and absolute discretion. Landlord shall promptly notify Tenant when it enters into such agreement and receives such consent. If such agreement and consent are not obtained and effective by May 25, 2007, this Lease shall be void and of no further force or effect.

42. Options to Extend Term . Tenant shall have options (each, an “ Option ”) to extend the Term of this Lease upon the following terms and conditions:

42.1 Tenant shall have three (3) consecutive Options to extend the Term of this Lease by three (3) years each on the same terms and conditions as this Lease. Basic Annual Rent shall equal the fair market value (the “ FMV ”) for comparable projects with customary laboratory/research and development interiors in comparable locations in Fremont, California, as of the date Tenant exercises the respective Option including market rate (as of the time Tenant provides notice to Landlord that Tenant is exercising an Option) rent adjustments, if any, but (a) excluding the value of any improvements made to the Premises at Tenant’s cost and expense (other than as part of a reimbursement by Tenant under this Lease (e.g., related to the First Additional TI Allowance, Second Additional TI Allowance or Third Additional TI Allowance)), and (b) taking into account any amortization to be paid by Tenant during any such extension term pursuant to Section 18.4 hereof; provided , however, that in no event shall the Basic Annual Rent at the commencement of any extension term be less than one hundred three percent (103%) of the Basic Annual Rent at the expiration of the then-current Term. In the event that Landlord and Tenant are unable to agree upon the FMV for any Option term within thirty (30) days after Landlord’s receipt of the applicable Exercise Notice, then the FMV shall be determined as follows: a real estate appraiser who is a Member of the Appraisal Institute with local knowledge of Alameda County real estate and knowledge of the greater Bay Area laboratory/research and development leasing market (the “ Baseball Arbitrator ”) shall be selected and paid for jointly by Landlord and Tenant. If Landlord and Tenant are unable to agree upon the Baseball Arbitrator, then the same shall be designated by the chapter of the American Arbitration Association located in or nearest to Alameda County, or any successor organization thereto (the “ AAA ”). The Baseball Arbitrator selected by the parties or designated by the President of the AAA shall (a) have at least ten (10) years’ experience in the leasing of office and laboratory/research and development space in Alameda County and (b) not have been employed or retained by either Landlord or Tenant or any affiliate of either. Landlord and Tenant shall each submit to the Baseball Arbitrator and to the other its determination of the FMV. The Baseball Arbitrator shall afford to Landlord and Tenant a hearing and the right to submit evidence. The Baseball Arbitrator shall determine which of the two (2) rent determinations more closely represents the FMV of the Premises. The Baseball Arbitrator may not select any other fair market rental value for the Premises other than one submitted by Landlord or Tenant. The determination of the party so selected or designated shall be binding upon Landlord and Tenant and shall serve as the basis for the determination of the Basic Annual Rent payable for the applicable Option term. If, as of the commencement date of the applicable Option term, the amount of the Basic Annual Rent payable during the applicable Option term in accordance with this Section 42 shall not have been determined, then, pending such determination, Tenant shall pay Basic Annual Rent equal to the Basic Annual Rent payable in respect of the last year of the then-current Term. After the final

 

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determination of the Basic Annual Rent payable for such Option term, the parties promptly and appropriately shall adjust rental payments theretofore made during the applicable Option term and shall execute a written agreement specifying the amount of the Basic Annual Rent as so determined. Any failure of the parties to execute such written agreement shall not affect the validity of the Basic Annual Rent as so determined. Notwithstanding anything to the contrary contained in this Section, if the Basic Annual Rent during any Option term is determined by appraisal and if Tenant does not, in its sole discretion, approve the rental amount established by such appraisal, Tenant may rescind its exercise of the Option by giving Landlord written notice of such election to rescind within ten (10) days after receipt of all appraisals. If Tenant rescinds its exercise of the Option, then (y) the Lease shall terminate on the thirtieth (30th) day after Tenant’s notice of rescission or on the date the Lease would have otherwise terminated absent Tenant’s exercise of the Option, whichever date is later; and (z) Tenant shall pay all costs and expenses of the appraisal.

42.2 Notwithstanding anything in this Lease to the contrary, Tenant shall not assign or transfer an Option, except in conjunction with an assignment or transfer of Tenant’s interest in this Lease.

42.3 The Options are conditional upon Tenant giving Landlord written notice of its election to exercise the applicable Option (each, an “ Exercise Notice ”) at least twelve (12) months prior to the end of the expiration of the then-current Term of this Lease.

42.4 Notwithstanding anything contained in this Section 42 , Tenant shall not have the right to exercise an Option:

(a) During the time commencing from the date Landlord delivers to Tenant a written notice that Tenant is in default under any provisions of this Lease and continuing until Tenant has cured the specified default to Landlord’s reasonable satisfaction; or

(b) At any time after an event of Default as described in Section 24 of the Lease and continuing until Tenant cures any such Default, if such Default is susceptible to being cured; or

(c) In the event that Tenant has defaulted beyond applicable cure periods in the performance of its obligations under this Lease two (2) or more times, or a service or late charge has become payable under Section 24.1 for two (2) such defaults, during the twelve (12)-month period immediately prior to the date that Tenant intends to exercise the Option, whether or not Tenant has cured such defaults.

42.5 The period of time within which Tenant may exercise an Option shall not be extended or enlarged by reason of Tenant’s inability to exercise such Option because of the provisions of Section 42.4 .

42.6 All of Tenant’s rights under the provisions of the Option shall terminate and be of no further force or effect even after Tenant’s due and timely exercise of an Option if, after such exercise, but prior to the commencement date of the new term, (a) Tenant fails to pay to Landlord a monetary obligation of Tenant for a period of twenty (20) days after written notice from Landlord to Tenant, (b) Tenant fails to commence to cure a default (other than a monetary default) within thirty (30) days after the date Landlord gives notice to Tenant of such default or (c) Tenant has defaulted under this Lease three (3) or more times and a service or late charge under Section 24.1 has become payable for any such default, whether or not Tenant has cured such defaults.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first above written.

 

LANDLORD:

BMR-34790 ARDENTECH COURT LLC,

a Delaware limited liability company

By:  

/s/ Alan D. Gold

Name:   Alan D. Gold
Title:   CEO
TENANT:  

THE MACROFLUX CORPORATION,

a Delaware corporation

By:  

 

Name:  

 

Title:  

 


EXHIBIT A

RULES AND REGULATIONS

NOTHING IN THESE RULES AND REGULATIONS (“ RULES AND REGULATIONS ”) SHALL SUPPLANT ANY PROVISION OF THE LEASE. IN THE EVENT OF A CONFLICT OR INCONSISTENCY BETWEEN THESE RULES AND REGULATIONS AND THE LEASE, THE LEASE SHALL PREVAIL.

1. Except as specifically provided in the Lease to which these Rules and Regulations are attached, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside of the Premises or the Building or on the Land without Landlord’s prior written consent. Landlord shall have the right to remove, at Tenant’s sole cost and expense and without notice, any sign installed or displayed in violation of this rule.

2. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises or placed on any windowsill, which window, door or windowsill is (a) visible from the exterior of the Premises and (b) not included in plans approved by Landlord, then Tenant shall promptly remove said curtains, blinds, shades, screens or hanging plants or other similar objects at its sole cost and expense.

3. Tenant shall not obstruct any sidewalks or entrances to the Building, or any halls, passages, exits, entrances or stairways within the Premises, in any case that are required to be kept clear for health and safety reasons.

4. No deliveries shall be made that impede or interfere with operation of the Premises.

5. Tenant shall not place a load upon any floor of the Premises that exceeds the load per square foot that (a) such floor was designed to carry or (b) that is allowed by Applicable Laws.

6. Tenant shall not use any method of heating or air conditioning other than that shown in the Tenant Improvement plans.

7. Tenant shall not install any radio, television or other antenna, cell or other communications equipment, or any other devices on the roof or exterior walls of the Premises except to the extent shown on approved Tenant Improvements plans. Tenant shall not interfere with radio, television or other communications from or in the Premises or elsewhere.

8. Canvassing, peddling, soliciting and distributing handbills or any other written material within, on or around the Premises are prohibited, and Tenant shall cooperate to prevent such activities.

9. Tenant shall store all of its trash, garbage and Hazardous Materials within its Premises or in designated receptacles outside of the Premises. Tenant shall not place in any such receptacle any material that cannot be disposed of in the ordinary and customary manner of trash, garbage and Hazardous Materials disposal.

10. The Property shall not be used for any improper, immoral or objectionable purpose. No cooking shall be done or permitted on the Property; provided , however , that Tenant may use (a) equipment approved in accordance with the requirements of insurance policies that Landlord or Tenant is required to purchase and maintain pursuant to the Lease for brewing coffee, tea, hot chocolate and similar beverages, (b) microwave ovens for employees’ use and (c) equipment shown on Tenant Improvement plans approved by Landlord; provided , further, that any such equipment and microwave ovens are used in accordance with Applicable Laws.

11. Tenant shall not, without Landlord’s prior written consent, use the name of the Property, if any, in connection with or in promoting or advertising Tenant’s business except as Tenant’s address.

 

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12. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any Governmental Authority.

13. Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which responsibility includes keeping doors locked and other means of entry to the Premises closed.

14. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant, but any one-time waiver by Landlord shall not be construed as a continuing waiver of such Rules and Regulations in favor of Tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against Tenant (other than with respect to such one-time waiver).

15. 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 the Lease.

16. 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, the care and cleanliness of the Property, or the preservation of good order therein; provided , however , that Landlord shall provide written notice to Tenant of such rules and regulations prior to them taking effect. Tenant agrees to abide by these Rules and Regulations and any additional rules and regulations issued or adopted by Landlord.

17. Tenant shall be responsible for the observance of these Rules and Regulations by Tenant’s employees, agents, clients, customers, invitees and guests.

 

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EXHIBIT B

FORM OF ESTOPPEL CERTIFICATE

 

To: BMR-34790 Ardentech Court LLC

17140 Bernardo Center Drive, Suite 222

San Diego, CA 92128

Attention: General Counsel

BioMed Realty, L.P.

c/o BioMed Realty Trust, Inc.

17140 Bernardo Center Drive, Suite 222

San Diego, CA 92128

 

Re: The Premises (the “ Premises ”) at 34790 Ardentech Court, Fremont, California (the “ Property ”)

The undersigned tenant (“ Tenant ”) hereby certifies to you as follows:

1. Tenant is a tenant at the Property under a lease (the “ Lease ”) for the Premises dated as of May 1, 2007. The Lease has not been cancelled, modified, assigned, extended or amended [except as follows: [            ]], and there are no other agreements, written or oral, affecting or relating to Tenant’s lease of the Premises or any other space at the Property. The lease term expires on [            ], 20[    ].

2. Tenant took possession of the Premises, currently consisting of [            ] square feet, on [            ], 20[    ], and commenced to pay rent on [            ], 20[    ]. Tenant has full possession of the Premises, has not assigned the Lease or sublet any part of the Premises, and does not hold the Premises under an assignment or sublease[, except as follows: [            ]].

3. All base rent, rent escalations and additional rent under the Lease have been paid through [            ], 20[    ]. There is no prepaid rent[, except $[            ]] [, and the amount of security deposit is $[            ] [in cash] [in the form of a letter of credit]]. Tenant currently has no right to any future rent abatement under the Lease except as otherwise provided in the Lease.

4. Base rent is currently payable in the amount of $[            ] per month.

5. Tenant is currently paying estimated payments of additional rent of $[            ] per month on account of real estate taxes, insurance, management fees and common area maintenance expenses.

6. All work to be performed for Tenant under the Lease has been performed as required under the Lease and has been accepted by Tenant[, except [            ]], and all allowances to be paid to Tenant, including allowances for tenant improvements, moving expenses or other items, have been paid.

7. The Lease is in full force and effect, free from default by Tenant and, to Tenant’s knowledge, by Landlord, and free from any event that could become a default under the Lease, and Tenant has no claims against the landlord or offsets or defenses against rent, and there are no disputes with the landlord. Tenant has received no notice of prior sale, transfer, assignment, hypothecation or pledge of the Lease or of the rents payable thereunder[, except [            ]].

8. Tenant has the following options for the Property: [            ]. Tenant has no rights or options to purchase the Property.

9. To Tenant’s knowledge, no hazardous wastes have been generated, treated, stored or disposed of by or on behalf of the Tenant in, on or around the Property in violation of any environmental laws.

10. The undersigned has executed this Estoppel Certificate with the knowledge and understanding that [INSERT NAME OF LANDLORD, PURCHASER OR LENDER, AS

 

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APPROPRIATE] or its assignee is acquiring the Property in reliance on this certificate and that the undersigned shall be bound by this certificate. The statements contained herein may be relied upon by [INSERT NAME OF PURCHASER OR LENDER, AS APPROPRIATE], [LANDLORD], BioMed Realty, L.P., BioMed Realty Trust, Inc., and any mortgagee of the Property and their respective successors and assigns.

Any capitalized terms not defined herein shall have the respective meanings given in the Lease.

Dated this [            ] day of [            ], 20[    ].

 

THE MACROFLUX CORPORATION,
a Delaware corporation
By:  

 

Name:  
Title:  

 

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EXHIBIT C

WORK LETTER

This Work Letter (the “ Work Letter ”) is made and entered into as of the 1 st day of May, 2007, by and between BMR-34790 ARDENTECH COURT LLC, a Delaware limited liability company (“ Landlord ”), and THE MACROFLUX CORPORATION, a Delaware corporation (“ Tenant ”), and is attached to and made a part of that certain Lease dated as of May 1, 2007 (the “ Lease ”), by and between Landlord and Tenant for the Premises located at 34790 Ardentech Court in Fremont, California. All capitalized terms used but not otherwise defined herein shall have the meanings given them in the Lease.

1. General Requirements .

1.1. Tenant’s Authorized Representative . Tenant designates Scott Hipsley (“ Tenant’s Authorized Representative ”) as the person authorized to initial all plans, drawings, changes orders and approvals pursuant to this Work Letter. Landlord shall not be obligated to respond to or act upon any such item until such item has been initialed by Tenant’s Authorized Representative.

1.2. Schedule . The schedule for design and development of Tenant’s Work (as hereinafter defined), including, without limitation, the time periods for preparation and review of construction documents, approvals and performance, shall be in accordance with that certain schedule to be prepared by Landlord and Tenant and attached as Exhibit A to this Work Letter (the “ Schedule ”). The Schedule shall be subject to adjustment as mutually agreed upon in writing by the parties, or as provided in this Work Letter.

1.3. Architects and Consultants . The architect, engineering consultants, design team, general contractor and subcontractors responsible for the construction of Tenant’s Work shall be selected by Tenant and approved by Landlord. Landlord’s approval of the same shall not be unreasonably withheld or delayed. Landlord hereby approves of CDI Life Sciences and Briggs & Associates as Tenant’s architects, and XL Construction as Tenant’s general contractor.

2. Tenant’s Work .

2.1. Tenant Work Plans . All work to be performed on the Premises shall be performed by Tenant (“ Tenant’s Work ”) at Tenant’s sole cost and expense and without cost to Landlord (except for the Total TI Allowance) and in accordance with the Approved Plans (as defined below). The quality of Tenant’s Work shall be of a nature and character not less than (a) the quality of the tenant improvements in place at the Building and the Land as of the date of the Lease and (b) the Building Standard. The design drawings, plans and specifications listed on Schedule 2.1 to this Work Letter (the “ Tenant Work Plans ”) are the initial list of plans that Tenant shall develop and submit to Landlord for approval. Tenant shall prepare and submit to Landlord for approval schematics covering Tenant’s Work prepared in conformity with the applicable provisions of this Work Letter (the “ Draft Plans ”). The draft Plans shall contain sufficient information and detail to accurately describe Tenant’s proposed design to Landlord and such other information as Landlord may reasonably request. Tenant shall be solely responsible for ensuring that the Tenant Work Plans and the Draft Plans satisfy Tenant’s obligations for Tenant’s Work. Subject to its review of detailed plans and specifications therefor, Landlord hereby approves of the work described in the conceptual space plan attached hereto as Exhibit B ( provided that (a) the “Proposed Service Yard Expansion” designated thereon shall be subject to adjustment and/or relocation to dimensions and a location reasonably acceptable to Landlord and (b) Landlord shall not be deemed to be unreasonable if Landlord objects to such dimensions and location if the number of parking spaces at the Property would be decreased by such dimensions and location) and agrees that (y) Landlord will not withhold its consent to the Tenant Work Plans, Draft Plans or Approved Plans to the extent consistent therewith and (z) Tenant may surrender such work in the Premises at the end of the Lease term.

2.2. Landlord Approval of Plans . Landlord shall notify Tenant in writing within ten (10) business days after receipt of the Draft Plans whether Landlord approves or objects to the

 

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Draft Plans and of the manner, if any, in which the Draft Plans are unacceptable. Landlord shall not object to any Draft Plans that satisfy the requirements set forth in Section 2.1 or otherwise unreasonably object to such plans. If Landlord objects to the Draft Plans, then Tenant shall revise the Draft Plans and cause Landlord’s objections to be remedied in the revised Draft Plans. Tenant shall then resubmit the revised Draft Plans to Landlord for approval. Landlord’s approval of or objection to revised Draft Plans and Tenant’s correction of the same shall be in accordance with this Section 2.2 , until Landlord has approved the Draft Plans in writing. The iteration of the Draft Plans that is approved by Landlord without objection shall be referred to herein as the “ Approved Plans .”

2.3. Completion of Tenant’s Work . Tenant shall perform and complete Tenant’s Work (a) in strict conformance with the Approved Plans, (b) otherwise in compliance with the Lease and (c) in accordance with Applicable Laws, Landlord’s insurance carriers and the board of fire underwriters having jurisdiction over the Property and the Premises. Completion of Tenant’s Work shall be subject to Landlord’s approval.

2.4. Conditions to Performance of Tenant’s Work . Prior to the commencement of Tenant’s Work, Tenant shall submit to Landlord for Landlord’s approval (which approval Landlord shall not unreasonably withhold) a list (the “ Contractor List ”) of project managers, contractors and subcontractors that will perform Tenant’s Work. Landlord shall give Tenant notice in writing of its approval or disapproval of the Contractor List with ten (10) business days after Landlord’s receipt of the same. If Landlord disapproves of one or more parties on the Contractor List, Tenant shall revise the Contractor List and resubmit the same to Landlord for Landlord’s approval in accordance with the preceding two sentences. If permitted by Section 17.5 of the Lease, Landlord may require that Tenant’s contractors and subcontractors provide the bonds provided for in Section 17.5 of the Lease. For all subcontracts in excess of Two Hundred Fifty Thousand Dollars ($250,000), Tenant shall require its general contractor to provide Tenant with at least two (2) competitive bids.

2.5. Requests for Consent . Landlord shall respond to all requests for consents, approvals or directions made by Tenant pursuant to this work Letter within (10) business days following Landlord’s receipt of such request. Landlord’s failure to respond within such ten (10)-day period shall be deemed approval by Landlord.

3. Tenant’s Construction Obligations Shall Not Delay Commencement of the Term . Notwithstanding any Tenant Work to be performed by Tenant, the commencement of the Term and Tenant’s obligation to pay Rent shall not, under any circumstance, be extended or delayed except that the Term Commencement Date shall be delayed by one (1) day for each day Tenant is actually delayed in its completion of Tenant’s Work due to a breach by Landlord of its obligations under the Lease or this Work Letter, governmental strikes, war, terrorism, embargos or civic unrest. Tenant shall perform promptly such of its obligations contained in this Work Letter as are to be performed by it. Tenant shall also observe and perform all of its obligations under this Lease from the Execution Date, subject to Section 2.1 of the Lease.

4. Completion of Tenant’s Construction Obligations . Tenant, at its sole cost and expense (except for the Total TI Allowance), shall complete Tenant’s Work described in this Work Letter in all respects in accordance with the provisions of the Lease and this Work Letter. Tenant’s Work shall be deemed completed at such time as Tenant, at its sole cost and expense (except for the Total TI Allowance) shall furnish to Landlord (a) evidence reasonably satisfactory to Landlord that (i) all Tenant’s Work has been completed and paid for in full (which shall be evidenced by the architect’s certificate of completion and the general contractor’s and each subcontractor’s and material supplier’s final waivers and releases of liens), (ii) any and all liens related to Tenant’s Work have either been discharged of record (by payment, bond, order of a court of competent jurisdiction or otherwise) or waived by the party filing such lien and (iii) no security interests relating to Tenant’s Work are outstanding, (b) all certifications and approvals with respect to Tenant’s Work that may be required from any Governmental Authority and any board of fire underwriters or similar body for the use and occupancy of the Premises, (c) certificates of insurance required by the Lease to be purchased and maintained by Tenant, and (d) an affidavit from Tenant’s architect certifying that all work performed in, on or about the Premises is in accordance with the Approved Plans. Tenant shall, as soon as reasonably

 

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practicable, provide to Landlord complete drawing print sets and electronic CADD files on disc of all contract documents for work performed by their architect and engineers in relation to Tenant’s Work.

5. Insurance . Prior to commencing Tenant’s Work, Tenant shall provide, or shall cause Tenant’s contractors and subcontractors to provide, to Landlord, in addition to the insurance required of Tenant pursuant to the Lease, statutory Workers’ Compensation insurance as required by Applicable Laws.

6. Liability . Except to the extent arising from Landlord’s negligence, willful misconduct, or breach of the Lease or this Work Letter, Tenant assumes sole responsibility and liability for any and all injuries or the death of any persons, including Tenant’s contractors and subcontractors and their respective employees, and for any and all damages to property caused by, resulting from or arising out of any act or omission on the part of Tenant, Tenant’s contractors or subcontractors, or their respective employees in the prosecution of Tenant’s Work. Tenant agrees to indemnify, defend, protect and save free and harmless Landlord and Landlord’s affiliates, agents and employees from and against all losses and expenses, including reasonable attorneys’ fees and expenses, that Landlord may incur as the result of claims or lawsuits due to, because of, or arising out of any and all such injuries, death or damage, whether real or alleged, and Tenant and Tenant’s contractors and subcontractors shall assume and defend at their sole cost and expense all such claims or lawsuits; provided , however, that nothing contained in this Work Letter shall be deemed to indemnify or otherwise hold Landlord harmless from or against liability caused by Landlord’s negligence or willful misconduct or breach of the Lease or this Work Letter. Any deficiency in design or construction of Tenant’s Work shall be solely the responsibility of Tenant, notwithstanding the fact that Landlord may have approved of the same in writing. All material and equipment furnished by Tenant as Tenant’s Work shall be new or “like new” and Tenant’s Work shall be performed in a first-class, workmanlike manner.

7. Total TI Allowance .

7.1. Application of Total TI Allowance . Landlord shall contribute the Total TI Allowance toward the costs and expenses incurred in connection with the performance of Tenant’s Work (including costs and expenses incurred prior to the date of execution of the Lease with respect to the Building and including the items listed below), in accordance with the terms and provisions of the Lease. If the entire Total TI Allowance is not applied toward or reserved for the costs of Tenant’s Work, Tenant shall not be entitled to a credit of such unused portion of the Total TI Allowance.

 

    All required architectural, engineering, and construction management fees

 

    Building permits;

 

    Interior demolition;

 

    Wet laboratory build-out including all lab casework and fume hoods;

 

    All required HVAC and electrical requirements;

 

    All DI and WIFI water systems;

 

    All manufacturing clean room construction, including corridors, gowning and all other related infrastructure;

 

    All required office renovations and improvements;

 

    Exterior equipment yard needs to accommodate manufacturing and laboratories;

 

    All required central MEP systems;

 

    All required offsite utilities; and

 

    Mechanical room build-out.

7.2. Approval of Budget for Tenant’s Work . Notwithstanding anything to the contrary set forth elsewhere in this Work Letter or the Lease, Landlord shall not have any obligation to advance to Tenant any portion of the Total TI Allowance until Landlord shall have approved in writing the budget for the Tenant’s Work (the “ Approved Budget ”). Prior to Landlord’s approval of the Approved Budget, which approval Landlord shall reasonably give or withhold within ten (10) business days of Tenant’s presentation of the proposed budget, Tenant shall pay all of the costs and expenses incurred in connection with Tenant’s Work as they become due.

 

C-3


Landlord shall not be obligated to reimburse Tenant for costs or expenses relating to Tenant’s Work that exceed either (a) the amount of the Total TI Allowance (other than pursuant to Section 8.2 ) or (b) the Approved Budget, either on a line item or overall basis.

7.3. Advance Requests . Upon submission by Tenant to Landlord of (a) a statement (an “ Advance Request ”) setting forth the total amount requested, (b) a detailed summary of the Tenant’s Work performed using AIA standard form Application for Payment (G 702) executed by the general contractor and by the architect, (c) conditional lien releases from the general contractor and each subcontractor and material supplier with respect to the portion of Tenant’s Work corresponding to the Advance Request (and final lien releases for any work covered by earlier Advance Requests), then Landlord shall, within five (5) business days following receipt by Landlord of an Advance Request and the accompanying materials required by this Section 7.3 , advance to Tenant the amount set forth in such Advance Request; provided , however , that, with respect to any Advance Requests subject to the limits set forth in Section 7.2 , Landlord shall advance to Tenant the requested amount as limited by Section 7.2 .

7.4. Application of the Total TI Allowance . Tenant may apply the Total TI Allowance for the payment of construction and other costs (including, without limitation, standard laboratory improvements; finishes; building fixtures; building permits; and architectural, engineering, design and consulting fees and the items listed in Section 7.1 above), in each case as reflected in the Approved Budget and the Approved Plans. In no event shall the Total TI Allowance be applied to the purchase of any furniture, personal property or other non-building system equipment. Notwithstanding the foregoing, Landlord shall be solely responsible for (and Tenant shall have no responsibility for and the Total TI Allowance shall not be used for) the following: (a) costs incurred due to the presence of Hazardous Materials in the Property or the surrounding area, for which costs Landlord is otherwise responsible pursuant to the terms of the Lease, including Section 39.8 ; (b) costs incurred as a consequence of a breach by Landlord of its obligations under the Lease or this Work Letter; and (c) costs to bring the Property into compliance with Applicable Laws.

8. Changes . Any changes to Tenant’s Work (each, a “ Change ”) requested by Landlord or Tenant after Landlord approves the Approved Plans in writing shall be requested and instituted in accordance with the provisions of this Section 8 and shall be subject to the reasonable written approval of the other party.

8.1. Changes Requested by Tenant .

(a) Tenant may request Changes after Landlord approves the Approved Plans by notifying Landlord thereof in writing in substantially the same form as the AIA standard change order form (a “ Tenant Change Order Request ”), which Tenant Change Order Request shall detail the nature and extent of any requested Changes. If the nature of a Change requires revisions to the Approved Plans, then Tenant shall be solely responsible for the cost and expense of such revisions. Tenant Change Order Requests shall be signed by Tenant’s Authorized Representative.

(b) Landlord shall approve or reject any Tenant Change Order Requests in accordance with to the procedures established pursuant to Section 2 . If Landlord does not approve in writing a Tenant Change Order Request, then such Tenant Change Order Request shall be deemed rejected by Landlord, and Tenant shall not be permitted to alter Tenant’s Work as contemplated by such Tenant Change Order Request.

8.2. Changes Requested by Landlord . Landlord may request Changes after Landlord approves the Approved Plans by notifying Tenant thereof in writing landlord shall request such landlord changes by notifying tenant in writing in substantially the same form as the AIA standard change order form (a “ Landlord Change Order Request ”), which Landlord Change Order Request shall detail the nature and extent of any requested Changes. If the nature of a Change requires revisions to the Approved Plans, then Landlord shall be solely responsible for the cost and expense of such revisions. Landlord shall reimburse Tenant for all additional costs and expenses payable by Tenant to complete Tenant’s Work due to a Landlord-requested Change in accordance with the payment provisions of this Work Letter.

 

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8.3. Preparation of Estimates . Tenant shall, before proceeding with any Change, use its best efforts, prepare as soon as is reasonably practicable (but in no event more than five (5) business days after delivering a Tenant Change Order Request to Landlord or receipt of a Landlord Change Order Request) an estimate of the increased costs or savings that would result from such Change, as well as an estimate on such Change’s effects on the Schedule. Landlord shall have five (5) business days after receipt of such information from Tenant to (a) in the case of a Tenant Change Order Request, approve or reject such Tenant Change Order Request in writing, or (b) in the case of a Landlord Change Order Request, notify Tenant in writing of Landlord’s decision either to proceed with or abandon the Landlord-requested Change.

9. Miscellaneous .

9.1. Headings, Etc . Where applicable in this Work Letter, the singular includes the plural and the masculine or neuter includes the masculine, feminine and neuter. The section headings of this Work Letter are not a part of this Work Letter and shall have no effect upon the construction or interpretation of any part hereof.

9.2. Time of the Essence . Time is of the essence with respect to the performance of every provision of this Work Letter in which time of performance is a factor.

9.3. Covenants . Each provision of this Work Letter performable by Tenant shall be deemed both a covenant and a condition.

9.4. Consent . Whenever consent or approval of either party is required, that party shall not unreasonably withhold such consent or approval, except as may be expressly set forth to the contrary.

9.5. Entire Agreement . The terms of this Work Letter are intended by the parties as a final expression of their agreement with respect to the terms as are included herein, and may not be contradicted by evidence of any prior or contemporaneous agreement, other than the Lease.

9.6. Invalid Provisions . Any provision of this Work Letter that shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision hereof, and all other provisions of this Work Letter shall remain in full force and effect and shall be interpreted as if the invalid, void or illegal provision did not exist.

9.7. Construction . The language in all parts of this Work Letter shall be in all cases construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant.

9.8. Assigns . Each of the covenants, conditions and agreements herein contained shall inure to the benefit of and shall apply to and be binding upon the parties hereto and their respective heirs; legatees; devisees; executors; administrators; and permitted successors, assigns, sublessees. Nothing in this Section 9.8 shall in any way alter the provisions of the Lease restricting assignment or subletting.

9.9. Authority . Landlord and Tenant guarantee, warrant and represent that the individual or individuals signing this Work Letter on the behalf of Landlord and Tenant, as appropriate, have the power, authority and legal capacity to sign this Work Letter on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations and entities on whose behalf said individual or individuals have signed.

9.10. Counterparts . This Work Letter may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.

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C-5


IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter to be effective on the date first above written.

 

LANDLORD:

BMR-34790 ARDENTECH COURT LLC,

a Delaware limited liability company

By:  

/s/ Alan D. Gold

Name:   Alan D. Gold
Title:   CEO
TENANT:

THE MACROFLUX CORPORATION,

a Delaware corporation

By:  

 

Name:  

 

Title:  

 

 

C-6


EXHIBIT A TO EXHIBIT C

SCHEDULE

[To be attached]

 

C-A-1


EXHIBIT B TO EXHIBIT C

CONCEPTUAL WORK PLAN

 

C-B-1


SCHEDULE 2.1 TO EXHIBIT C

TENANT WORK PLANS

Architectural Drawings

1. Site plan

2. Floor and reflected ceiling plans

3. Elevations (exterior and interior)

4. Sections (building and wall)

5. Details (exterior and interior)

6. Schedules (doors, windows, finishes, etc.)

Engineering Drawings

1. Mechanical

2. Plumbing

3. Electrical

4. Fire protection

5. Civil engineering

6. Landscape architecture

Specifications – Required for all disciplines listed above

 

C-2.1-1


EXHIBIT D

ACKNOWLEDGEMENT OF OCCUPANCY DATE

WITH RESPECT TO EARLY ACCESS PREMISES

This Acknowledgement of Occupancy Date with Respect to Early Access Premises is entered into as of [            ], 20[    ], with reference to that certain Lease (the “ Lease ”) dated as of May 1, 2007, by THE MACROFLUX CORPORATION, a Delaware corporation (“ Tenant ”), in favor of BMR-34790 ARDENTECH COURT LLC, a Delaware limited liability company (“ Landlord ”). All capitalized terms used herein without definition shall have the meanings ascribed to them in the Lease.

Tenant hereby confirms the following:

1. Tenant accepted possession of the Premises on [            ], 2007.

2. Tenant commenced occupancy of the premises attached as Exhibit A hereto (the “ Early Access Premises ”) for the Permitted Use on [            ], 20[    ].

3. The Lease is in full force and effect, and the same represents the entire agreement between Landlord and Tenant concerning the Premises[, except [            ]].

4. Tenant has no existing defenses against the enforcement of the Lease by Landlord, and there exist no offsets or credits against Rent owed or to be owed by Tenant.

5. The obligation to pay Operating Expenses with respect to the Early Access Premises is presently in effect and the commencement date of such obligation [            ], 20[    ].

6. The undersigned Tenant has not made any prior assignment, transfer, hypothecation or pledge of the Lease or of the rents thereunder or sublease of the Premises or any portion thereof.

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D-1


IN WITNESS WHEREOF, the parties hereto have executed this Acknowledgement of Occupancy Date with Respect to Early Access Premises as of [            ], 20[    ].

TENANT:

 

THE MACROFLUX CORPORATION,

a Delaware corporation

By:

 

 

Name:

 

 

Title:  

 

 

D-2


EXHIBIT A TO EXHIBIT D

EARLY ACCESS PREMISES

 

E-1


EXHIBIT E

FORM OF ADDITIONAL TENANT IMPROVEMENT ALLOWANCE

ACCEPTANCE LETTER

[TENANT LETTERHEAD]

BMR-34790 Ardentech Court LLC

17140 Bernardo Center Drive, Suite 222

San Diego, California 92128

Attn: General Counsel/Real Estate

[Date]

 

  Re: Additional Tenant Improvement Allowance

To Whom It May Concern:

This letter concerns that certain Lease dated as of May 1, 2007 (the “ Lease ”), between BMR-34790 Ardentech Court LLC (“ Landlord ”) and The Macroflux Corporation (“ Tenant ”). Capitalized terms not otherwise defined herein shall have the meanings given them in the Lease.

Tenant hereby notifies Landlord that it wishes to exercise its right to utilize the [First][Second][Third] Additional Tenant Improvement Allowance pursuant to Section 4.5(b) of the Lease.

If you have any questions, please do not hesitate to call [            ] at ([        ]) [        ]-[        ].

Sincerely,

[Name]

[Title of Authorized Signatory]

 

  Cc: Steve Willey

John Wilson

Kevin Simonsen

 

E-1


EXHIBIT F

ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE AND TERM

EXPIRATION DATE

THIS ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE AND TERM EXPIRATION DATE is entered into as of [            ], 20[    ], with reference to that certain Lease (the “ Lease ”) dated as of May 1, 2007, by THE MACROFLUX CORPORATION, a Delaware corporation (“ Tenant ”), in favor of BMR-34790 Ardentech Court LLC, a Delaware limited liability company (“ Landlord ”). All capitalized terms used herein without definition shall have the meanings ascribed to them in the Lease.

Tenant hereby confirms the following:

1. Tenant accepted possession of the Premises on [            ], 20[    ].

2. The Tenant Improvements required to be constructed by Landlord under the Lease have been substantially completed.

3. To Tenant’s knowledge, without inquiry, all conditions of the Lease to be performed by Landlord as a condition to the full effectiveness of the Lease have been satisfied, and Landlord has fulfilled all of its duties in the nature of inducements offered to Tenant to lease the Premises.

4. In accordance with the provisions of Section [4.2] of the Lease, the Term Commencement Date is [            ], 20[    ], and, unless the Lease is terminated prior to the Term Expiration Date pursuant to its terms, the Term Expiration Date shall be [            ], 20[    ].

5. Tenant commenced occupancy of the Premises for the Permitted Use on [            ], 20[    ].

6. The Lease is in full force and effect, and the same represents the entire agreement between Landlord and Tenant concerning the Premises[, except [            ]].

7. Tenant has no existing defenses against the enforcement of the Lease by Landlord, and there exist no offsets or credits against Rent owed or to be owed by Tenant.

8. The obligation to pay Rent is presently in effect and all Rent obligations on the part of Tenant under the Lease commenced to accrue on [            ], 20[    ].

9. The undersigned Tenant has not made any prior assignment, transfer, hypothecation or pledge of the Lease or of the rents thereunder or sublease of the Premises or any portion thereof.

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F-1


IN WITNESS WHEREOF, the parties hereto have executed this Acknowledgment of Term Commencement Date and Term Expiration Date as of [            ], 20[    ].

TENANT:

[            ],

a [            ]

 

By:

 

 

Name:

 

 

Title:

 

 

 

F-2

Exhibit 10.10

FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (this “ Amendment ”) is entered into as of this 20 th day of June, 2008, by and between BMR-34790 ARDENTECH COURT LLC, a Delaware limited liability company (“ Landlord ”), and ZOSANO PHARMA, a Delaware corporation (“ Tenant ,” f.k.a. The Macroflux Corporation).

RECITALS

A. WHEREAS, Landlord and Tenant entered into that certain Lease dated as of May 1, 2007 (the “ Lease ”), whereby Tenant leases certain premises (the “ Premises ”) from Landlord at 34790 Ardentech Court in Fremont, California (the “ Building ”);

B. WHEREAS, Tenant desires to have additional time to use the Total TI Allowance; and

C. WHEREAS, Landlord and Tenant desire to modify and amend the Lease only in the respects and on the conditions hereinafter stated.

AGREEMENT

NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:

1. Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Lease unless otherwise defined herein.

2. Tenant Improvements . The date August 1, 2008, in the last sentence of Section 4.5(b) of the Lease is hereby changed to December 31, 2008.

3. Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment (“Broker”), and agrees to indemnify, defend and hold Landlord harmless from any and all cost or liability for compensation claimed by any such broker or agent employed or engaged by it or claiming to have been employed or engaged by it.

4. No Default . Tenant represents, warrants and covenants that, to the best of Tenant’s knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.

5. Effect of Amendment . Except as modified by this Amendment, the Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. The covenants, agreements, terms, provisions and conditions


contained in this Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and, except as otherwise provided in the Lease, their respective assigns. In the event of any conflict between the terms contained in this Amendment and the Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties. From and after the date hereof, the term “Lease” as used in the Lease shall mean the Lease, as modified by this Amendment.

6. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference.

7. Counterparts . This Amendment may be executed in one or more counterparts that, when taken together, shall constitute one original.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

2


IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands as of the date and year first above written, and acknowledge that they possess the requisite authority to enter into this transaction and to execute this Amendment.

 

LANDLORD :   

BMR-34790 ARDENTECH COURT LLC,

a Delaware limited liability company

  

 

By:

 

 

Name:

 

 

Title:

 

 

 

TENANT :   

ZOSANO PHARMA,

a Delaware corporation

  

 

By:  

/s/ John Vuko

Name:   John Vuko
Title:   EVP – CFO

Exhibit 10.11

SECOND AMENDMENT TO LEASE

THIS SECOND AMENDMENT TO LEASE (this “ Amendment ”) is entered into as of this 16 th day of October, 2008, by and between BMR-34790 ARDENTECH COURT LLC, a Delaware limited liability company (“ Landlord ”), and ZOSANO PHARMA, a Delaware corporation (“ Tenant ,” f.k.a. The Macroflux Corporation).

RECITALS

A. WHEREAS, Landlord and Tenant entered into that certain Lease dated as of May 1, 2007, as amended by that certain First Amendment to Lease dated as of June 20, 2008 (collectively, the “ Lease ”), whereby Tenant leases certain premises (the “ Premises ”) from Landlord at 34790 Ardentech Court in Fremont, California (the “ Building ”);

B. WHEREAS, Tenant desires to increase the allowance for the Tenant Improvements; and

C. WHEREAS, Landlord and Tenant desire to modify and amend the Lease only in the respects and on the conditions hereinafter stated.

AGREEMENT

NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:

1. Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Lease unless otherwise defined herein.

2. Additional Tenant Improvement Allowance : Section 4.5(b) of the Lease is hereby replaced in its entirety with the following: Landlord shall make available to Tenant an additional tenant improvement allowance of Two Million One Hundred Twenty Thousand Dollars ($2,120,000) (the “ TI Allowance ”) in order to finance appropriate improvements (“ Tenant Improvements ”) to Tenant’s premises consistent with Tenant’s permitted use. Tenant shall repay to Landlord, as additional base rent, the TI Allowance amortized over the initial term of the Lease at a rate of twelve percent (12%); provided that the TI Allowance shall not be subject to annual base rental escalations. Tenant shall have until March 31, 2009, to expend the unused portion of the TI Allowance.

In addition to the Tenant Improvement Allowance, Landlord shall, upon Tenant’s written request in the form of Exhibit E attached hereto, make available to Tenant for construction of the initial Tenant Improvements (i) One Million Three Hundred Eighty-Nine Thousand Seven Hundred Dollars ($1,389,700), based upon Twenty-Five Dollars ($25) per rentable square foot (the “ First Additional TI Allowance ”), (ii) an additional One Million Three Hundred Eighty-Nine Thousand Seven Hundred


Dollars ($1,389,700), based upon Twenty-Five Dollars ($25) per rentable square foot (the “ Second Additional TI Allowance ”), (iii) an additional One Million Three Hundred Eighty-Nine Thousand Seven Hundred Dollars ($1,389,700), based upon Twenty-Five Dollars ($25) per rentable square foot (the “ Third Additional TI Allowance ”), and (iv) Two Million One Hundred Twenty Thousand Dollars ($2,120,000) (the “ Fourth Additional TI Allowance ” and, collectively with the Tenant Improvement Allowance and the First Additional TI Allowance, Second Additional TI Allowance and Third Additional TI Allowance, the “ Total TI Allowance ”). Tenant shall repay to Landlord, in equal monthly installments as Additional Rent (as defined below), (w) any amount of the First Additional TI Allowance drawn by Tenant amortized at a rate of nine percent (9%) over the period (i) commencing on the date on which Landlord funds the final portion of the First Additional TI Allowance drawn by Tenant and (ii) ending upon expiration of the initial Term, (x) any amount of the Second Additional TI Allowance drawn by Tenant amortized at a rate of nine and one-half percent (9.5%) over the period (i) commencing on the date on which Landlord funds the final portion of the Second Additional TI Allowance drawn by Tenant and (ii) ending upon expiration of the initial Term, (y) any amount of the Third Additional TI Allowance drawn by Tenant amortized at a rate of ten percent (10%) over the period (i) commencing on the date on which Landlord funds the final portion of the Third Additional TI Allowance drawn by Tenant and (ii) ending upon expiration of the initial Term and (z) any amount of the Fourth Additional TI Allowance drawn by Tenant amortized at a rate of twelve percent (12%) over the period (i) commencing on the date on which Landlord funds the final portion of the Fourth Additional TI Allowance drawn by Tenant and (ii) ending upon expiration of the initial Term. If the total cost of the Tenant Improvements exceeds Ten Million Four Hundred Fifty-Eight Thousand Two Hundred Dollars ($10,458,200), then the overage shall be paid by Tenant. Tenant shall have until August 1, 2008, to expend the unused portion of the Total TI Allowance (other than the Fourth TI Allowance, of which Tenant shall have March 31, 2009, to expend the unused portion), after which date Landlord’s obligation to fund such costs shall expire.

3. Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment, and agrees to indemnify, defend and hold Landlord harmless from any and all cost or liability for compensation claimed by any broker or agent employed or engaged by it or claiming to have been employed or engaged by it.

4. No Default . Tenant represents, warrants and covenants that, to the best of Tenant’s knowledge, Landlord and Tenant are not in default of any of their respective obligations under the Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Landlord or Tenant thereunder.

5. Effect of Amendment . Except as modified by this Amendment, the Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. The covenants, agreements, terms, provisions and conditions

 

2


contained in this Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and, except as otherwise provided in the Lease, their respective assigns. In the event of any conflict between the terms contained in this Amendment and the Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties. From and after the date hereof, the term “Lease” as used in the Lease shall mean the Lease, as modified by this Amendment.

6. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference.

7. Counterparts . This Amendment may be executed in one or more counterparts that, when taken together, shall constitute one original.

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3


IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands as of the date and year first above written, and acknowledge that they possess the requisite authority to enter into this transaction and to execute this Amendment.

 

LANDLORD :

BMR-34790 ARDENTECH COURT LLC,

a Delaware limited liability company

 

By:  

/s/ Karen Sztraicher

Name:   Karen Sztraicher
Title:   VP, Finance & Treasurer

 

TENANT :

ZOSANO PHARMA,

a Delaware corporation

 

By:  

/s/ John Vuko

Name:   John Vuko
Title:   EVP – CFO

Exhibit 10.12

THIRD AMENDMENT TO LEASE

THIS THIRD AMENDMENT TO LEASE (this “ Amendment ”) is entered into as of this 29th day of April, 2011, by and between BMR-34790 ARDENTECH COURT LLC, a Delaware limited liability company (“ Landlord ”), and ZOSANO PHARMA, INC., a Delaware corporation formerly known as The Macroflux Corporation (“ Tenant ”).

RECITALS

A. WHEREAS, Landlord and Tenant entered into that certain Lease dated as of May 1, 2007, as amended by that certain First Amendment to Lease dated as of June 20, 2008, and that certain Second Amendment to Lease dated as of October 16, 2008 (collectively, and as the same may have been further amended, amended and restated, supplemented or modified from time to time, the “ Lease ”), whereby Tenant leases certain premises (the “ Premises ”) from Landlord at 34790 Ardentech Court in Fremont, California (the “ Building ”);

B. WHEREAS, Tenant is in Default under the Lease and has asked Landlord to restructure Rent payments under the Lease; and

C. WHEREAS, Landlord and Tenant desire to modify and amend the Lease only in the respects and on the conditions hereinafter stated.

AGREEMENT

NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:

1. Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Lease unless otherwise defined herein.

2. Deferral of Rent Obligations . The amounts set forth on Exhibit A (the “ Deferred Payments ”) are the amounts payable by Tenant to Landlord pursuant to the terms of the Lease for the months of November 2010 through July 2011 (the “ Deferral Period ”) for Basic Annual Rent, Operating Expenses and utilities, and for repayment of all applicable portions of the Total TI Allowance. Notwithstanding anything in the Lease to the contrary, the Deferred Payments shall not be due and payable by Tenant (and such non-payment of the Deferred Payments shall not constitute a Default under the terms of the Lease or result in any late charges or additional payments pursuant to Section 24 of the Lease); provided that Tenant issues to BioMed Realty, L.P., the sole member of Landlord, as of the date hereof a Convertible Unsecured Promissory Note (“ Note ”) in the form attached as Exhibit B hereto and a Warrant to Purchase Shares of Preferred Stock (“ Warrant ”) in the form attached as Exhibit C hereto and does not default thereunder. In the event that Tenant prepays the Note in full prior to July 31, 2011, in accordance with the terms thereof, Tenant shall resume paying the Deferred Payments to Landlord for any months during the Deferral Period for which the applicable Deferred Payments


were not added to the principal amount of the Note prior to such prepayment in accordance with the terms thereof.

3. Initial Note Value . The parties acknowledge that the Note shall initially have a principal amount of One Million Eighty-Seven Thousand Five Hundred Three and 59/100 Dollars ($1,087,503.59), which amount represents (a) the Deferred Payments for November 2010 through March 2011, less (b) a credit to Tenant equal to the difference between (i) Two Hundred Seventy Thousand One Hundred Sixty and 63/100 Dollars ($270,160.63) as a 2010 year-end adjustment for Taxes and Property Management Fee minus (ii) the sum of (A) Ninety-Two Thousand Five Hundred Dollars ($92,500) (the “ Holdback Amount ”) for the Maintenance Obligations (as defined below) plus (B) Seventy-Five Thousand Three Hundred Forty-Three and 72/100 Dollars ($75,343.72) for expenses owed by Tenant pursuant to the Lease through April 30, 2011, for Taxes, Property Management Fee, Insurance Costs and other Additional Rent. Such principal amount shall be subject to increase in accordance with the terms of the Note.

4. Deferred Maintenance . Notwithstanding anything in the Lease or this Amendment to the contrary, Landlord may, on a one-time basis, (a) perform maintenance on the parking lot, including resealing and restriping, (b) repair rusted areas on the exterior of the Building, (c) replace a chiller condenser coil, (d) repair damage to insulation on hot water plumbing (e.g., cracked pipe elbows) and (e) paint surface rust on exhaust fan housings and various rooftop hot water pump bases and skids (collectively, “ Maintenance Obligations ”) on a one-time basis, and may pay the costs thereof from the Holdback Amount. Promptly after Landlord’s completion of the Maintenance Obligations, Landlord shall return to Tenant any unused portion of the Holdback Amount.

5. Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment and agrees to indemnify, defend and hold Landlord harmless from any and all cost or liability for compensation claimed by any such broker or agent employed or engaged by it or claiming to have been employed or engaged by it.

6. Effect of Amendment . Except as modified by this Amendment, the Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. The covenants, agreements, terms, provisions and conditions contained in this Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and, except as otherwise provided in the Lease, their respective assigns. In the event of any conflict between the terms contained in this Amendment and the Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties. From and after the date hereof, the term “Lease” as used in the Lease shall mean the Lease, as modified by this Amendment.

7. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or

 

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given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference.

8. Counterparts . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.

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IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands as of the date and year first above written, and acknowledge that they possess the requisite authority to enter into this transaction and to execute this Amendment.

 

LANDLORD :

BMR-34790 ARDENTECH COURT LLC

a Delaware limited liability company

By:  

/s/ Greg N. Lubushkin

Name:   Greg N. Lubushkin
Title:   CFO
TENANT:

ZOSANO PHARMA, INC.

a Delaware corporation

By:  

/s/ John Vuko

Name:   John Vuko
Title:   EVP – CFO


EXHIBIT A

DEFERRED PAYMENTS

 

Month

  11/10     12/10     1/11     2/11     3/11     4/11     5/11     6/11     7/11     Total  

Monthly Basic Annual Rent

  $ 146,843.54      $ 146,843.54      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 1,352,428.96   

Additional Rent

  $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38   

Total Monthly Rent Payment

  $ 235,320.92      $ 235,320.92      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 2,148,725.38   


EXHIBIT B

FORM OF NOTE


EXHIBIT C

FORM OF WARRANT

Exhibit 10.13

FOURTH AMENDMENT TO LEASE

THIS FOURTH AMENDMENT TO LEASE (this “ Amendment ”) is entered into as of this 31 st day of July, 2011, by and between BMR-34790 ARDENTECH COURT LLC, a Delaware limited liability company (“ Landlord ”), and ZOSANO PHARMA, INC., a Delaware corporation formerly known as The Macroflux Corporation (“ Tenant ”).

RECITALS

A. WHEREAS, Landlord and Tenant entered into that certain Lease dated as of May 1, 2007, as amended by that certain First Amendment to Lease dated as of June 20, 2008, that certain Second Amendment to Lease dated as of October 16, 2008, and that certain Third Amendment to Lease dated as of April 29, 2011 (collectively, and as the same may have been further amended, amended and restated, supplemented or modified from time to time, the “ Lease ”), whereby Tenant leases certain premises (the “ Premises ”) from Landlord at 34790 Ardentech Court in Fremont, California (the “ Building ”);

B. WHEREAS, Tenant is in Default under the Lease and has asked Landlord to restructure Rent payments under the Lease; and

C. WHEREAS, Landlord and Tenant desire to modify and amend the Lease only in the respects and on the conditions hereinafter stated.

AGREEMENT

NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:

1. Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Lease unless otherwise defined herein.

2. Deferral of Rent Obligations . Section 2 of the Third Amendment is hereby deleted in its entirety and replaced with the following:

“Deferral of Rent Obligations. The amounts set forth on Exhibit A-1 attached to the Fourth Amendment to Lease (the “ Deferred Payments ”) are the amounts payable by Tenant to Landlord pursuant to the terms of the Lease for the months of November 1, 2010 through August 31, 2011 for all outstanding portions of Basic Annual Rent, Operating Expenses and utilities, and for repayment of all applicable portions of the Total TI Allowance. Notwithstanding anything in the Lease to the contrary, the Deferred Payments shall be deemed satisfied in full and shall no longer be due and payable by Tenant (and shall not constitute a Default under the terms of the Lease or result in any late charges or additional payments pursuant to Section 24 of the Lease) upon delivery by Tenant to BioMed Realty, L.P., the sole member of Landlord, of an Amended and


Restated Convertible Unsecured Promissory Note (“ Note ”) in the form attached as Exhibit B to the Fourth Amendment to Lease and an Amended and Restated Warrant to Purchase Shares of Preferred Stock (“ Warrant ”) in the form attached as Exhibit C to the Fourth Amendment to Lease.”

3. Initial Note Value . Section 3 of the Third Amendment is hereby deleted in its entirety and replaced with the following:

“The parties acknowledge that the Note shall initially have a principal amount of Two Million One Hundred Seventy-Six Thousand Nine Hundred Twenty-Four and 34/100 Dollars ($2,176,924.34) as further outlined in Exhibit A-2 attached hereto. Such principal amount shall be subject to increase in accordance with the terms of the Note.”

4. Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment and agrees to indemnify, defend and hold Landlord harmless from any and all cost or liability for compensation claimed by any such broker or agent employed or engaged by it or claiming to have been employed or engaged by it.

5. Effect of Amendment . Except as modified by this Amendment, the Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. The covenants, agreements, terms, provisions and conditions contained in this Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and, except as otherwise provided in the Lease, their respective assigns. In the event of any conflict between the terms contained in this Amendment and the Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties. From and after the date hereof, the term “Lease” as used in the Lease shall mean the Lease, as modified by this Amendment.

6. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference.

7. Counterparts . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.

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IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands as of the date and year first above written, and acknowledge that they possess the requisite authority to enter into this transaction and to execute this Amendment.

 

LANDLORD:

BMR-34790 ARDENTECH COURT LLC

a Delaware limited liability company

By:

 

/s/ Greg Lubushkin

Name:

  Greg Lubushkin

Title:

  CFO

TENANT:

ZOSANO PHARMA, INC.

a Delaware corporation

By:

 

/s/ Gail Schulze

Name:

  Gail Schulze

Title:

  CEO


EXHIBIT A-1

DEFERRED PAYMENTS

BioMed Realty Trust - Zosano Exhibit A - 1

 

Month

  11/10     12/10     1/11     2/11     3/11     4/11     5/11     6/11     7/11     8/11     Total  
Monthly Basic Annual Rent   $ 146,843.54      $ 146,843.54      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 1,503,677.80   
Additional Rent   $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 884,773.80   
Total Monthly Rent Payment   $ 235,320.92      $ 235,320.92      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 2,388,451.60   


EXHIBIT A-2

INITIAL NOTE VALUE

BioMed Realty Trust Zosano Exhibit A - 2

 

Month

  11/10     12/10     1/11     2/11     3/11     4/11     5/11     7/11     8/11     Total  

Monthly Basic Annual Rent

  $ 146,843.54      $ 146,843.54      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 151,248.84      $ 1,352,428.96   

Additional Rent

  $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 88,477.38      $ 796,296.42   

Total Monthly Rent Payment

  $ 235,320.92      $ 235,320.92      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 239,726.22      $ 2,148,725.38   

(Less: 2010 Year-End Adjustment)

    ($270,160.63     —          —          —          —          —          —          —          —          ($270,160.63

(Add: Holdback Amount)

  $ 92,500.00        —          —          —          —          —          —          —          —        $ 92,500.00   

(Add: Expenses Owed)

  $ 32,309.81      $ 32,309.81      $ 18,808.84      $ 18,808.84      $ 18,889.91      $ 18,708.84        ($239.83     ($420.92   $ 2,853.15      $ 142,028.45   

Total Monthly Payment

  $ 89,970.10      $ 267,630.73      $ 258,535.06      $ 258,535.06      $ 258,616.13      $ 258,435.06      $ 239,486.39      $ 239,305.30      $ 242,579.37      $ 2,113,093.20   

(Add: Accrued Interest)

    —        $ 1,019.00      $ 2,980.01      $ 4,977.73      $ 6,975.44      $ 8,973.16      $ 10,970.88      $ 12,968.60      $ 14,966.32      $ 63,831.14   

Total Note Value

  $ 89,970.10      $ 268,649.73      $ 261,515.07      $ 263,512.79      $ 265,591.57      $ 267,408.22      $ 250,457.27      $ 252,273.90      $ 257,545.69      $ 2,176,924.34   


EXHIBIT B

FORM OF AMENDED AND RESTATED NOTE

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE “ACT”) OR ANY STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. HOLDERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN THE FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

BY ITS ACCEPTANCE OF THIS NOTE, HOLDER AND ANY SUBSEQUENT HOLDER HEREOF AGREES THAT THIS NOTE IS SUBJECT TO THAT CERTAIN SUBORDINATION AGREEMENT DATED AS OF APRIL 29, 2011 BY AND AMONG SILICON VALLEY BANK, COMPANY AND HOLDER (THE “ SUBORDINATION AGREEMENT ”), A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.

AMENDED AND RESTATED CONVERTIBLE UNSECURED PROMISSORY NOTE

July 31, 2011

Fremont, California

For value received, Zosano Pharma, Inc., a Delaware corporation (the “ Company ”), promises to pay to BioMed Realty, L.P., a Maryland limited partnership (“ Holder ”), the Principal Amount. The “ Principal Amount ” as used herein shall initially be equal to (a) $2,176,924.34 (the “ Initial Principal Amount ”) and (b) an additional $239,726.22 effective on August 1, 2011 (the “ Additional Principal Amount ”). Interest shall accrue, compounded annually, at a rate equal to ten percent (10%) per annum (the “ Interest Rate ”) beginning on the date hereof for the Initial Principal Amount, and shall accrue, compounded annually, at the Interest Rate beginning on August 1, 2011 for the Additional Principal Amount. The Interest Rate shall be computed on the basis of the actual number of days elapsed and a year of 365 days. References are made to (i) that certain Lease, dated as of May 1, 2007 (as amended, the “ Lease ”), by and between the Company and BMR-34790 Ardentech Court LLC, a wholly owned subsidiary of Holder, as amended by that certain First Amendment to Lease dated as of June 20, 2008, that certain Second Amendment to Lease dated as of October 16, 2008, that certain Third Amendment to Lease dated as of April 29, 2011, and that certain Fourth Amendment to Lease dated as of the date hereof (the “ Fourth Amendment ”), (ii) that certain Note and


Warrant Purchase Agreement dated as of August 13, 2010 (the “ Purchase Agreement ”), pursuant to which the Company issued certain convertible unsecured promissory notes (the “ Existing Notes ”), and (iii) that certain Amended and Restated Warrant issued to Holder as of the date hereof (the “ Warrant ”). Capitalized terms used herein but not defined herein shall have the meanings ascribed to them in the Purchase Agreement. This Note is subject to the following terms and conditions.

This Amended and Restated Convertible Unsecured Promissory Note amends and restates in its entirety that certain Convertible Unsecured Promissory Note dated April 29, 2011 executed by the Company in favor of the Holder, which is hereby terminated, cancelled and superseded by this Amended and Restated Convertible Unsecured Promissory Note and shall have no further force or effect whatsoever.

1. Maturity . Subject to the terms of the Subordination Agreement, unless earlier converted pursuant to Section 3 hereof, the principal and any accrued but unpaid interest under this Note shall be due and payable on the earlier of (i) January 31, 2012 (the “ Maturity Date ”), (ii) the date any of the Existing Notes are repaid in full in cash, or (iii) a Sale (as defined in the Company’s Restated Certificate).

2. Payment .

(a) Subject to the terms of the Subordination Agreement, unless earlier converted pursuant to Section 3 hereof, this Note may be prepaid in cash, in whole or in part, at any time without penalty or additional fees at a price equal to Principal Amount plus accrued interest; provided , however , the Company shall provide Holder five (5) days’ notice prior to any prepayment. Payment shall be credited first to accrued interest due and payable and any remainder applied to the Principal Amount.

(b) In the event the Company prepays this Note in full, the Company shall have no further obligations hereunder (other than the Company’s continued compliance with the applicable representations and warranties set forth in Section 4 below).

(c) This Note shall rank pari passu as to seniority with respect to the Existing Notes and payments of principal and accrued interest on the Note and the Existing Notes shall be made pro rata among all holders of the Note and the Existing Notes based upon the aggregate unpaid principal amount of the Note and the Existing Notes then held by the holders. The Company shall be prohibited from making payments of principal or accrued interest on the Existing Notes without making the pro rata payments on this Note. The Company shall also be prohibited from paying this Note prior to the Existing Notes.

3. Conversion of the Notes .

(a) Automatic Conversion at Threshold Financing . In the event of the closing of a Threshold Financing, the entire unpaid outstanding Principal Amount of this Note and unpaid accrued interest (if any) on the Note shall automatically convert into fully paid and nonassessable shares of the Company’s New Preferred Stock at the New Series Price. The number of shares of New Preferred Stock to be issued upon such conversion shall be

 

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equal to the quotient obtained by dividing (a) the unpaid Principal Amount of the Note and unpaid accrued interest (if any) on the Note by (b) the New Series Price. For purposes of this Note, “ New Series Price ” means the price paid per share for the New Preferred Stock by investors in a Threshold Financing.

(b) Mechanics and Effect of Conversion . No fractional shares of the Company’s capital stock will be issued upon conversion of the Note. In lieu of any fractional share to which Holder would otherwise be entitled, the Company will pay to Holder in cash the amount of the unconverted principal balance and accrued interest balance (if any) of the Note that would otherwise be converted into such fractional share. Upon conversion of the Note pursuant to this Section 3, Holder shall surrender the Note, duly endorsed, at the principal offices of the Company or any transfer agent of the Company; provided , however , that upon the consummation of the Threshold Financing in which this Note is converted, this Note shall be deemed converted, cancelled and of no further force and effect, whether or not it is delivered for cancellation. At its expense, the Company will, as soon as practicable thereafter, issue and deliver to Holder, at Holder’s principal office, a certificate or certificates for the number of shares to which Holder is entitled upon such conversion, a check payable to Holder for any cash amounts payable as described herein and, if applicable, a new note for any amounts not otherwise converted under this Section 3. Upon conversion of this Note, the Company will be forever released from all of its obligations and liabilities under the Note, including without limitation the obligation to pay the Principal Amount and accrued interest of the converted Note, except for the Company’s representations and warranties under Section 4 of this Note and the Company’s obligations under Section 6 of this Note.

(c) Further Assurances . Holder understands that the conversion of the Note into, and the sale and purchase of, equity securities of the Company may require Holder’s execution of certain agreements relating to the purchase and sale of such securities as well as registration, co-sale and voting rights, if any, relating to such equity securities, and Holder hereby agrees to execute such agreements and to take such further actions necessary or advisable to consummate the transactions contemplated hereby upon request by the Company after the time of conversion, provided that such agreements and transactions are commercially reasonable and do not disproportionately negatively impact Holder in any manner relative to holders of similar equity securities of the Company.

4. Representations and Warranties of the Company . The Company represents and warrants to Holder as of the date hereof and at any time Company equity securities are issued to Holder pursuant to the terms hereof, and with respect to Sections 4.6, 4.7 and 4.8 for so long as Holder, or an affiliate of Holder, holds the Note, Warrant or any Company equity securities issued to Holder pursuant to the terms hereof or pursuant to the terms of the Warrant, as follows:

(a) Organization, Good Standing and Qualification . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as presently conducted. The Company is duly qualified to transact business and is in good standing in each

 

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jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties.

(b) Authorization . All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, sale, issuance and delivery of the Note and the performance of all obligations of the Company under the Note has been taken prior to the date hereof. The Note, when executed and delivered by the Company, shall constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with their terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) to the extent any indemnification provisions may be limited by applicable federal or state securities laws. Any Company equity securities issuable to Holder upon conversion of the Note have been or will be duly reserved for issuance, and upon issuance in accordance with the terms of the Note, will be validly issued, fully paid and non-assessable and free of restrictions on transfer other than restrictions contained in this Note, applicable federal and state securities laws, and any investor agreements entered into by holders of the Existing Notes and this Note pursuant to Section 3.3 in connection with the conversion of the Existing Notes and the Note. The issuance of the Note and the issuance of any Company equity securities potentially issuable upon conversion of the Note are not and will not be subject to preemptive rights of any present or future debt or equity holders of the Company that have not been waived.

(c) Governmental Consent . No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the valid execution, delivery and performance by the Company of the Note and the transactions contemplated thereby, except for filings pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder, other applicable state securities laws and Regulation D of the Securities Act of 1933, as amended (the “ Securities Act ”), all of which filings will be effected after the date hereof.

(d) Compliance with Other Instruments . The Company is not in violation or default of any provision of its Restated Certificate or its Bylaws currently in effect. Upon delivery of this Note and the Warrant, the Company is not in violation of, or default under any provision of any instrument, mortgage, deed of trust, loan, contract, commitment or obligation to which it is a party or by which it or any of its properties are bound, which violations or defaults, individually or in the aggregate, would materially adversely affect the business, properties or condition (financial or otherwise) of the Company. The Company is not in violation of any provision of any federal, state or local statute, rule or governmental regulation which would materially adversely affect the business, properties or condition (financial or otherwise) of the Company or any judgment, decree or order to which it is a party, in any material respect. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business, the lack of which could materially and adversely affect the business,

 

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properties or condition (financial or otherwise) of the Company. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.

(e) Percentage of Outstanding Securities . This Note, together with the aggregate Company securities actually issued and/or potentially issuable upon conversion of this Note and exercise of the Warrant, represent less than ten percent (10.0%) of the voting interest and less than ten percent (10.0%) of the value of the outstanding debt and equity securities of the Company.

(f) Health Care / Lodging Facilities . The Company does not operate or manage any health care facilities (including a congregate care facility or assisted living facility) or lodging facilities or provide any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated.

(g) Financial Information . The Company shall furnish to Holder, as soon as practicable and in any event within ten (10) days after the date of such request, a statement showing the capitalization of the Company, including but not limited to the total number of outstanding securities of each class and series of capital stock of the Company, in sufficient detail as to permit Holder to calculate its percentage ownership in securities of the Company and voting power to elect directors to the Company’s Board of Directors.

(h) Notification . In the event that the Company becomes aware of any event which has resulted or which may result in the aggregate Company debt and equity securities (including this Note) owned by Holder and/or actually issued and/or potentially issuable upon conversion of this Note and exercise of the Warrant to constitute greater than ten percent (10.0%) of the voting interest and/or greater than ten percent (10.0%) of the value of the outstanding securities of the Company, the Company shall promptly notify Holder, and in no event later than five (5) days after the occurrence of such event.

5. Representations and Warranties of Holders . Holder hereby represents and warrants to the Company as of the date hereof that:

(a) Requisite Power and Authority . Holder has all necessary power and authority under all applicable provisions of law to execute and deliver the Note, the Fourth Amendment, and the Subordination Agreement and to carry out their provisions. All action on Holder’s part required for the lawful execution and delivery of the Note, the Fourth Amendment, and the Subordination Agreement has been taken. Upon their execution and delivery, the Note, the Fourth Amendment, and the Subordination Agreement will constitute a valid and legally binding obligations of Holder, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) to the extent any indemnification provisions may be limited by applicable federal or state securities laws.

 

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(b) Experience . Holder is experienced in investing in the securities of development stage companies such as the Company and acknowledges that investment in the Securities (as defined below) involves a number of significant risks, it is able to fend for itself, it can bear the economic risk of its investment, including the full loss of its investment, and it has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities (as defined below). Holder also represents it was not organized solely for the purpose of acquiring the Securities (as defined below). As used herein, “ Securities ” shall mean this Note, the Warrant and the equity securities issuable upon conversion or exercise thereof (and the securities issuable upon conversion of such equity securities).

(c) Accredited Investor . Holder represents that it is an “accredited investor” within the meaning of Rule 501(a) of the Securities Act.

(d) Principal Office . Holder’s principal office location is in the state identified in the address of Holder set forth on Holder’s signature page hereto.

(e) Disclosure of Information . Holder has conducted the due diligence it determined in its sole judgment was necessary or appropriate and has received all the information it considers necessary or appropriate for deciding whether to purchase the Securities. Holder has received and reviewed information about the Company and has had an opportunity to discuss the Company’s business, management and financial affairs with its management and to review the Company’s facilities. Holder understands and acknowledges that such discussions, as well as any written information issued by the Company, (i) were intended to describe the aspects of the Company’s business which the Company believes to be material, but were not necessarily an exhaustive description, and (ii) may have contained forward-looking statements involving known and unknown risks and uncertainties which may cause the Company’s actual results in future periods or plans for future periods to differ materially from what was anticipated and that no representations or warranties were or are being made with respect to any such forward-looking statements or the probability of achieving any of the results projected in any of such forward-looking statements. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 4 of this Note or the right of Holder to rely thereon.

(f) Purchase Entirely for Own Account . This Note is issued to Holder in reliance upon Holder’s representation to the Company, which by Holder’s purchase of this Note, Holder hereby confirms, that the Securities to be received by Holder will be acquired for investment for Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. Holder further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Securities.

(g) Restricted Securities . Holder understands that the Securities are characterized as “restricted securities” under the federal securities laws inasmuch as they are being

 

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acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such Securities may be resold without registration under the Securities Act only in certain limited circumstances. In this connection, Holder represents that it is familiar with Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Holder must bear the economic risk of this investment indefinitely unless the Securities are registered pursuant to the Securities Act, or an exemption from registration is available. Holder understands that the Company has no present intention of registering the Securities. Holder also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow Holder to transfer all or any portion of the Securities under the circumstances, in the amounts or at the times Holder might propose.

(h) No Public Market . Holder understands that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Securities.

6. Observation and Information Rights . For so long as Holder, or an affiliate of Holder, holds the Note, Warrant or any Company equity securities issued to Holder pursuant to the terms hereof or pursuant to the terms of the Warrant, Holder shall have the right to designate a representative to attend all meetings of the Company’s Board of Directors in a non-voting observer capacity, and, in this respect, the Company shall provide Holder with copies of all notices, minutes, consents and other materials that it provides to its directors; provided, however, that such representative agrees to hold in confidence and trust all information so provided; and provided, further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting (i) could adversely affect the attorney-client privilege between the Company and its counsel, or (ii) result in a disclosure of trade secrets or present a conflict of interest, in either case, to be determined at the sole discretion of the Board of Directors. Holder’s initial designated representative shall be Bruce Steel.

7. Restrictions on Transfer . Holder hereby acknowledges that the Securities shall not be transferred except upon the conditions specified in this Section 7 hereof, which conditions are intended to insure compliance with the provisions of the Securities Act. Holder will cause any proposed transferee of Securities held by Holder to agree to take and hold such Securities subject to the provisions and upon the conditions specified in the Note (including, without limitation, Sections 7 and 8 hereof).

(a) Legends . Each certificate representing the Securities or any securities of the Company issued to Holder upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted or unless the securities evidenced by such certificate shall have been registered under the Securities Act) be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws):

 

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“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE “ACT”) OR ANY STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. HOLDERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN THE FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.”

“THESE SECURITIES ARE SUBJECT TO, AND MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH, THAT CERTAIN NOTE ISSUED TO BIOMED REALTY, L.P. ON JULY 31, 2011, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER.”

(b) Notice of Proposed Transfers . The holder of each certificate representing the Securities required to bear the legend set forth in Section 7.1 by acceptance thereof agrees to comply in all respects with the provisions of this Section 7. Prior to any proposed transfer of any Securities, the holder thereof shall give written notice to the Company of such holder’s intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall be accompanied (except in transactions involving the distribution without consideration of such Securities by a holder to any of its affiliates, partners, members, affiliated funds or entities under common control, or to the estate of any of its partners or members) by either:

(i) a written opinion of legal counsel who shall be reasonably satisfactory to the Company, addressed to the Company and reasonably satisfactory in form and substance to the Company’s counsel, to the effect that the proposed transfer of the Securities may be effected without registration under the Securities Act; or

(ii) a “no-action” letter from the Securities and Exchange Commission to the effect that the distribution of such Securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon the holder of such Securities shall be entitled to transfer such Securities in accordance with the terms of the notice delivered by such holder to the Company.

 

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Each certificate evidencing the Securities transferred as above provided shall bear the restrictive legend set forth in Section 7.1 above, except that such certificate shall not bear such restrictive legend if the opinion of counsel or “no-action” letter referred to above expressly indicates that such legend is not required in order to establish compliance with the Act or if such legend is no longer required pursuant to Rule 144. Notwithstanding the foregoing, Holder may transfer the Securities at any time to an affiliate of Holder as deemed necessary or advisable, in Holder’s discretion, to ensure BioMed Realty Trust, Inc.’s compliance with requirements relating to BioMed Realty Trust, Inc.’s status as a real estate investment trust for federal income tax purposes, without having to provide to the Company the information contained in Sections 7.2.1 or 7.2.2.

8. “Market Stand Off” Agreement . Holder hereby agrees that Holder shall not sell or otherwise transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Common Stock (or other securities) of the Company held by Holder (other than those included in the registration) during the one hundred eighty (180) day period following the effective date of the Company’s Initial Public Offering (or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto); provided , that all officers and directors of the Company and holders of at least one percent (1%) of the Company’s voting securities are bound by and have entered into similar agreements. The obligations described in this Section 8 shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future. 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 said one hundred eighty (180) day period (or such longer period as set forth above). Holder agrees to execute a market standoff agreement with said underwriters in customary form consistent with the provisions of this Section 8. The provisions of this Section 8 shall be binding upon any transferee or assignee of all or any portion of the Securities.

9. Assignment . Subject to the restrictions on transfer set forth in Section 7 and this Section 9 of the Note, the rights and obligations of the Company and Holder will be binding upon and inure to the benefit of the successors, assigns, heirs, administrators and transferees of the parties. Holder may not assign the Note without first having the assignee thereof become a party to the Subordination Agreement.

10. Events of Default . Subject to the terms of the Subordination Agreement, upon the occurrence or existence of any Event of Default (as defined below) and at any time thereafter and during the continuance of an Event of Default, the entire principal sum of this Note, together with all unpaid accrued interest thereon, and all unpaid fees, charges, costs and expenses, if any, owed by the Company to the Holder hereunder, may become or may be declared by the Holder to be immediately due and payable. In addition to the

 

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foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy permitted to it by applicable law, either by suit in equity or by action at law, or both.

(a) Events of Default . The occurrence of any one or more of the following events with respect to the Company constitutes an “ Event of Default ” hereunder:

(a) The Company breaches any covenant or obligation in this Note, and fails to cure such breach within ten (10) days after receipt of written notice thereof from Holder;

(b) The Company fails to pay timely any of the principal amount due under this Note on the date the same becomes due and payable or any accrued interest or other amounts due under this Note on the date the same becomes due and payable;

(c) The dissolution, termination of existence or insolvency of the Company or appointment of a receiver, trustee or custodian, for all or any part of the property of the Company under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or

(d) The commencement of any proceeding against the Company under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future, if within sixty (60) days after the commencement of such proceeding (i) such action has not been dismissed or all orders or proceedings thereunder affecting the operations or the business of the Company stayed, or (ii) the stay of any such order or proceedings has been set aside.

Notwithstanding anything to the contrary, any failure of the Company to comply with the terms of this Note due to the Company’s compliance with the terms of the Subordination Agreement shall not constitute an “Event of Default” hereunder and shall not permit Holder to exercise its remedies hereunder or otherwise (including, without limitation, under applicable law).

(b) Default Rate . As long as any payment due under this Note remains past due (whether at the stated maturity, by acceleration or otherwise) for five (5) days or more, interest under this Note shall accrue on such overdue payment at a rate (the “ Default Rate ”) (which is in lieu of and not in addition to the Interest Rate) equal to the lesser of twelve percent (12%) per annum or the maximum rate permitted by applicable law from the date of such non-payment until such amount is paid in full (whether after or before judgment).

(c) Payment of Expenses . Following the occurrence of an Event of Default, the Company shall pay, on demand, all reasonable costs and expenses of collection of this Note (including reasonable attorneys’ fees, costs and disbursements) in respect of such Event of Default, whether or not any suit or other legal proceedings shall be instituted.

 

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(d) No Usury . Payments of interest shall not be required, for any period for which interest is computed hereunder, to the extent that contracting for or receipt thereof would be contrary to provisions of any applicable law to the Holder limiting the highest rate of interest that may be lawfully contracted for, charged or received by the Holder, as determined by a final judgment of a court of competent jurisdiction. Any interest paid in excess of such highest rate shall be applied to the unpaid principal balance of this Note. In the event that any such excess exceeds the principal amount, the amount of such excess over the principal amount shall be refunded to the Company.

11. Governing Law . This Note and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.

12. Notices . All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery, upon three (3) business days after deposit with the United States Post Office, by registered or certified mail, return receipt requested, postage prepaid, one (1) business day after deposit with a nationally recognized air courier, or upon receipt of confirmation with regard to delivery by facsimile and addressed: (a) if to Holder, at Holder’s address as set forth on Holder’s signature page hereto, or at such other address as Holder shall have furnished to the Company in writing, or (b) if to the Company, at its current address or at such other address as the Company shall have furnished to Holder in writing.

13. Notification of Certain Events . In addition to the notice required pursuant to Section 2(a) hereof, the Company shall provide Holder with at least ten (10) days prior notice of a Sale (as defined in the Restated Certificate) or a Threshold Financing.

14. Amendments and Waivers . Any term of this Note may be amended and the observance of any term of this Note may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Necessary Holders. “ Necessary Holders ” shall mean the holders of a majority of the aggregate principal amount equal to the sum of (i) the aggregate outstanding principal amount of the Existing Notes, plus (ii) the outstanding Principal Amount of this Note. Any amendment or waiver effected in accordance with this Section 14 shall be binding upon Holder and the Company.

15. Stockholders, Officers and Directors Not Liable . In no event shall any stockholder, officer or director of the Company be liable for any amounts due or payable pursuant to this Note.

16. Lost Documents . Upon receipt by the Company of evidence and indemnity satisfactory to it of the loss, theft, destruction or mutilation of, and upon surrender and cancellation of this Note, if mutilated, the Company will make and deliver in lieu of this Note a new note of the same series and of like tenor and unpaid Principal Amount and dated as of the date to which interest, if any, has been paid on the unpaid Principal Amount of this Note.

 

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17. Waivers and Rights of Holder . The Company hereby waives demand, presentment for payment, protest, notice of nonpayment, notice of protest, notice of dishonor, and any other notices of any kind, and any and all exemption rights that it holds at law or in equity with respect to the indebtedness evidenced by this Note.

18. Corporate Securities Law . THE SALE OF THIS NOTE HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THIS NOTE OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF THIS NOTE IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS NOTE ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.

19. Attorneys’ Fees . If any action at law or in equity is necessary to enforce or interpret the terms of this Note, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and disbursements in addition to any other relief to which such party may be entitled.

20. Counterparts . This Note may be executed in two or more counterparts (including by facsimile or PDF copy), each of which shall be deemed an original and all of which together shall constitute one instrument.

(Signature Page Follows)

 

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The parties have executed this Convertible Unsecured Promissory Note as of the date first written above.

 

COMPANY:

 

ZOSANO PHARMA, INC.

   

HOLDER:

 

BIOMED REALTY, L.P.

By:         By:    
Name:       Name:  
Title:       Title:  
      Address:  

17190 Bernardo Center Drive

San Diego, CA 92128

Attn: Corporate Legal

 

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EXHIBIT C

FORM OF AMENDED AND RESTATED WARRANT

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

 

Warrant No. PDW-2011-001   

Original Issuance Date: April 29, 2011

Amendment and Restatement Date: July 31, 2011

Void After: July 31, 2018

ZOSANO PHARMA, INC.

(a Delaware corporation)

AMENDED AND RESTATED WARRANT TO PURCHASE SHARES OF

PREFERRED STOCK

Zosano Pharma, Inc., a Delaware Corporation (the “ Company ”), for value received, hereby certifies BioMed Realty, L.P., or its registered assigns (“ Holder ”), is entitled, subject to the terms set forth below, to purchase from the Company, at any time during the Exercise Period (as defined below), shares of the Company’s Preferred Stock. References are made to (i) that certain Note and Warrant Purchase Agreement, dated as of August 13, 2010, by and among the Company and the Purchasers listed therein (the “ Purchase Agreement ”), and (ii) that certain Amended and Restated Note issued to Holder on the date hereof (the “ Note ”). Capitalized terms used herein but not defined herein shall have the meanings ascribed to them in the Purchase Agreement.

This Amended and Restated Warrant amends and restates in its entirety that certain Warrant to Purchase Shares of Preferred Stock of the Company dated April 29, 2011, which is hereby terminated, cancelled and superseded by this Amended and Restated Warrant and shall have no further force or effect whatsoever

1. Purchase of Shares .

(a) Number of Shares . Subject to the terms and conditions set forth herein, Holder is entitled, upon surrender of this Warrant at the principal office of the Company (or at such other place as the Company shall notify Holder in writing), to purchase from the Company (i) in the event that a Threshold Financing has occurred prior


to the exercise of this Warrant, up to that number of fully paid and nonassessable shares of the Company’s New Preferred Stock, equal to the quotient (rounded down to the nearest whole share) of (X) $2,352,819.42, divided by (Y) the New Series Price; or (ii) in the event that a Threshold Financing has not occurred prior to the exercise of this Warrant, up to 470,563 shares of the Company’s Series C Convertible Participating Preferred Stock, par value $0.0001 per share (the “ Series C Preferred Stock ,” together with the New Preferred Stock, the “ Preferred Stock ”). For purposes of this Warrant, “ New Series Price ” means the price paid per share for the New Preferred Stock by investors in a Threshold Financing.

(b) Exercise Price . The exercise price for the shares of Preferred Stock issuable pursuant to this Section 1 (the “ Shares ”) shall be (i) the New Series Price in the event this Warrant is exercisable for shares of New Preferred Stock pursuant to Section 1(a) hereof or (ii) $5.00 per share in the event this Warrant is exercisable for shares of Series C Preferred Stock pursuant to Section 1(a) hereof (the “ Exercise Price ”). The Shares and the Exercise Price shall be subject to adjustment pursuant to Section 8 hereof.

2. Exercise Period . Subject to Section 3 below, this Warrant shall be exercisable, in whole or in part, during the term commencing on the date hereof and ending at 5:00 p.m. Pacific Time on July 31, 2018 (the “ Exercise Period ”); provided , however , that this Warrant shall no longer be exercisable and shall become null and void upon the consummation of the Company’s initial public offering of its Common Stock or other securities pursuant to a registration statement under the Securities Act of 1933, as amended (the “ Securities Act ”) (other than a registration statement relating either to sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or a SEC Rule 145 transaction) (an “ IPO ”), other than a Qualified IPO (as defined below).

3. Treatment of Warrant upon Sale of the Company .

(a) Upon the written request of the Company, Holder agrees that, in the event of a Sale (as such term is defined in the Company’s Amended and Restated Certificate of Incorporation on file with the Secretary of State of the State of Delaware, as amended from time to time) of the Company in which the sole consideration for such Sale is cash or publicly traded securities or a combination of both, this Warrant shall be deemed to be automatically exercised using the “net exercise” method set forth in Section 5(d) below immediately prior to the consummation of such Sale, unless Holder otherwise notifies the Company in writing. The Company shall provide Holder with written notice of its request relating to the foregoing (together with such reasonable information as Holder may reasonably require regarding the treatment of this Warrant in connection with such contemplated Sale giving rise to such notice), which is to be delivered to Holder not less than five (5) days prior to the closing of the proposed Sale.

(b) Upon the closing of any Sale other than those particularly described in subsection (a) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property

 

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as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Sale and subsequent closing. The Exercise Price and/or number of Shares shall be adjusted accordingly.

4. Treatment of Warrant upon Qualified IPO . Notwithstanding Section 1 of this Warrant, in the event of an IPO whereby the Company raises aggregate proceeds (net of underwriting discounts and commissions, if any) of at least $50,000,000 at a per share price of at least $6.25 (as may be adjusted for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event) (a “ Qualified IPO ”), and Holder has not exercised this Warrant, this Warrant shall become exercisable for that number of shares of Common Stock into which the shares of Preferred Stock subject to this Warrant (as specified in Section 1(a) ) would be convertible immediately prior to the consummation of such Qualified IPO. In such event, the Exercise Price shall be adjusted accordingly, and the term “Shares” as used in this Warrant shall mean such shares of Common Stock for which this Warrant is exercisable pursuant to this Section 4.

5. Method of Exercise .

(a) While this Warrant remains outstanding and exercisable in accordance with Sections 2 , 3 and 4 above, Holder may exercise, in whole or in part, the purchase rights evidenced hereby. Such exercise shall be effected by:

(i) the surrender of the Warrant, together with a duly executed copy of the Notice of Exercise attached hereto, to the Chief Financial Officer of the Company at its principal office (or at such other place as the Company shall notify Holder in writing); and

(ii) the payment to the Company of an amount equal to the aggregate Exercise Price for the number of Shares being purchased, which amount may be paid, at the election of Holder, by wire transfer of immediately available funds or certified check payable to the order of the Company or by cancellation of indebtedness.

(b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant is surrendered to the Company as provided in Section 5(a) above. At such time, the person or persons in whose name or names any certificate for the Shares shall be issuable upon such exercise as provided in Section 5(c) below shall be deemed to have become the holder or holders of record of the Shares represented by such certificate.

(c) Within a reasonable time after the exercise of this Warrant in whole or in part, the Company at its expense will cause to be issued in the name of, and delivered to, Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct:

(i) a certificate or certificates for the number of Shares to which such Holder shall be entitled; and

 

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(ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Shares equal to the number of such Shares described in this Warrant minus the number of such Shares purchased by Holder upon all exercises made in accordance with Section 5(a) above or Section 6 below.

(d) Net Exercise . In lieu of exercising this Warrant for cash, during the Exercise Period, Holder may elect to receive Shares equal to the value of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with a Notice of Exercise indicating such election (a “ Net Exercise ”). A Holder who Net Exercises shall have the rights described in Section 5(b) and Section 5(c) hereof, and the Company shall issue to such Holder a number of Shares computed using the following formula:

 

LOGO

Where

 

  X = The number of Shares to be issued to Holder.

 

  Y = The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being cancelled (at the date of such calculation).

 

  A = The fair market value of one (1) Share (at the date of such calculation).

 

  B = The Exercise Price (as adjusted to the date of such calculations).

For purposes of this Section 5 , the fair market value of one Share shall be determined by the Company’s Board of Directors in good faith; provided , however , that in the event that this Warrant is exercised pursuant to this Section 5 in connection with the IPO of the Company, and if the Company’s Registration Statement relating to such public offering has been declared effective by the Securities and Exchange Commission (the “ SEC ”), then the fair market value per Share shall be the product of (a) the per share offering price to the public specified in the final prospectus with respect to the offering, and (b) the number of shares of Common Stock into which each Share is convertible at the time of such exercise.

6. Representations and Warranties of Holder . In connection with the transactions provided for herein, Holder hereby represents and warrants to the Company that:

(a) Authorization . Holder has full right, power, authority and capacity to enter into this Warrant, and this Warrant constitutes its valid and legally binding obligation, enforceable in accordance with its terms except (i) as limited by

 

17


applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors’ rights generally, (ii) as limited by equitable principles generally, including any specific performance, and (iii) as to any provisions relating to indemnity or contribution.

(b) Investment Experience . Holder represents that it has substantial experience in evaluating and investing in securities of companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Warrant (together with the Shares issuable upon exercise of the Warrant and the shares of Common Stock issuable upon conversion of the Shares (the “ Securities ”)), and has the capacity to protect its own interests.

(c) Accredited Investor . Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D, as presently in effect, as promulgated by the SEC under the Securities Act.

(d) Acquired Entirely for Own Account . This Warrant is issued to Holder in reliance upon Holder’s representation to the Company, which by Holder’s execution of this Warrant Holder hereby confirms, that the Securities to be received by Holder will be acquired for investment for Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. Holder further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations, to such person or to any third person, with respect to the Securities.

(e) Restricted Securities . Holder understands that the Securities are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such Securities may be resold without registration under the Securities Act only in certain limited circumstances. In this connection, Holder represents that it is familiar with the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale of occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being effected through a “broker’s transaction” or in transactions directly with a “market maker” and the number of shares being sold during any three-month period not exceeding specified limitations. Holder understands that the Company has no present intention of registering the Securities. Holder further acknowledges and understands that the Company is under no obligation to register the Securities. Holder also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow Holder to transfer all or any portion of the Securities under the circumstances, in the amounts or at the times Holder might propose.

 

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(f) No Public Market . Holder understands that no public market now exists for any of the securities issued by the Company, and that the Company has made no assurances that a public market will ever exist for the Securities.

(g) Disclosure of Information . Holder has conducted the due diligence it determined in its sole judgment was necessary or appropriate and has received all the information it considers necessary or appropriate for deciding whether to acquire the Securities. Holder has received and reviewed information about the Company and has had an opportunity to discuss the Company’s business, management and financial affairs with its management. Holder understands and acknowledges that such discussions, as well as any written information provided by the Company to Holder, (i) were intended to describe the aspects of the Company’s business which the Company believes to be material, but were not necessarily an exhaustive description, and (ii) may have contained forward-looking statements involving known and unknown risks and uncertainties which may cause the Company’s actual results in future periods or plans for future periods to differ materially from what was anticipated and that no representations or warranties were or are being made with respect to any such forward-looking statements or the probability of achieving any of the results projected in any of such forward-looking statements.

(h) Residence . Holder’s principal office location is in the state identified in the address of Holder set forth beneath its signature hereto.

(i) Legends . Holder understands that the Securities, and any securities issued in respect thereof or exchange therefor, may bear one or all of the following legends:

(i) “THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE “ACT”) OR ANY STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. HOLDERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN THE FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.”

“THESE SECURITIES ARE SUBJECT TO, AND MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH, THE WARRANT ISSUED TO BIOMED REALTY, L.P. ON JULY 31, 2011,

 

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A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER.”

(ii) Any legend required by the blue sky laws of any state to the extent such laws are applicable to the securities represented by the certificate or other document so legended.

(j) Representations on Exercise . Upon exercise of this Warrant and as a condition thereof, Holder hereof shall confirm in writing, in a form of Attachment A , that the representations and warranties in this Section 6 are true and correct as of the date of exercise. In addition, Holder shall provide such additional information regarding such Holder’s financial and investment background, as the Company may reasonably request, as is relevant for purposes of determining the accuracy of such representations and warranties.

7. Representations and Warranties of the Company . The Company represents and warrants to Holder as of the date hereof and at any time Company equity securities are issued to Holder pursuant to the terms hereof, and with respect to Sections 7(f), (g) and (h) for so long as Holder, or an affiliate of Holder, holds the Note, Warrant or any Company equity securities issued to Holder pursuant to the terms hereof or pursuant to the terms of the Note, as follows:

 

  a) Organization, Good Standing and Qualification . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as presently conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties.

 

  b) Authorization . All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, sale, issuance and delivery of the Warrant and the performance of all obligations of the Company under the Warrant has been taken prior to the date hereof. The Warrant, when executed and delivered by the Company, shall constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) to the extent any indemnification provisions may be limited by applicable federal or state securities laws.

 

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  c) Governmental Consent . No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the valid execution, delivery and performance by the Company of the Warrant and the transactions contemplated thereby, except for filings pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder, other applicable state securities laws and Regulation D of the Securities Act, all of which filings will be effected after the date hereof.

 

  d) Compliance with Other Instruments . The Company is not in violation or default of any provision of its Restated Certificate or its Bylaws currently in effect. Upon delivery of the Note and this Warrant, the Company is not in violation of, or default under any provision of any instrument, mortgage, deed of trust, loan, contract, commitment or obligation to which it is a party or by which it or any of its properties are bound, which violations or defaults, individually or in the aggregate, would materially adversely affect the business, properties or condition (financial or otherwise) of the Company. The Company is not in violation of any provision of any federal, state or local statute, rule or governmental regulation which would materially adversely affect the business, properties or condition (financial or otherwise) of the Company or any judgment, decree or order to which it is a party, in any material respect. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business, the lack of which could materially and adversely affect the business, properties or condition (financial or otherwise) of the Company. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.

 

  e) Percentage of Outstanding Securities . Together with the Note, the aggregate Company securities actually issued and/or potentially issuable upon exercise of the Warrant and conversion of the Note represent less than ten percent (10.0%) of the voting interest and less than ten percent (10.0%) of the value of the debt and equity securities of the Company.

 

  f) Health Care / Lodging Facilities . The Company does not operate or manage any health care facilities (including a congregate care facility or assisted living facility) or lodging facilities or provide any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated.

 

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  g) Financial Information . The Company shall furnish to Holder, as soon as practicable and in any event within ten (10) days after the date of such request, a statement showing the capitalization of the Company, including but not limited to the total number of outstanding securities of each class and series of capital stock of the Company, in sufficient detail as to permit Holder to calculate its percentage ownership in securities of the Company and voting power to elect directors to the Company’s Board of Directors.

 

  h) Notification . In the event that the Company becomes aware of any event which has resulted or which may result in the aggregate Company debt and equity securities (including the Note) actually issued and/or potentially issuable upon exercise of the Warrant and conversion of the Note constituting greater than ten percent (10.0%) of the voting interest and/or greater than ten percent (10.0%) of the value of the outstanding securities of the Company, the Company shall promptly notify Holder, and in no event later than five (5) days after the occurrence of such event.

8. Covenants of the Company .

(a) Notices of Record Date . In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters or any stock dividend) or other distribution, the Company shall mail to Holder, 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.

(b) Stock Fully Paid; Reservation of Shares . All shares of stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved for the purpose of issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Preferred Stock and Common Stock to provide for the exercise of the rights represented by this Warrant.

9. Adjustment of Exercise Price and Number of Shares .

(a) Subdivision or Combination of Shares . If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its stock, including without limitation through a reverse stock split, the Exercise Price shall be proportionately decreased in the case of a subdivision or increased in the case of a combination.

 

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(b) Reclassification, Reorganization and Consolidation . In case of any reclassification, capital reorganization or change in the capital stock of the Company (other than as a result of a subdivision, combination or stock dividend provided for in Section 8(a) above or Section 8(c) below), then, as a condition of such reclassification, reorganization or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to Holder, so that Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities or property receivable in connection with such reclassification, reorganization or change by a holder of the same number and type of securities as were purchasable as Shares by Holder immediately prior to such reclassification, reorganization or change. In any such case appropriate provisions shall be made with respect to the rights and interest of Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities or property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price per Share payable hereunder, provided the aggregate Exercise Price shall remain the same.

(c) Stock Dividends . If the Company at any time while this Warrant is outstanding and unexpired shall pay a dividend with respect to stock payable in stock or make any other distribution of stock with respect to stock (except any distribution specifically provided for in the foregoing Sections 8(a) or 8 (b) ), 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 stock outstanding immediately prior to such dividend or distribution, and (b) the denominator of which shall be the total number of shares of stock outstanding immediately after such dividend or distribution.

(d) Adjustment of Number of Shares . Upon each adjustment in the exercise price, the number of shares of stock purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of shares purchasable immediately prior to such adjustment in the exercise price by a fraction, the numerator of which shall be the exercise price immediately prior to such adjustment and the denominator of which shall be the exercise price immediately thereafter.

(e) Fractional Shares . No fractional Shares or scrip representing fractional Shares will be issued in connection with any exercise hereunder, 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.

 

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10. No Stockholder Rights . Prior to exercise of this Warrant, Holder shall not be entitled to any rights of a stockholder with respect to the Shares, including (without limitation) the right to vote such Shares, receive dividends or other distributions thereon, exercise preemptive rights or be notified of stockholder meetings, and except as otherwise provided in this Warrant, Holder shall not be entitled to any stockholder notice or other communication concerning the business or affairs of the Company.

11. Transfer of Warrant .

(a) Restriction on Transfer . Other than a surrender of this Warrant to the Company and reissuance of a new warrant to the transferee pursuant to Section 5 of this Warrant, any attempted transfer, assignment, delegation or otherwise by Holder of this Warrant, or of any right, interest or obligation hereunder, shall be null and void unless Holder shall have complied with the transfer restrictions set forth in Section 6 of the Note. Nothing in this Warrant, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Warrant, except as expressly provided in this Warrant.

(b) Mechanics of Transfer . Any transfer of all or any portion of this Warrant, or of any interest therein, that is permitted under Section 11(a) shall be effected by surrendering this Warrant to the Company at its principal office, together with (i) a duly executed form of assignment, in the form of Attachment B , and (ii) payment of any applicable transfer taxes, if any. In the event of any such transfer of this Warrant, in whole, the Company shall issue a new warrant of like tenor to the transferee, representing the right to purchase the same number of Shares, and cash, securities or other property, if any, which were purchasable by Holder upon exercise of this Warrant at the time of its transfer. In the event of any such transfer of any portion of this Warrant, (1) the Company shall issue a new warrant of like tenor to the transferee, representing the right to purchase the same number of Shares, and cash, securities or other property, if any, which were purchasable by Holder upon exercise of the transferred portion of this Warrant at the time of such transfer, and (2) the Company shall issue a new warrant of like tenor to Holder, representing the right to purchase the number of Shares, and cash, securities or other property, if any, purchasable by Holder upon exercise of the portion of this Warrant not transferred to such transferee. Until this Warrant or any portion thereof is transferred on the books of the Company, the Company may treat Holder as the absolute holder of this Warrant and all right, title and interest therein for all purposes, notwithstanding any notice to the contrary.

12. Governing Law . This Warrant shall be governed in all respects by the internal laws of the State of California, without regard to principles of conflicts of law.

13. Titles and Subtitles . The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant.

 

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14. Amendments and Waivers . Any term of this Warrant may be amended or waived only upon written consent of the Company and the Holder.

15. Severability . If any provision of this Warrant is held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

16. Notices . All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the following addresses (or at such other addresses as shall be specified by notice given in accordance with this Section 16 ):

If to the Company:

Zosano Pharma, Inc.

34790 Ardentech Court

Fremont, CA 94555

Attention: Chief Executive Officer

Facsimile: 510-742-6282

with a copy (which shall not constitute notice) to:

Latham & Watkins LLP

140 Scott Drive

Menlo Park, California 94025

Attn: Alan Mendelson and Mark Roeder

Facsimile: (650) 463-2600

If to Holder:

to the address of Holder set forth on Holder’s signature page hereto.

17. Counterparts . This Warrant may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Any counterpart delivered electronically (including without limitation by PDF transmission) or by facsimile shall be binding to the same extent as an original counterpart with regard to any agreement subject to the terms hereof or any amendment thereto.

18. Finder’s Fee . Each party represents that it neither is or will be obligated for any finder’s fee or commission in connection with this transaction. Holder agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending

 

25


against such liability or asserted liability) for which Holder or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless Holder from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

19. Expenses . If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

20. Entire Agreement . This Warrant and any other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof.

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the parties have executed this Warrant as of the date above written.

 

COMPANY:
ZOSANO PHARMA, INC.

By:

 

 

Name:

Title:

 

ACKNOWLEDGED AND AGREED:
BIOMED REALTY, L.P.

By:

 

 

Name:

Title:

Address:

17190 Bernardo Center Drive

San Diego, CA 92128

Attn: Corporate Legal

Fax: (858) 485-9843

SIGNATURE PAGE TO WARRANT


ATTACHMENT A

NOTICE OF EXERCISE

TO: ZOSANO PHARMA, INC. (the “ Company ”)

1. The undersigned, pursuant to the provisions set forth in the attached Warrant No. [            ], hereby elects to purchase             Shares and tenders herewith payment of the purchase price of such Shares in full, together with all applicable transfer taxes, if any.

1. The undersigned hereby elects to convert the attached Warrant into Shares in the manner specified in Section 5(d) of the Warrant. This conversion is exercised with respect to             Shares covered by the Warrant.

[Strike paragraph above that does not apply.]

2. Please issue a certificate or certificates representing said shares of stock in the name of the undersigned or in such other name as is specified below:

 

Name:

       

Address:

       
       

3. The undersigned represents that the aforesaid shares of stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares. In support thereof, the undersigned hereby represents and warrants to the Company that the representations and warranties contained in Section 6 of the Warrant are true and correct as of the date of exercise.

4. The undersigned further acknowledges that it has reviewed the market stand-off provisions set forth in Section 7 of the Note and agrees to be bound by such provisions.

 

 

HOLDER

By:

 

 

Title:

 

 

Date:

 

 


ATTACHMENT B

FORM OF ASSIGNMENT

(To be executed upon assignment of Warrant)

For value received,                                         hereby sells, assigns and transfers unto                                              the attached Warrant [    % of the attached Warrant], together with all right, title and interest therein, and does hereby irrevocably constitute and appoint                         attorney to transfer said Warrant [said percentage of said Warrant] on the books of Zosano Pharma, Inc., a Delaware corporation, with full power of substitution in the premises.

If not all of the attached Warrant is to be so transferred, a new Warrant is to be issued in the name of the undersigned for the balance of said Warrant.

 

Dated:                       ,                   
        NOTE: The above signature should correspond exactly with the name on the face of the attached Warrant.

Exhibit 10.14

FIFTH AMENDMENT TO LEASE

THIS FIFTH AMENDMENT TO LEASE (this “ Amendment ”) is entered into as of this 1 st day of April, 2012 (the “ Execution Date ”), by and between BMR-34790 ARDENTECH COURT LP, a Delaware limited partnership (“ Landlord ,” as successor in interest to BMR-34790 Ardentech Court LLC), and ZOSANO PHARMA, INC., a Delaware corporation (“ Tenant ,” formerly known as The Macroflux Corporation).

RECITALS

A. WHEREAS, Landlord and Tenant are parties to that certain Lease dated as of May 1, 2007 (the “ Original Lease ”), as amended by that certain First Amendment to Lease dated as of June 20, 2008, that certain Second Amendment to Lease dated as of October 16, 2008, that certain Third Amendment to Lease dated as of April 29, 2011, and that certain Fourth Amendment to Lease dated as of July 31, 2011 (collectively, and as the same may have been further amended, amended and restated, supplemented or modified from time to time, the “ Lease ”), whereby Tenant leases certain premises (the “ Premises ”) from Landlord at 34790 Ardentech Court in Fremont, California (the “ Building ”);

B. WHEREAS, Tenant defaulted under the Lease;

C. WHEREAS, as consideration for Landlord refraining from further exercising its remedies as a result of such defaults, Tenant entered into that certain Amended and Restated Warrant to Purchase Shares of Preferred Stock dated as of July 31, 2011 (the “ Restated Warrant ”), and Landlord and Tenant entered into that certain Amended and Restated Convertible Unsecured Promissory Note dated as of July 31, 2011, by and between Landlord and Tenant (the “ Restated Note ”);

D. WHEREAS, Tenant has committed new defaults under the Lease and has defaulted under the Restated Note (together with the defaults referenced in recital B, above, the “ Existing Defaults ”);

E. WHEREAS, on or about the date hereof, (1) Landlord and Tenant are entering into a new note and security agreement, (2) Landlord is being granted a partial ownership interest in ZP Holdings, Inc., a Delaware corporation (“ ZP Holdings ”), (3) ZP Holdings is acquiring all of the equity in Tenant such that Tenant will become a wholly-owned subsidiary of ZP Holdings, (4) ZP Holdings is executing a guaranty of the obligations of Tenant under the Lease, and (5) Tenant is subleasing the Premises to ZP Group LLC, a Delaware limited liability company (“ ZP Group ”), pursuant to that certain Sublease Agreement dated on or about the date hereof; and

F. WHEREAS, Landlord and Tenant desire to modify and amend the Lease only in the respects and on the conditions hereinafter stated.


AGREEMENT

NOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:

1. Definitions . For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Lease unless otherwise defined herein. The Lease, as amended by this Amendment, is referred to herein as the “ Amended Lease .”

2. Waiver . Landlord hereby waives the Existing Defaults and shall promptly dismiss the complaint captioned “ BMR-34790 Ardentech Court LP v. Zosano Pharma, Inc. , Civil Case No. HG12621305” filed with the California Superior Court, Alameda County, on March 14, 2012, with prejudice.

3. Reduction of Premises . Notwithstanding anything in the Amended Lease to the contrary, Landlord may, upon at least thirty (30) days’ prior written notice to Tenant (the “ Recapture Notice ”), recapture that portion of the Premises comprising approximately 29,348 square feet (subject to increase due to the designation by Landlord of certain areas as common area (outlined in green on Exhibit A attached hereto) in the event that Landlord delivers a Recapture Notice) of Rentable Area depicted on Exhibit A attached hereto (the “ Recapturable Premises ”). In the event that Landlord issues a Recapture Notice:

a. Tenant shall surrender the Recapturable Premises to Landlord as of the date specified in the Recapture Notice (but no earlier than thirty (30) days after Tenant’s receipt of said Recapture Notice) (the “ Recapture Date ”) in the condition and delivering the deliverables to Landlord required by the Amended Lease;

b. The remaining Premises comprising approximately 26,240 square feet (subject to reduction due to the designation by Landlord of certain areas as common area (outlined in green on Exhibit A attached hereto) in the event that Landlord delivers a Recapture Notice) of Rentable Area (the “ Remaining Premises ”) shall be as depicted on Exhibit A attached hereto. The Recapture Notice shall state the actual Rentable Areas of the Remaining Premises and the Building, as determined by Landlord’s architect, and shall identify which areas, if any, outlined in green on Exhibit A are common areas;

c. Neither the amount of Basic Annual Rent payable by Tenant nor the amount of the Security Deposit shall be affected;

d. Landlord shall pay for any costs (without any obligation by Tenant to reimburse Landlord for the same) necessary to demise the Recapturable Premises from the remaining Premises (including segregating utilities and Building systems, if Landlord undertakes such activities);

e. Tenant shall be entitled to non-exclusive use of its pro rata share (determined by dividing the rentable area of the Remaining Premises by the rentable area of the Building) of parking spaces at the Project;

 

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f. Tenant shall pay to Landlord its proportionate (based on one of the following, as reasonably determined by Landlord: (i) the actual Rentable Area of the Remaining Premises by the actual Rentable Area of the Building or (ii) the usage (as reasonably determined by Landlord) by Tenant and other tenants of the Building) share of Taxes, Insurance Costs and other operating expenses for the Property for which Tenant is otherwise responsible under the Lease (collectively, “ Operating Expenses ”); and

g. From and after the Recapture Date, Landlord shall assume from Tenant any of Tenant’s obligations under the Lease to maintain, repair or replace any common areas of the Property, including the parking areas and any Building systems that service (either exclusively or in conjunction with part or all of the Remaining Premises) portions of the Property other than the Premises (the “ Common Obligations ”), and all costs incurred by Landlord in connection with Common Obligations shall constitute Operating Expenses for purposes of Section 3(f) hereof; provided that Landlord shall clarify in a writing to Tenant (delivered no later than twenty-one (21) days prior to the Recapture Date) which obligations Landlord shall be assuming and, at Tenant’s request, shall meet with a representative of Tenant to discuss the same. In no event shall the Common Obligations include Landlord’s Obligations (as defined in Section 18.1 of the Original Lease).

h. Operating Expenses shall not include: any expenses in connection with Landlord’s Obligations; any expenses relating solely with respect to the Recapturable Premises or the tenant(s)/occupant(s) therein, with respect to the period after Tenant’s surrender of the Recapturable Premises to Landlord in the condition required by the Amended Lease; expenses for any item or service which Tenant pays directly to a third party or separately pays to Landlord; costs incurred due to the gross negligence or willful misconduct of Landlord or its agents and employees; penalties, fines and other costs incurred due to violation of Applicable Laws by Landlord; or any interest or penalties attributable to late payment by Landlord of any Operating Expenses. With respect to any Operating Expenses that constitute capital expenditures under generally accepted accounting principles (as reasonably determined by Landlord), Landlord shall amortize the same over the useful life of the same and include within Operating Expenses for a given calendar year only the annual amortization.

i. Within one hundred twenty (120) days after each calendar year during the Term, Landlord shall provide Tenant with a statement of Operating Expenses for the Property and Tenant’s share of the same. Tenant shall have the right to review Landlord’s records with respect to Operating Expenses, and Landlord shall provide Tenant with reasonable access to Landlord’s books and records to facilitate such review at Landlord’s office. Any discrepancy in Landlord’s determination of Operating Expenses or Tenant’s share of the same shall be promptly reconciled.

4. Term . The Term Expiration Date is hereby changed to the date that is seven (7) years after the Execution Date.

5. Basic Annual Rent . Notwithstanding anything in the Amended Lease to the contrary, Basic Annual Rent shall be as follows:

 

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Year Following Execution Date

   Basic Annual Rent  

1

   $ 840,000.00   

2

   $ 865,200.00   

3

   $ 891,156.00   

4

   $ 600,000.00   

5

   $ 618,000.00   

6

   $ 636,540.00   

7

   $ 655,636.20   

6. Tenant Improvements . Tenant confirms that, notwithstanding anything in the Amended Lease to the contrary, to the extent that Tenant holds any right, title or interest in or to the Tenant Improvements, including those constructed using the Total TI Allowance, Tenant hereby conveys such right, title and interest to Landlord. The Tenant Improvements shall be surrendered to Landlord in the condition required by the Amended Lease upon the expiration or earlier termination of the Amended Lease.

7. Security Deposit . Tenant acknowledges and agrees that Landlord was entitled to the Security Deposit as damages for Tenant’s defaults, and that Landlord properly drew on the letter of credit that Tenant furnished to Landlord. The Security Deposit is hereby changed to One Hundred Forty Thousand Dollars ($140,000). Tenant shall be required to replenish the Security Deposit no later than December 31, 2012, and maintain the Security Deposit thereafter in accordance with the Amended Lease.

8. Options . Sections 3.3 and 41.17 and Articles 6 , 40 and 42 of the Original Lease are hereby deleted and of no further force or effect.

9. Damage or Destruction .

a. The following sentence is hereby added to the end of Section 22.1 of the Original Lease:

In the event that the deductible (inclusive of amounts that constitute an Insurance Cost) with respect to any such damage or destruction is expected, in Landlord’s reasonable opinion, to exceed (when added to any deductible paid by Landlord (inclusive of amounts that constituted an Insurance Cost) in the previous twelve (12) month period) Four Hundred Forty Thousand Dollars ($440,000) in the aggregate (such excess, the “ Excess Deductible ”), Landlord shall have right to terminate this Lease by written notice to Tenant; provided that such termination shall be null and void if Tenant pays such Excess Deductible to Landlord within five (5) business days following receipt of Landlord’s termination notice.

 

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b. Section 22.8 of the Original Lease is hereby deleted in its entirety and replaced with:

“Notwithstanding anything to the contrary contained in this Section 22 , Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Premises if, in Landlord’s reasonable opinion, less than twelve (12) months would remain in the Term once the repair, reconstruction and restoration of the damage or destruction has been completed. Landlord shall give Tenant written notice of such opinion at the time Landlord delivers its notice pursuant to Section 22.3 .”

10. Broker . Tenant represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment and agrees to indemnify, defend and hold Landlord harmless from any and all cost or liability for compensation claimed by any such broker or agent employed or engaged by it or claiming to have been employed or engaged by it.

11. Notices . Tenant confirms that, notwithstanding anything in the Lease to the contrary, notices delivered to Tenant pursuant to the Amended Lease should be sent to:

Zosano Pharma, Inc.

34790 Ardentech Court

Fremont, CA 94555-3657

Attention: Vikram Lamba

with a copy to:

Foley Hoag LLP

155 Seaport Boulevard

Boston, Massachusetts 02210

Attention: Jeffrey L. Quillen, Esq.

12. Conditions to Effectiveness . This Amendment is conditional upon satisfaction of the Conditions (as defined in that certain Consent to Sublease dated on or about the Execution Date, by and among Landlord, Tenant and ZP Group), satisfaction of which shall be determined by Landlord in its sole and absolute discretion.

13. Effect of Amendment . Except as modified by this Amendment, the Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. The covenants, agreements, terms, provisions and conditions contained in this Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and, except as otherwise provided in the Amended Lease, their respective assigns. In the event of any conflict between the terms contained in this Amendment and the Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties. From and after the date hereof, the term “Lease” as used in the Lease shall mean the Lease, as modified by this Amendment.

 

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14. Miscellaneous . This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not be effective as a lease, lease amendment or otherwise until execution by and delivery to both Landlord and Tenant.

15. Counterparts . This Amendment may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands as of the date and year first above written, and acknowledge that they possess the requisite authority to enter into this transaction and to execute this Amendment.

 

LANDLORD :

BMR-34790 ARDENTECH COURT LP

a Delaware limited partnership

By:  

/s/ Kevin M. Simonsen

Name:  

Kevin M. Simonsen

Title:  

VP, Real Estate Counsel

TENANT :

ZOSANO PHARMA, INC.

a Delaware corporation

By:  

/s/ Vikram Lamba

Name:  

 

Title:  

 

 

S IGNATURE P AGE TO F IFTH A MENDMENT TO L EASE


EXHIBIT A

RECAPTURABLE PREMISES AND REMAINING PREMISES

 

LOGO

Exhibit 10.15

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (this “ Agreement ”) is made and entered into as of [ date ] between ZP Holdings, Inc., a Delaware corporation (the “ Company ”), and [ name ] (“ Indemnitee ”).

WITNESSETH THAT:

WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

WHEREAS, the Board of Directors of the Company (the “ Board ”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The By-laws and the Certificate of Incorporation of the Company require indemnification of the directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (“ DGCL ”). The Certificate of Incorporation and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification;

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

WHEREAS, this Agreement is a supplement to and in furtherance of the By-laws and the Certificate of Incorporation of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee


thereunder;

WHEREAS, Indemnitee does not regard the protection available under the Company’s By-laws and Certificate of Incorporation and insurance as adequate in the present circumstances, and may not be willing to serve as a director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; and

WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by [ name of investor entity ] which Indemnitee and [ name of investor entity ] intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein.

NOW, THEREFORE, in consideration of Indemnitee’s agreement to serve as a director after the date hereof, the parties hereto agree as follows:

1. Indemnity of Indemnitee . The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof:

(a) Proceedings Other Than Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section l(a) if, by reason of his Corporate Status (as hereinafter defined), the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company. Pursuant to this Section 1(a) , Indemnitee shall be indemnified against all Expenses (as hereinafter defined), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful.

(b) Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 1(b) , Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee, or on the Indemnitee’s behalf, in connection with such Proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.

 

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(c) Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

2. Contribution .

(a) Whether or not the indemnification provided in Section 1 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction or events from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the transaction or events that resulted in such Expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which applicable law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to

 

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gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.

(c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.

(d) 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; and/or (ii) 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).

3. Indemnification for Expenses of a Witness . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness, or is made (or asked) to respond to discovery requests, in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

4. Advancement of Expenses . Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee’s Corporate Status within thirty (30) 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 a written 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. Any advances and undertakings to repay pursuant to this Section 4 shall be unsecured and interest free.

5. Procedures and Presumptions for Determination of Entitlement to Indemnification . It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the DGCL and public policy of the State of Delaware. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:

(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

 

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Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. Notwithstanding the foregoing, any failure of Indemnitee to provide such a request to the Company, or to provide such a request in a timely fashion, shall not relieve the Company of any liability that it may have to Indemnitee unless, and to the extent that, such failure actually and materially prejudices the interests of the Company.

(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 5(a) hereof, a determination with respect to Indemnitee’s entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the Board: (1) by a majority vote of the Disinterested Directors, even though less than a quorum, (2) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum, (3) if there are no Disinterested Directors or if the Disinterested Directors so direct, by independent legal counsel in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee, or (4) if so directed by the Board, by the stockholders of the Company. For purposes hereof, “Disinterested Directors” are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought by Indemnitee.

(c) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 5(b) hereof, the Independent Counsel shall be selected as provided in this Section 5(c) . The Independent Counsel shall be selected by the Board. Indemnitee may, within 10 days after such written notice of selection shall have been given, deliver to the Company 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 12 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 5(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 or other court of competent jurisdiction for resolution of any objection which shall have been made by the Indemnitee to the Company’s 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 5(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 5(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 5(c) , regardless of the manner in which such Independent Counsel was selected or appointed.

(d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to

 

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overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors or independent 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 by its 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.

(e) Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise (as hereinafter defined), including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 5(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(f) If the person, persons or entity empowered or selected under Section 5 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 Indemnitee’s 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 such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 5(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 5(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination, the Board or the Disinterested Directors, if appropriate, resolve 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.

(g) Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification,

 

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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 Independent Counsel, member of the Board or stockholder of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitee’s entitlement to indemnification under this Agreement. 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 Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(i) 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.

6. Remedies of Indemnitee .

(a) In the event that (i) a determination is made pursuant to Section 5 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 4 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 5(b) of this Agreement within 90 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to 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 or such determination is deemed to have been made pursuant to Section 5 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitee’s entitlement to such indemnification. Indemnitee shall commence such proceeding seeking an adjudication within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 6(a) . The Company shall not oppose Indemnitee’s right to seek any such adjudication.

 

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(b) In the event that a determination shall have been made pursuant to Section 5(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 6 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 5(b) .

(c) If a determination shall have been made pursuant to Section 5(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 6 , absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s misstatement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) In the event that Indemnitee, pursuant to this Section 6 , seeks a judicial adjudication of his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors’ and officers’ liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 12 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery.

(e) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 6 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement. 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 therefore) advance, to the extent not prohibited by law, 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’ and 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.

(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

7. Non-Exclusivity; Survival of Rights; Insurance; Primacy of Indemnification; Subrogation .

(a) The rights of indemnification 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 By-laws, any agreement, a vote of stockholders, a resolution of directors of the Company or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of

 

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Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the DGCL, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Certificate of Incorporation, By-laws 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 or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

(c) The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by [ name of investor entity ] and certain of its affiliates (collectively, the “ Other Indemnitors ”). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Other Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Certificate of Incorporation or Bylaws of the Company (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Other Indemnitors, and, (iii) that it irrevocably waives, relinquishes and releases the Other Indemnitors from any and all claims against the Other Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Other Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Other Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Other Indemnitors are express third party beneficiaries of the terms of this Section 7(c).

(d) Except as provided in paragraph (c) above, in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment

 

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to all of the rights of recovery of Indemnitee (other than against the Other Indemnitors), 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 to enforce such rights.

(e) Except as provided in paragraph (c) above, 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.

(f) Except as provided in paragraph (c) above, the Company’s 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.

8. Exception to Right of Indemnification . Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision, provided that the foregoing shall not affect the rights of Indemnitee or the Other Indemnitors set forth in Section 7(c) above; or

(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law; or

(c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees (but excluding, for the avoidance of doubt, any action brought by Indemnitee against the Company to enforce its rights under this Agreement), unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.

9. Duration of Agreement . All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is a director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter until the date that is three (3) years after the Indemnitee shall cease to be a director of the Company (or is or was serving at the request of the Company as a director, officer, employee or

 

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agent of another corporation, partnership, joint venture, trust or other enterprise), or such later date for so long as Indemnitee is subject to any Proceeding (or any proceeding commenced under Section 6 hereof) by reason of his Corporate Status, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.

10. Security . To the extent requested by Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.

11. Enforcement .

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce Indemnitee to serve as a director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director of the Company.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

(c) The Company shall not seek from a court, or agree to, a “bar order” which would have the effect of prohibiting or limiting the Indemnitee’s rights to receive advancement of expenses under this Agreement.

12. Definitions . For purposes of this Agreement:

(a) “ Corporate Status ” describes the status of a person who is or was a director of the Company or a director, officer, employee, agent or fiduciary of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the express written request of the Company.

(b) “ 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.

(c) “ Enterprise ” shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the express written request of the Company as a director, officer, employee, agent or fiduciary.

 

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(d) “ 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 and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, or responding to, or objecting to, a request to provide discovery in any Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(e) “ 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 (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s 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.

(f) “ 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 or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director of the Company, by reason of any action taken by him or of any inaction on his part while acting as a director 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, agent or fiduciary of another corporation, partnership, joint venture, trust or other Enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 6 of this Agreement to enforce his rights under this Agreement.

13. Severability . The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.

 

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14. Modification and Waiver . No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

15. Notice By Indemnitee . Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.

16. Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (c) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:

(a) To Indemnitee at the address set forth below Indemnitee signature hereto.

(b) To the Company at:

ZP Holdings, Inc.

c/o Zosano Pharma, Inc.

34790 Ardentech Court

Fremont, CA 94555

Attention: Chief Executive Officer

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.

17. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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. Governing Law and Consent to Jurisdiction. 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. The Company

 

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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) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (iv) 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 inconvenient forum.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.

 

ZP HOLDINGS, INC.
By:  

 

  Name:
  Title:
INDEMNITEE

 

Name:
Address:

Signature Page to Indemnification Agreement

Exhibit 10.16

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (this “ Agreement ”) is made and entered into as of [ date ] between ZP Holdings, Inc., a Delaware corporation (the “ Company ”), and [ name ] (“ Indemnitee ”).

WITNESSETH THAT:

WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

WHEREAS, the Board of Directors of the Company (the “ Board ”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The By-laws and the Certificate of Incorporation of the Company require indemnification of the directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (“ DGCL ”). The Certificate of Incorporation and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification;

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

WHEREAS, this Agreement is a supplement to and in furtherance of the By-laws and the Certificate of Incorporation of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee


thereunder;

WHEREAS, Indemnitee does not regard the protection available under the Company’s By-laws and Certificate of Incorporation and insurance as adequate in the present circumstances, and may not be willing to serve as a director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; and

NOW, THEREFORE, in consideration of Indemnitee’s agreement to serve as a director after the date hereof, the parties hereto agree as follows:

1. Indemnity of Indemnitee . The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof:

(a) Proceedings Other Than Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section l(a) if, by reason of his Corporate Status (as hereinafter defined), the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company. Pursuant to this Section 1(a) , Indemnitee shall be indemnified against all Expenses (as hereinafter defined), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful.

(b) Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 1(b) , Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee, or on the Indemnitee’s behalf, in connection with such Proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.

(c) Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably

 

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incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

2. Contribution .

(a) Whether or not the indemnification provided in Section 1 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction or events from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the transaction or events that resulted in such Expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which applicable law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.

(c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers,

 

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directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.

(d) 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; and/or (ii) 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).

3. Indemnification for Expenses of a Witness . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness, or is made (or asked) to respond to discovery requests, in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

4. Advancement of Expenses . Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee’s Corporate Status within thirty (30) 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 a written 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. Any advances and undertakings to repay pursuant to this Section 4 shall be unsecured and interest free.

5. Procedures and Presumptions for Determination of Entitlement to Indemnification . It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the DGCL and public policy of the State of Delaware. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:

(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. Notwithstanding the foregoing, any failure of Indemnitee to provide such a request to the Company, or to provide such a request in a timely fashion, shall not relieve the Company of any liability that it may have to Indemnitee

 

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unless, and to the extent that, such failure actually and materially prejudices the interests of the Company.

(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 5(a) hereof, a determination with respect to Indemnitee’s entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the Board: (1) by a majority vote of the Disinterested Directors, even though less than a quorum, (2) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum, (3) if there are no Disinterested Directors or if the Disinterested Directors so direct, by independent legal counsel in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee, or (4) if so directed by the Board, by the stockholders of the Company. For purposes hereof, “Disinterested Directors” are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought by Indemnitee.

(c) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 5(b) hereof, the Independent Counsel shall be selected as provided in this Section 5(c) . The Independent Counsel shall be selected by the Board. Indemnitee may, within 10 days after such written notice of selection shall have been given, deliver to the Company 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 12 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 5(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 or other court of competent jurisdiction for resolution of any objection which shall have been made by the Indemnitee to the Company’s 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 5(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 5(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 5(c) , regardless of the manner in which such Independent Counsel was selected or appointed.

(d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors or independent 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

 

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Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its 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.

(e) Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise (as hereinafter defined), including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 5(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(f) If the person, persons or entity empowered or selected under Section 5 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 Indemnitee’s 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 such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 5(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 5(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination, the Board or the Disinterested Directors, if appropriate, resolve 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.

(g) Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s 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 Independent Counsel, member of the Board or stockholder of the Company shall act

 

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reasonably and in good faith in making a determination regarding the Indemnitee’s entitlement to indemnification under this Agreement. 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 Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(i) 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.

6. Remedies of Indemnitee .

(a) In the event that (i) a determination is made pursuant to Section 5 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 4 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 5(b) of this Agreement within 90 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to 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 or such determination is deemed to have been made pursuant to Section 5 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitee’s entitlement to such indemnification. Indemnitee shall commence such proceeding seeking an adjudication within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 6(a) . The Company shall not oppose Indemnitee’s right to seek any such adjudication.

(b) In the event that a determination shall have been made pursuant to Section 5(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 6 shall be conducted in all respects as a de novo

 

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trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 5(b) .

(c) If a determination shall have been made pursuant to Section 5(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 6 , absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s misstatement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) In the event that Indemnitee, pursuant to this Section 6 , seeks a judicial adjudication of his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors’ and officers’ liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 12 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery.

(e) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 6 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement. 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 therefore) advance, to the extent not prohibited by law, 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’ and 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.

(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

7. Non-Exclusivity; Survival of Rights; Insurance .

(a) The rights of indemnification 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 By-laws, any agreement, a vote of stockholders, a resolution of directors of the Company 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 his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the DGCL, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Certificate of Incorporation, By-laws and this Agreement, it is the

 

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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 or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of 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 to 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 Company’s 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.

8. Exception to Right of Indemnification . Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or

 

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(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law; or

(c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees (but excluding, for the avoidance of doubt, any action brought by Indemnitee against the Company to enforce its rights under this Agreement), unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.

9. Duration of Agreement . All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is a director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter until the date that is three (3) years after the Indemnitee shall cease to be a director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise), or such later date for so long as Indemnitee is subject to any Proceeding (or any proceeding commenced under Section 6 hereof) by reason of his Corporate Status, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.

10. Security . To the extent requested by Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.

11. Enforcement .

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce Indemnitee to serve as a director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director of the Company.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

 

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(c) The Company shall not seek from a court, or agree to, a “bar order” which would have the effect of prohibiting or limiting the Indemnitee’s rights to receive advancement of expenses under this Agreement.

12. Definitions . For purposes of this Agreement:

(a) “ Corporate Status ” describes the status of a person who is or was a director of the Company or a director, officer, employee, agent or fiduciary of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the express written request of the Company.

(b) “ 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.

(c) “ Enterprise ” shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the express written request of the Company as a director, officer, employee, agent or fiduciary.

(d) “ 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 and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, or responding to, or objecting to, a request to provide discovery in any Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(e) “ 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 (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s 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.

 

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(f) “ 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 or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director of the Company, by reason of any action taken by him or of any inaction on his part while acting as a director 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, agent or fiduciary of another corporation, partnership, joint venture, trust or other Enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 6 of this Agreement to enforce his rights under this Agreement.

13. Severability . The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.

14. Modification and Waiver . No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

15. Notice By Indemnitee . Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.

16. Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (c) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:

(a) To Indemnitee at the address set forth below Indemnitee signature hereto.

(b) To the Company at:

 

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ZP Holdings, Inc.

c/o Zosano Pharma, Inc.

34790 Ardentech Court

Fremont, CA 94555

Attention: Chief Executive Officer

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.

17. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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. Governing Law and Consent to Jurisdiction. 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. 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) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (iv) 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 inconvenient forum.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.

 

ZP HOLDINGS, INC.
By:  

 

  Name:
  Title:
INDEMNITEE

 

Name:
Address:

Signature Page to Indemnification Agreement

Exhibit 10.17

April 30, 2014

Winnie Tso

Dear Winnie:

This letter will confirm the terms and conditions of your employment with Zosano Pharma, Inc., a Delaware corporation (the “ Company ”) and wholly owned subsidiary of ZP Holdings, Inc., a Delaware corporation (“ Parent ”).

1. Position and Duties . Beginning on May 1, 2014 (the “ Start Date ”) and subject to the prior approval of the Board of Directors of Parent (the “ Board ”), the Company will employ you on a full-time basis as its Chief Financial Officer. You will report directly to the Company’s President and Chief Executive Officer. You agree to perform the duties of your position and such other duties as may reasonably be assigned to you from time to time by the Company’s President and Chief Executive Officer. You also agree that, while employed by the Company, you will devote your full business time and your best efforts, business judgment, skill and knowledge to the advancement of the business and interests of the Company and its Affiliates (as defined in Section 5) and to the discharge of your duties and responsibilities for them. The principal location of your employment will be at the Company’s offices in Fremont, California.

2. Compensation and Benefits . During your employment, as compensation for the services performed by you for the Company and its Affiliates, the Company will provide you the following pay and benefits:

(a) Base Salary . The Company will pay you a base salary at the rate of $235,000 per year, payable in accordance with the regular payroll practices of the Company and subject to increase from time to time in accordance with salary reviews of senior executives as established by the Company.

(b) Bonus Compensation . During employment, you will be considered annually for a bonus target of 30% of your base salary. The amount of any bonus awarded will be determined by the Board in its discretion, based on your individual performance review and the performance of the Company against goals established annually by the Compensation Committee of the Board, as well as the then prevailing cash position of the Company.

(c) Stock Options . Subject to the approval of the Board, you will be granted, under Parent’s 2012 Stock Incentive Plan, an incentive stock option to purchase 149,433 shares of common stock, $0.0001 par value per share, of Parent (“ Common Stock ”) representing approximately 0.66% of the shares of Common Stock currently outstanding (treating for this


purpose all shares of Common Stock issuable upon exercise of or conversion of outstanding options, warrants or convertible securities, as if exercised, converted or exchanged). Such stock option shall (A) have an exercise price per share equal to the fair market value per share of Common Stock on the date of the grant, as determined by the Board, and (B) be subject to vesting requirements such that 25% of the total option shares shall vest on the first anniversary of the Start Date and an additional 2.0833% of the total option shares shall vest thereafter on the monthly anniversary of such date.

(d) Participation in Employee Benefit Plans . You shall be entitled to participate in any and all employee benefit plans from time to time in effect for full-time executive level employees of the Company, including but not limited to, medical, dental and vision insurance, life insurance and the 401(k) plan maintained by the Company. Such participation shall be subject to (i) the terms of the applicable plan documents and (ii) generally applicable Company policies. The Company may alter, modify, add to or delete its employee benefit plans at any time as it, in its sole discretion, determines to be appropriate.

(e) Vacations . You will be entitled to three weeks of paid vacation per year, in addition to holidays observed by the Company. Vacation may be taken at such times and intervals as you shall determine, subject to the reasonable business needs of the Company.

(f) Business Expenses . The Company will pay or reimburse you for all reasonable 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 it may specify from time to time.

3. Confidential Information and Restricted Activities.

(a) Confidential Information . During the course of your employment with the Company, you will learn of Confidential Information (as defined in Section 5), and you may develop Confidential Information on behalf of the Company. You agree that you will not use or disclose to any Person (as defined in Section 5) any Confidential Information obtained by you incident to your employment or any other association with the Company or any of its Affiliates, except as required by applicable law or for the proper performance of your regular duties and responsibilities for the Company. You understand that this restriction shall continue to apply for three (3) years after your employment terminates, regardless of the reason for such termination. In addition, you agree to sign the Company’s standard form of invention assignment agreement as a condition of your employment hereunder.

(b) Protection of Documents . All documents, records and files, in any media of whatever kind and description, relating to the business, present or otherwise, of the Company or any of its Affiliates, and any copies, in whole or in part, thereof (the “ Documents ”), whether or not prepared by you, shall be the sole and exclusive property of the Company. You agree to safeguard all Documents and to surrender to the Company, at the time your employment terminates or at such earlier time or times as the President and Chief Executive Officer may specify, all Documents then in your possession or control.

 

2


(c) Non-Solicitation . You acknowledge that in your employment with the Company you will have access to Confidential Information which, if disclosed, would assist in competition against the Company and its Affiliates, and that you will also generate good will for the Company and its Affiliates in the course of your employment. Therefore, you agree that the following restrictions on your activities during and after the termination of your employment are necessary to protect the good will, Confidential Information and other legitimate interests of the Company and its Affiliates: While you are employed by the Company and during the 12 months immediately following termination of your employment for whatever reason, you shall not, directly or through any other Person, (A) seek to persuade any employee of the Company or any of its Affiliates to discontinue employment or (B) solicit or encourage any customer, distributor, vendor, or other business partner of the Company or any of its Affiliates or any independent contractor providing services to the Company or any of its Affiliates to terminate or diminish its relationship with them. For purposes of the foregoing, the terms “ employee ,” “ customer ,” “ distributor ,” and “ vendor ” shall also include any person or party who held such status during the immediately preceding six (6) months.

(d) Enforcement of Restrictions . In signing this letter agreement, you give the Company assurance that you have carefully read and considered all the terms and conditions of this letter agreement, including the restraints imposed on you under this Section 3. You agree without reservation that these restraints are necessary for the reasonable and proper protection of the Company and its Affiliates, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. You further agree that, were you to breach any of the covenants contained in this Section 3, the damage to the Company and its Affiliates would be irreparable. You therefore agree that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by you of any of those covenants, without having to post bond. You also agree that the period of restriction in Section 3(c) shall be tolled and shall not run during any period you are in violation thereof. You and the Company further agree that, in the event that any provision of this Section 3 is determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, that provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law. It is also agreed that each of the Company’s Affiliates shall have the right to enforce all of your obligations to that Affiliate under this letter agreement, including without limitation pursuant to this Section 3. It is agreed and understood that the terms of this letter agreement are severable, and that no breach of any provision of this letter agreement or any other purported violation of law by the Company shall operate to excuse you from the performance of your obligations under this Section 3.

4. Termination of Employment . Your employment under this letter agreement shall continue for no definite term until terminated pursuant to this Section 4.

(a) At-Will Employment. Your employment with the Company is considered at will. Either you or the Company may terminate your employment with the Company for any reason upon two (2) weeks’ written notice to the other.

(b) Effect of Termination . In the event of termination of your employment, the Company will pay you any base salary and bonus compensation earned but not paid through

 

3


the date of termination and pay for any vacation time accrued but not used to that date. Except for any right you may have under the federal law known as “COBRA” to continue participation in the Company’s group health and dental plans at your cost, benefits shall terminate in accordance with the terms of the applicable benefit plans based on the date of termination of your employment.

(c) Survival of Certain Provisions . Provisions of this letter agreement shall survive any termination if so provided in this letter agreement or if necessary or desirable to accomplish the purposes of other surviving provisions, including without limitation your obligations under Section 3 of this letter agreement. Upon termination by either you or the Company, all rights, duties and obligations of you and the Company to each other shall cease, except as otherwise expressly provided in this letter agreement.

5. Definitions . For purposes of this letter agreement, the following definitions apply:

(a) “ Affiliates ” means all persons and entities directly or indirectly controlling, controlled by or under common control with the Company, where control may be by management authority, equity interest or otherwise.

(b) “ Confidential Information ” means any and all information of the Company and its Affiliates that is not generally available to the public. Confidential Information also includes any information received by the Company or any of its Affiliates from any Person with any understanding, express or implied, that it will not be disclosed. Confidential Information does not include information that enters the public domain, other than through your breach of your obligations under this letter agreement.

(c) “ Person ” means an individual, a corporation, a limited liability company, an association, a partnership, an estate, a trust or any other entity or organization, other than the Company or any of its Affiliates.

6. Conflicting Agreements . You hereby represent and warrant that your signing of this letter agreement and the performance of your obligations under it will not breach or be in conflict with any other agreement to which you are a party or are bound, and that you are not now subject to any covenants against competition or similar covenants or any court orders that could affect the performance of your obligations under this letter agreement. You agree that you will not disclose to or use on behalf of the Company any proprietary information of a third party without that party’s consent.

7. Withholding. All payments made by the Company under this letter agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law.

8. Assignment. Neither you, the Company nor Parent may make any assignment of this letter agreement or any interest in it, by operation of law or otherwise, without the prior written consent of the other parties; provided, however , that each of the Company and Parent may assign its rights and obligations under this letter agreement without your consent to one of its Affiliates or to any Person with whom it shall hereafter effect a reorganization, consolidate

 

4


with, or merge into or to whom it transfers all or substantially all of its properties or assets. This letter agreement shall inure to the benefit of and be binding upon you, the Company and Parent, and each of our respective successors, executors, administrators, heirs and permitted assigns.

9. Severability. If any portion or provision of this letter agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this letter agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this letter agreement shall be valid and enforceable to the fullest extent permitted by law.

10. Miscellaneous. This letter agreement sets forth the entire agreement between you and the Company and replaces all prior and contemporaneous communications, agreements and understandings, written or oral, with respect to the terms and conditions of your employment with the Company. This letter agreement may not be modified or amended, and no breach shall be deemed to be waived, unless agreed to in writing by you, a duly authorized officer of the Company and a duly authorized officer of Parent. The headings and captions in this letter agreement are for convenience only and in no way define or describe the scope or content of any provision of this letter agreement. The words “ include ,” “ includes ” and “ including ” when used herein shall be deemed in each case to be followed by the words “without limitation.” This letter agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. This is a California contract and shall be governed and construed in accordance with the laws of the State of California, without regard to the conflict of laws principles thereof.

11. Notices . Any notices provided for in this letter agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to you at your last known address on the books of the Company or, in the case of the Company, to it at its principal place of business, attention of the President and Chief Executive Officer, or to such other address as either party may specify by notice to the other party actually received.

[ Signature page follows ]

 

5


At the time this letter agreement is signed by you and on behalf of the Company and Parent, it will take effect as a binding agreement among you, the Company and Parent on the basis set forth above.

 

ZOSANO PHARMA, INC.     EMPLOYEE:  
By:  

/s/ Vikram Lamba

   

/s/ Winnie Tso

  Name:   Vikram Lamba     Winnie Tso
  Title:   President and Chief Executive Officer      
Date signed:  

04/30/14

    Date signed:  

4/30/2014

ZP HOLDINGS, INC.      
By:  

/s/ Vikram Lamba

     
  Name:   Vikram Lamba      
  Title:   President and Chief Executive Officer      
Date signed:  

04/30/14

     

Exhibit 10.18

[ZP LETTERHEAD]

January 31, 2014

Mr. Nandan Oza

 

  Re: Amendment to Employment Agreement

Dear Nandan:

This letter agreement (this “ Amendment ”) amends certain provisions of the amended and restated employment letter agreement among you, Zosano Pharma, Inc., a Delaware corporation (the “ Company ”), and ZP Holdings, Inc., a Delaware corporation and the Company’s parent (“ Parent ”), dated July 22, 2013 (the “ Agreement ”).

1. Level of Effort . You have requested that your committed level of effort be reduced from full-time to half-time. Therefore, notwithstanding Sections 1 and 2 of the Agreement, effective February 1, 2014 (i) you will be employed on a part-time basis and will work approximately a half-time schedule; (ii) your annual base salary will be $180,000; and (iii) you will be entitled to one and one-half weeks (7.5 business days) of paid vacation per year. Your benefits as described in Sections 2(b), (c), (d) and (f) of the Agreement will remain unchanged.

2. Change in Control . The Agreement contemplates certain benefits to you in the event of a termination of your employment under certain circumstances following a Change in Control, which is defined in the Agreement to include various business combinations involving the Company or Parent. The parties desire to amend the definition of “Change in Control” to include a stock sale involving the Company or Parent. Accordingly, the parties agree that the Agreement is hereby amended to delete Section 6(b) thereof in its entirety, and to insert the following in its place:

“(b) “ Change in Control ” means (A) the sale, lease, exchange, transfer or other disposition of all or substantially all of the assets of the Company and its Affiliates, or (B) any merger, consolidation or other business combination or stock sale (other than a sale of stock for capital raising purposes) that results in the holders of the outstanding voting securities of the Company or Parent immediately prior to such transaction beneficially owning or controlling immediately after such transaction less than a majority of the voting securities of the Company or Parent, respectively, or the surviving entity or the entity that controls such surviving entity.”

Except as expressly amended by this Amendment, the Agreement remains in full force and affect and otherwise unchanged. The Agreement shall, together with this


Amendment, be read and construed as a single document. This Amendment may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. This Amendment shall be governed and construed in accordance with the laws of the State of California, without regard to the conflict of laws principles thereof.

Please indicate your agreement to the Amendment by signing below and returning a copy of this letter to the Company at your earliest convenience.

 

Very truly yours,
ZOSANO PHARMA, INC.
By:  

/s/ Vikram Lamba

  Name:   Vikram Lamba
  Title:   President and CEO
ZP HOLDINGS, INC.
By:  

/s/ Vikram Lamba

  Name:   Vikram Lamba
  Title:   President and CEO

 

Acknowledged and agreed by:

/s/ Nandan Oza

Nandan Oza

 

2

Exhibit 10.19

July 22, 2013

Mr. Nandan Oza

582 Carlisle Way

Sunnyvale, California 94087

Dear Nandan:

This letter amends and restates the terms and conditions of your employment with Zosano Pharma, Inc., a Delaware corporation (the “ Company ”) and wholly owned subsidiary of ZP Holdings, Inc., a Delaware corporation (“ Parent ”). This letter expressly supersedes the prior letter agreement among the Company, Parent and you dated as of April 3, 2013 (the “ Original Agreement ”) pursuant to which you commenced working as Chief Operations Officer of the Company on May 13, 2013 (the “ Start Date ”).

1. Position and Duties . The Company hereby continued to employ you on a full-time basis as its Chief Operations Officer. You will report directly to the Company’s President and Chief Executive Officer. You agree to perform the duties of your position and such other duties as may reasonably be assigned to you from time to time by the Company’s President and Chief Executive Officer. You also agree that, while employed by the Company, you will devote your full business time and your best efforts, business judgment, skill and knowledge to the advancement of the business and interests of the Company and its Affiliates (as defined in Section 6) and to the discharge of your duties and responsibilities for them.

2. Compensation and Benefits . During your employment, as compensation for the services performed by you for the Company and its Affiliates, the Company will provide you the following pay and benefits:

(a) Base Salary . The Company will pay you a base salary at the rate of $250,000 per year, payable in accordance with the regular payroll practices of the Company and subject to increase from time to time in accordance with salary reviews of senior executives as established by the Company.

(b) Bonus Compensation . During employment, you will be considered annually for a bonus target of 30% of your base salary. The amount of any bonus awarded, whether in cash or stock, will be determined by the Board of Directors of Parent (the “ Board ”) in its discretion, based on your individual performance review and the performance of the Company against goals established annually by the Compensation Committee of the Board, as well as the then prevailing cash position of the Company.

(c) Stock Options . On May 24, 2013, the Board granted you an incentive stock option to purchase 169,810 shares of common stock, $0.0001 par value per share, of Parent (“ Common Stock ”) under Parent’s 2012 Stock Incentive Plan, which stock option has an exercise price of $0.35 per share. Such stock option is subject to vesting requirements such that 25% of the total option shares shall vest on the first anniversary of the Start Date and an additional 2.0833% of the total option shares shall vest thereafter on the monthly anniversary of such date. Notwithstanding the foregoing, (i) upon termination of your employment pursuant to


the last sentence of Section 4(a) or the last sentence of Section 4(b) of this Agreement, the lesser of 12.5% of the total option shares or the number of then unvested option shares shall vest automatically, and (ii) 100% of any then unvested option shares shall vest upon a Constructive Termination Event (as defined in Section 5(b)).

(d) Participation in Employee Benefit Plans . You shall be entitled to participate in any and all employee benefit plans from time to time in effect for full-time employees of the Company generally, but the Company shall not be required to establish any such program or plan. Such participation shall be subject to (i) the terms of the applicable plan documents and (ii) generally applicable Company policies. The Company may alter, modify, add to or delete its employee benefit plans at any time as it, in its sole discretion, determines to be appropriate.

(e) Vacations . You will be entitled to three weeks of paid vacation per year, in addition to holidays observed by the Company. Vacation may be taken at such times and intervals as you shall determine, subject to the reasonable business needs of the Company.

(f) Business Expenses . The Company will pay or reimburse you for all reasonable 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 it may specify from time to time.

3. Confidential Information and Restricted Activities.

(a) Confidential Information . During the course of your employment with the Company, you will learn of Confidential Information (as defined in Section 6), and you may develop Confidential Information on behalf of the Company. You agree that you will not use or disclose to any Person (as defined in Section 6) any Confidential Information obtained by you incident to your employment or any other association with the Company or any of its Affiliates, except as required by applicable law or for the proper performance of your regular duties and responsibilities for the Company. You understand that this restriction shall continue to apply for three (3) years after your employment terminates, regardless of the reason for such termination. In addition, you agree to sign the Company’s standard form of invention assignment agreement as a condition of your employment hereunder.

(b) Protection of Documents . All documents, records and files, in any media of whatever kind and description, relating to the business, present or otherwise, of the Company or any of its Affiliates, and any copies, in whole or in part, thereof (the “ Documents ”), whether or not prepared by you, shall be the sole and exclusive property of the Company. You agree to safeguard all Documents and to surrender to the Company, at the time your employment terminates or at such earlier time or times as the President and Chief Executive Officer may specify, all Documents then in your possession or control.

(c) Non-Solicitation . You acknowledge that in your employment with the Company you will have access to Confidential Information which, if disclosed, would assist in competition against the Company and its Affiliates, and that you will also generate good will for


the Company and its Affiliates in the course of your employment. Therefore, you agree that the following restrictions on your activities during and after the termination of your employment are necessary to protect the good will, Confidential Information and other legitimate interests of the Company and its Affiliates: While you are employed by the Company and during the 12 months immediately following termination of your employment for whatever reason, you shall not, directly or through any other Person, (A) seek to persuade any employee of the Company or any of its Affiliates to discontinue employment or (B) solicit or encourage any customer, distributor, vendor, or other business partner of the Company or any of its Affiliates or any independent contractor providing services to the Company or any of its Affiliates to terminate or diminish its relationship with them. For purposes of the foregoing, the terms “ employee ,” “ customer ,” “ distributor ,” and “ vendor ” shall also include any person or party who held such status during the immediately preceding six (6) months.

(d) Enforcement of Restrictions . In signing this letter agreement, you give the Company assurance that you have carefully read and considered all the terms and conditions of this letter agreement, including the restraints imposed on you under this Section 3. You agree without reservation that these restraints are necessary for the reasonable and proper protection of the Company and its Affiliates, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. You further agree that, were you to breach any of the covenants contained in this Section 3, the damage to the Company and its Affiliates would be irreparable. You therefore agree that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by you of any of those covenants, without having to post bond. You also agree that the period of restriction in Section 3(c) shall be tolled and shall not run during any period you are in violation thereof. You and the Company further agree that, in the event that any provision of this Section 3 is determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, that provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law. It is also agreed that each of the Company’s Affiliates shall have the right to enforce all of your obligations to that Affiliate under this letter agreement, including without limitation pursuant to this Section 3. It is agreed and understood that the terms of this letter agreement are severable, and that no breach of any provision of this letter agreement or any other purported violation of law by the Company shall operate to excuse you from the performance of your obligations under this Section 3.

4. Termination of Employment . Your employment with the Company is considered at will. Either you or the Company may terminate your employment with the Company for any reason upon written notice to the other, as set forth below in this Section 4.

(a) Termination by the Company. The Company may terminate your employment for Cause upon notice to you setting forth in reasonable detail the nature of the Cause (as defined below). The following, as determined by the Company in its reasonable judgment with the approval of the Board, shall constitute “ Cause ” for termination: (i) your persistent and willful refusal to follow reasonable directives of the President and Chief Executive Officer; (ii) gross negligence or willful misconduct in the performance of your duties and responsibilities to the Company or any of its Affiliates; (iii) your material breach of this letter agreement or any other agreement between you and the Company or any of its Affiliates, which


breach continues for more than 15 days after the Company gives you written notice which sets forth in reasonable detail the nature of such breach; or (iv) other conduct by you that is or could reasonably anticipated to be materially harmful to the business, interests or reputation of the Company or any of its Affiliates. The Company also may terminate your employment other than for Cause upon written notice to you.

(b) Termination for Good Reason. You may terminate your employment for Good Reason (as defined below) upon written notice to the Company setting forth in reasonable detail the nature of the Good Reason. The following shall constitute “ Good Reason ” for termination: (i) the Company’s failure to continue you in the position of Chief Operations Officer with such duties typically associated with such position, or (ii) material failure of the Company to provide you compensation and benefits in accordance with the terms of Section 2, above, for more than ten (10) business days after notice from you specifying in reasonable detail the nature of such failure, except in connection with a decrease in salary affecting each senior management employee of the Company in a proportionate manner, or (iii) relocation of your principal place of employment to a location more than thirty (30) miles from the San Francisco Bay area, California, except for travel reasonably required of you on Company business. You may also terminate your employment other than for Good Reason upon 30 days’ written notice to the Company.

(c) Disability. In the event you become disabled during employment and, as a result, are unable to continue to perform substantially all of your duties and responsibilities under this letter agreement, either with or without reasonable accommodation, the Company will continue to pay you your base salary and to provide you benefits in accordance with Section 2(d) above, to the extent permitted by plan terms, for up to twelve (12) weeks of disability during any period of three hundred and sixty-five (365) consecutive calendar days. If you are unable to return to work after twelve (12) weeks of disability, the Company may terminate your employment, upon notice to you. If any question shall arise as to whether you are disabled to the extent that you are unable to perform substantially all of your duties and responsibilities for the Company and its Affiliates, you shall, at the Company’s request, submit to a medical examination by a physician selected by the Company to whom you or your guardian, if any, has no reasonable objection to determine whether you are so disabled, and such determination shall for the purposes of this letter agreement be conclusive of the issue. If such a question arises and you fail to submit to the requested medical examination, the Company’s determination of the issue shall be binding on you.

5. Severance Payments and Other Matters Related to Termination.

(a) Termination without Cause or Voluntary Termination for Good Reason . In the event of termination of your employment by the Company other than for Cause, or voluntary termination of your employment by you for Good Reason, the Company will (i) continue to pay you your base salary for a period of six (6) months from and after the date of termination, (ii) pay you an amount equal to the lesser of (x) the target bonus of 30% of your base salary pro-rated for such six (6) months or (y) the amount of the annual bonus awarded to you in respect of the prior year pro-rated for six (6) months, such bonus severance to be paid in equal installments during the six (6)-month period following the date of termination, and (iii) continue to provide you with group health and dental plan benefits for a period of six (6) months


from and after the date of termination, with the cost of the regular premiums for such benefits shared in the same relative proportion by the Company and you as in effect on the date of termination. The Company will also pay you on the date of termination any base salary and bonus compensation earned but not paid through the date of termination, and pay for any vacation time accrued but not used to that date. In addition, as provided in Section 2(c), the vesting schedule for any stock options outstanding on the date of termination will automatically accelerate so that the lesser of 12.5% of the total option shares or the number of then unvested option shares shall immediately vest and become exercisable upon such termination. Except as set forth in clause (iii) of the first sentence of this Section 5(a), benefits shall terminate in accordance with the terms of the applicable benefit plans based on the date of termination of your employment.

(b) Termination without Cause or Voluntary Termination for Good Reason after Change in Control. In the event of termination of your employment by the Company (or its successor), other than for Cause, or voluntary termination of your employment by you for Good Reason, in either case during the one (1)-year period following a Change in Control (a “ Constructive Termination Event ”), the Company (or its successor) will, in lieu of any severance under Section 5(a) above, (i) continue to pay you your base salary for a period of six (6) months from and after the date of termination, (ii) pay you an amount equal to the lesser of (x) the target bonus of 30% of your base salary pro-rated for such six (6) months or (y) the amount of the annual bonus awarded to you in respect of the prior year pro-rated for six (6) months, such bonus severance to be paid in equal installments during the six (6)-month period following the date of termination, and (iii) continue to provide you with group health and dental plan benefits for a period of six (6) months from and after the date of termination, with the cost of all regular premiums for such benefits paid by the Company. The Company will also pay you on the date of termination any base salary and bonus compensation earned but not paid through the date of termination, and pay for any vacation time accrued but not used to that date. In addition, as provided in Section 2(c), the vesting schedule for any stock options outstanding on the date of termination will automatically accelerate so that 100% of any then unvested option shares shall immediately vest and become exercisable upon such termination. Except as set forth in clause (iii) of the first sentence of this Section 5(b), benefits shall terminate in accordance with the terms of the applicable benefit plans based on the date of termination of your employment.

(c) Severance Conditional Upon Release . Any obligation of the Company to provide you severance payments under Sections 5(a) and 5(b) above shall be conditioned upon your signing a general release of claims in the form provided by the Company (the “ Employee Release ”) within twenty-one (21) days after the date on which you give or receive, as applicable, notice of termination of your employment and upon your not revoking the Employee Release thereafter. All base salary and bonus severance payments will be payable in accordance with the normal payroll practices of the Company, and will begin at the Company’s next regular payroll period following the effective date of the Employee Release, but shall be retroactive to the date of termination. For the avoidance of doubt, no cash compensation that may be earned by you pursuant to employment or a consulting arrangement with a Person other than the Company during the period of time that the Company (or its successor) is making payments to you pursuant to this Section 5 shall be credited toward the Company’s severance obligations under this Section 5. Notwithstanding anything to the contrary contained in this letter agreement, in the event that at the time of your separation from service you are a “specified employee,” as


hereinafter defined, any and all amounts payable under this Section 5 in connection with such separation from service that constitute deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (“ Section 409A ”), as determined by the Company in its sole discretion, and that would (but for this sentence) be payable within six (6) months following such separation from service, shall instead be paid on the date that follows the date of such separation from service by six (6) months. For purposes of the preceding sentence, “ separation from service ” shall be determined in a manner consistent with subsection (a)(2)(A)(i) of Section 409A and the term “ specified employee ” shall mean an individual determined by the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of Section 409A.

(d) Termination for Cause or Voluntary Termination without Good Reason . In the event of termination of your employment by the Company for Cause or voluntary termination of your employment by you without Good Reason, the Company will pay you any base salary and bonus compensation earned but not paid through the date of termination and pay for any vacation time accrued but not used to that date. The Company shall have no obligation to you for any severance payments. Except for any right you may have under the federal law known as “COBRA” to continue participation in the Company’s group health and dental plans at your cost, benefits shall terminate in accordance with the terms of the applicable benefit plans based on the date of termination of your employment.

(e) Section 280G. If any payments or benefits made in respect of Section 5(b) above become subject to the excise tax described in Section 4999 of the Internal Revenue Code of 1986, as amended (“Section 4999”) (or any successor to such section), and exceed the safe harbor amount as provided in Section 280G of the Internal Revenue Code of 1986, as amended (“ Section 280G ”), then the Company shall use commercially reasonable efforts to obtain stockholder approval contemplated by Section 280G, which would permit you to lawfully avoid the excise tax imposed by Section 4999.

(f) Survival of Certain Provisions . Provisions of this letter agreement shall survive any termination if so provided in this letter agreement or if necessary or desirable to accomplish the purposes of other surviving provisions, including without limitation your obligations under Section 3 of this letter agreement. The obligation of the Company to make payments to you under this Section 5, and your right to retain such payments, are expressly conditioned upon your continued full performance of your obligations under Section 3 hereof. Upon termination by either you or the Company, all rights, duties and obligations of you and the Company to each other shall cease, except as otherwise expressly provided in this letter agreement.

6. Definitions. For purposes of this letter agreement, the following definitions apply:

(a) “ Affiliates ” means all persons and entities directly or indirectly controlling, controlled by or under common control with the Company, where control may be by management authority, equity interest or otherwise.

(b) “ Change in Control ” means (A) the sale, lease, exchange, transfer or other disposition of all or substantially all of the assets of the Company and its Affiliates, or (B) any


merger, consolidation or other business combination that results in the holders of the outstanding voting securities of the Company or Parent immediately prior to such transaction beneficially owning or controlling less than a majority of the voting securities of the surviving entity immediately thereafter.

(c) “ Confidential Information ” means any and all information of the Company and its Affiliates that is not generally available to the public. Confidential Information also includes any information received by the Company or any of its Affiliates from any Person with any understanding, express or implied, that it will not be disclosed. Confidential Information does not include information that enters the public domain, other than through your breach of your obligations under this letter agreement.

(d) “ Person ” means an individual, a corporation, a limited liability company, an association, a partnership, an estate, a trust or any other entity or organization, other than the Company or any of its Affiliates.

7. Conflicting Agreements . You hereby represent and warrant that your signing of this letter agreement and the performance of your obligations under it will not breach or be in conflict with any other agreement to which you are a party or are bound, and that you are not now subject to any covenants against competition or similar covenants or any court orders that could affect the performance of your obligations under this letter agreement. You agree that you will not disclose to or use on behalf of the Company any proprietary information of a third party without that party’s consent.

8. Withholding. All payments made by the Company under this letter agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law.

9. Assignment. Neither you, the Company nor Parent may make any assignment of this letter agreement or any interest in it, by operation of law or otherwise, without the prior written consent of the other parties; provided, however , that each of the Company and Parent may assign its rights and obligations under this letter agreement without your consent to one of its Affiliates or to any Person with whom it shall hereafter effect a reorganization, consolidate with, or merge into or to whom it transfers all or substantially all of its properties or assets. This letter agreement shall inure to the benefit of and be binding upon you, the Company and Parent, and each of our respective successors, executors, administrators, heirs and permitted assigns.

10. Severability. If any portion or provision of this letter agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this letter agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this letter agreement shall be valid and enforceable to the fullest extent permitted by law.

11. Miscellaneous. This letter agreement sets forth the entire agreement between you and the Company and replaces all prior and contemporaneous communications, agreements and understandings, written or oral, including the Original Agreement, with respect to the terms and


conditions of your employment with the Company. This letter agreement may not be modified or amended, and no breach shall be deemed to be waived, unless agreed to in writing by you, a duly authorized officer of the Company and a duly authorized officer of Parent. The headings and captions in this letter agreement are for convenience only and in no way define or describe the scope or content of any provision of this letter agreement. The words “ include ,” “ includes ” and “ including ” when used herein shall be deemed in each case to be followed by the words “without limitation.” This letter agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. This is a California contract and shall be governed and construed in accordance with the laws of the State of California, without regard to the conflict of laws principles thereof.

12. Notices. Any notices provided for in this letter agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to you at your last known address on the books of the Company or, in the case of the Company or Parent, to it at its principal place of business, attention of the President and Chief Executive Officer, or to such other address as either party may specify by notice to the other party actually received.

At the time this letter agreement is signed by you and on behalf of the Company and Parent, it will take effect as a binding agreement among you, the Company and Parent on the basis set forth above.

 

ZOSANO PHARMA, INC.     EMPLOYEE:
By:  

/s/ Vikram Lamba

   

/s/ Nandan Oza

  Name:   Vikram Lamba     Nandan Oza
  Title:   President and Chief Executive Officer      
Date signed:  

7/23/13

    Date signed:  

7/24/2013

ZP HOLDINGS, INC.      
By:  

/s/ Vikram Lamba

     
  Name:   Vikram Lamba      
  Title:   President and Chief Executive Officer      
Date signed:  

7/23/13

     

Exhibit 10.20

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT is made and dated as of June 3, 2014, and is entered into by and between Zosano Pharma, Inc., a Delaware corporation (“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 Four Million Dollars ($4,000,000) (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 perfects Lender’s security interest in the subject account or accounts.

“ACH Authorization” means the ACH Debit Authorization Agreement in substantially the form of Exhibit I.

“Advance(s)” means a Term Loan 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.

“Affiliate” means (a) any Person that directly or indirectly controls, is controlled by, or is under common control with the Person in question, (b) any Person directly or indirectly owning, controlling or holding with power to vote ten percent (10%) or more of the outstanding voting securities of another Person, and (c) any Person ten percent (10%) or more of whose outstanding voting securities are directly or indirectly owned, controlled or held by another Person with power to vote such securities, or (d) any Person related by blood or marriage to any Person described in subsection (a), (b) or (c) of this paragraph. For the avoidance of doubt, ZP

 

Zosano Pharma, Inc. LSA


Group LLC, a limited liability company organized under the laws of the State of Delaware, shall not be deemed an Affiliate. As used in the definition of “Affiliate,” the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

“Agreement” means this Loan and Security Agreement, as amended from time to time.

“Assignee” has the meaning given to it in Section 11.13.

“BMR” means Biomed Realty Holdings, Inc., a Maryland corporation.

“BMV” means BMV Direct SOTRS LP, a Delaware limited partnership.

“BMR Agreements” means that certain Secured Promissory Note, Security Agreement and the Intellectual Property Security Agreement, all dated as of April 26, 2012, between ZP Holdings, Inc. and BMR, which agreements have been assigned to BMV.

“BMR Subordination Agreement” means that certain Subordination Agreement dated as of the Closing Date by and among Borrower, ZP Holdings, Lender and BMR and BMV.

“Borrower Products” means all products, software, service offerings, technical data or technology currently being designed, manufactured or sold by Borrower or which Borrower intends to sell, license, or distribute in the future including any products or service offerings under development, collectively, together with all products, software, service offerings, technical data or technology that have been sold, licensed or distributed by Borrower since its incorporation.

“Business Day” means any day other than Saturday, Sunday and any other day on which banking institutions in the State of California are closed for business.

“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 ZP Holdings or Borrower or any Subsidiary, sale or exchange of outstanding shares (or similar transaction or series of related transactions) of ZP Holdings or Borrower or any Subsidiary in which the holders of ZP Holding’s, Borrower’s or Subsidiary’s outstanding shares immediately before consummation of such transaction or series of related transactions 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 ZP Holdings or Borrower is the surviving entity (each of the foregoing transactions, an “Acquisition”); provided, however, neither of the following three events shall constitute a Change in Control: (i) an Initial Public Offering, (ii) the sale of Common Stock or Preferred Stock by ZP Holdings or Borrower for capital-raising purposes, or (iii) a transaction or series of related transactions that would constitute an

 

Zosano Pharma, Inc. LSA


Acquisition but in which no person or group of persons (within the meaning of the Securities Exchange Act of 1934) that are not currently stockholders of ZP Holdings shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934,) of 30% or more of the issued and outstanding shares of capital stock of ZP Holdings or Borrower having the right to vote for the election of directors of ZP Holdings or Borrower.

“Claims” has the meaning given to it in Section 11.10.

“Closing Date” means the date of this Agreement.

“Collateral” is defined in Section 3.1.

“Commitment Fee” means $25,000, which fee is due to Lender on or 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, lease, dividend, letter of credit or other obligation of another, including any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

“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.

 

Zosano Pharma, Inc. LSA


“Domestic Subsidiary” means any Subsidiary that is not a Foreign Subsidiary.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

“Event of Default” has the meaning given to it in Section 9.

“Facility Charge” means $100,000.

“Financial Statements” has the meaning given to it in Section 7.1.

“Foreign Subsidiary” means any Subsidiary other than a Subsidiary organized under the laws of any state within the United States.

“GAAP” means generally accepted accounting principles in the United States of America, as in effect from time to time.

“Indebtedness” means indebtedness of any kind, including (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 sixty (60) 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.

“Initial Public Offering” means the initial firm commitment underwritten offering of the common stock of Borrower or ZP Holdings pursuant to a registration statement under the Securities Act of 1933 filed with and declared effective by the Securities and Exchange Commission.

“Intellectual Property” means all of Borrower’s Copyrights; Trademarks; Patents; Licenses; trade secrets and inventions; mask works; applications therefor and reissues, extensions, or renewals thereof; and goodwill associated with any of the foregoing, together with Borrower’s rights to sue for past, present and future infringement of Intellectual Property and the goodwill associated therewith.

“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 a Foreign Subsidiary, a completed and executed Joinder Agreement in substantially the form attached hereto as Exhibit G, and for ZP Holdings, a completed and executed Joinder Agreement in substantially the form attached hereto as Exhibit H.

“Lender” has the meaning given to it in the preamble to this Agreement.

 

Zosano Pharma, Inc. LSA


“License” means any Copyright License, Patent License, Trademark License or other license of rights or interests.

“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.

“Loan Documents” means this Agreement, the Notes (if any), the ACH Authorization, the Account Control Agreements, the Joinder Agreements, all UCC Financing Statements, the Subordination Agreements and any other documents executed in connection with the Secured Obligations or the transactions contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated.

“Material Adverse Effect” means a material adverse effect upon: (i) the business, operations, properties, assets, or condition (financial or otherwise) of Borrower; or (ii) the ability of Borrower to perform the Secured Obligations in accordance with the terms of the Loan Documents and Warrant, or the ability of Lender to enforce any of its rights or remedies with respect to the Secured Obligations; or (iii) the Collateral or Lender’s Liens on the Collateral or the priority of such Liens.

“Maximum Term Loan Amount” means Four Million and No/100 Dollars ($4,000,000).

“Maximum Rate” shall have the meaning assigned to such term in Section 2.3.

“Note(s)” means a Term Note.

“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 in favor of Lender arising under this Agreement or any other Loan Document; (ii) Indebtedness existing on the Closing Date which is disclosed in Schedule 1A; (iii) Indebtedness of up to $200,000 outstanding at any time secured by a lien described in clause (vii) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed the lesser of the cost or fair market value of the Equipment financed with such Indebtedness; (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

 

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that are secured by cash or cash equivalents and issued on behalf of Borrower or a Subsidiary thereof in an amount not to exceed $200,000 at any time outstanding, (viii) other Indebtedness in an amount not to exceed $100,000 at any time outstanding, and (ix) 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 one year from the date of acquisition thereof, (b) commercial paper maturing no more than one year from the date of creation thereof and currently having a rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (c) certificates of deposit issued by any bank with assets of at least $500,000,000 maturing no more than one year from the date of investment therein, and (d) money market accounts; (iii) repurchases of stock from former employees, directors, or consultants of Borrower under the terms of applicable repurchase agreements at the original issuance price of such securities 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 Borrower’s 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 Borrower’s Board of Directors; (viii) Investments consisting of travel advances in the ordinary course of business; (ix) Investments in Domestic Subsidiaries, provided that each such Domestic Subsidiary enter into a Joinder Agreement promptly after its formation by Borrower and execute such other documents as shall be reasonably requested by Lender; (x) Investments in Foreign Subsidiaries approved in advance in writing by Lender; (xi) joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the nonexclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed $100,000 in the aggregate in any fiscal year; and (xii) additional Investments that do not exceed $250,000 in the aggregate.

“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 Borrower’s 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

 

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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 worker’s 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 or other intellectual property 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 ordinary course of business 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 and common law 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; and (xv) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in clauses (i) through (xi) 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 ordinary course of business, (ii) non-exclusive licenses and similar arrangements for the use of Intellectual Property in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property, (iii) exclusive licenses as to a specific Borrower Product in a discrete geographical area granted in the ordinary course of business, (iv) dispositions of worn-out, obsolete or surplus Equipment at fair market value in the ordinary course of business, and (v) 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 ZP Holdings that has any rights, preferences or privileges senior to ZP Holdings’ common stock.

“Prepayment Charge” shall have the meaning assigned to such term in Section 2.4.

 

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“Prime Rate” shall mean the “prime rate” as reported in The Wall Street Journal.

“Receivables” means all of Borrower’s (i) Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, letters of credit, proceeds of any letter of credit, and Letter of Credit Rights, and (ii) customer lists, software, and business records related thereto.

“Secured Obligations” means Borrower’s obligations under this Agreement, any Loan Document and the Warrant, 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.

“Subordination Agreements” mean the BMR Subordination Agreement, the 2013 Noteholders Subordination Agreement and the 2014 Noteholders Subordination Agreement.

“Subsequent Financing” means the closing by ZP Holdings of the sale of its equity securities which becomes effective after the Closing Date.

“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 Loan Advance” means any Term Loan funds advanced under this Agreement.

“Term Loan Interest Rate” means for any day a per annum rate of interest equal to the greater of (i) 12.05% plus the Prime Rate minus 5.25%, and (ii) 12.05%.

“Term Loan Maturity Date” means June 1, 2017.

“Term Note” means a Secured Term Promissory Note in substantially the form of Exhibit B.

“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 State of California; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Lender’s 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 State of California, then the term

 

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“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, dated as of the date hereof, as may be amended, restated or modified from time to time.

“ZP Holdings” means ZP Holdings, Inc., a Delaware corporation that holds all of the currently outstanding stock of the Borrower.

“2013 Noteholders” mean BMV, BMV Direct SO LP, ProQuest Investments IV, L.P., ProQuest Management LLC, and New Enterprises Associates 12, Limited Partnership.

“2013 Noteholders Subordination Agreement” means that certain Subordination Agreement dated as of the Closing Date by and among Borrower, ZP Holdings, Inc., Lender and the 2013 Noteholders.

“2014 Noteholders” mean BMV, BMV Direct SO LP and New Enterprises Associates 12, Limited Partnership.

“2014 Noteholders Subordination Agreement” means that certain Subordination Agreement dated as of the Closing Date by and among Borrower, ZP Holdings, Inc., Lender and the 2014 Noteholders.

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 Loan Advance of $4,000,000 on the Closing Date, which amount equals the Maximum Term Loan Amount.

(b) Advance Request. To obtain a Term Loan Advance, Borrower shall complete, sign and deliver an Advance Request to Lender. Lender shall fund the Term Loan Advance in the manner requested by the Advance Request provided that each of the conditions precedent to such Term Loan Advance is satisfied as of the requested Advance Date.

 

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(c) Interest. The principal balance of the Term Loan Advances shall bear interest thereon from such Advance Date at the Term Loan Interest Rate based on a year consisting of 360 days, with interest computed daily based on the actual number of days elapsed. The Term Loan Interest Rate will float and change on the day the Prime Rate changes from time to time, and Lender shall give Borrower timely notice of each change to the Prime Rate.

(d) Payment. Borrower will pay interest on the Term Loan Advance on the first Business Day of each month, beginning July 1, 2014. Repayment of the Term Loan Advance outstanding on December 31, 2014, shall be amortized over a 30 month period in equal installments of principal and interest (mortgage style), and payment of such amounts shall begin on January 1, 2015, and continue on the first Business Day of each month thereafter, with all outstanding amounts owed Lender hereunder to be paid on the Term Loan Maturity Date. Unless accelerated pursuant to Section 7.16(b), the entire Term Loan principal balance, all accrued but unpaid interest hereunder and any other outstanding Secured Obligations, shall be due and payable on the Term Loan Maturity Date. If accelerated pursuant to Section 7.16(b), the Accelerated Indebtedness (as defined in Section 7.16(b) shall immediately be due and payable. 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 Borrower’s account as authorized on the ACH Authorization on each payment date of all periodic obligations payable to Lender under each Term Advance.

2.2 Maximum Interest. Notwithstanding any provision in this Agreement 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 State of California 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 the Secured Obligations consisting of the outstanding principal; second, after all principal is repaid, to the payment of Lender’s 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. In addition, 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 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) or Section 2.4, as applicable.

 

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2.4 Prepayment.

(a) Except as provided in Subsection 2.4(c), below, the Term Loan may not be prepaid prior to the first anniversary of the Closing Date.

(b) At Borrower’s option after the first anniversary of the Closing Date and upon at least seven (7) Business Days prior notice to Lender, Borrower may prepay all, but not less than all, of the outstanding Advances under the Term Loan by paying the entire principal balance, all accrued and unpaid interest thereon, together with a prepayment charge equal to 1% of the principal balance prepaid (the “Prepayment Charge”).

(c) Upon a Change in Control, Borrower shall prepay the outstanding amount of all principal and accrued interest on the Term Loan together with the Prepayment Charge on the Term Loan principal being prepaid. If the Change in Control occurs prior to the first anniversary of the Closing Date, the Borrower shall in addition pay an amount of interest that would have accrued had the Term Loan remained outstanding for one year, less the amount of interest actually paid prior to the occurrence of the Change in Control (the “Make-Up Interest”).

(d) Borrower agrees that the Make-Up Interest and the Prepayment Charge are both reasonable calculations of Lender’s lost profits in view of the difficulties and impracticality of determining actual damages resulting from an early repayment of the Advances under the Term Loan.

2.5 Notes. If so requested by Lender by written notice to Borrower, then Borrower shall execute and deliver to Lender (and/or, if applicable and if so specified in such notice, to any person who is an assignee of Lender pursuant to Section 11.13) (promptly after the Borrower’s receipt of such notice) a Note or Notes to evidence Lender’s Loans.

2.6 End of Term Charge. On the earliest to occur of (i) the Term Loan Maturity Date, (ii) the date that Borrower prepays the outstanding Secured Obligations, or (iii) the date that the Secured Obligations become due and payable, Borrower shall pay Lender a charge of $100,000. Notwithstanding the required payment date of such charge, it shall be deemed earned by Lender as of the Closing Date.

SECTION 3. SECURITY INTEREST

3.1 As security for the prompt, complete and indefeasible 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 Borrower’s right, title, and interest in and to the following personal property whether now owned or hereafter acquired (collectively, the “Collateral”): (a) Receivables; (b) Equipment; (c) Fixtures; (d) General Intangibles (including Intellectual Property); (e) Inventory; (f) Investment Property; (g) Deposit Accounts; (h) Cash; (i) Goods; and all other tangible and intangible personal property of Borrower whether now or hereafter owned or existing, leased, consigned by or to, or

 

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acquired by Borrower and wherever located, and any of Borrower’s property in the possession or under the control of Lender; 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.

3.2 Notwithstanding the broad grant of the security interest set forth in Section 3.1, above, the Collateral shall not include:

(a) more than 65% of the presently existing and hereafter arising issued and outstanding shares of capital stock owned by Borrower of any Foreign Subsidiary which shares entitle the holder thereof to vote for directors or any other matter;

(b) Borrower’s membership interests in ZP Group, LLC;

(c) any lease, license, contract, property right or agreement to which Borrower is a party or is otherwise bound, or any license, consent, permit, variance, certification, authorization or approval of any governmental authority (or any person or party acting on behalf of any governmental authority) of which Borrower is the owner or beneficiary, or any of its rights or interests thereunder, and any other property in which Borrower is not permitted by applicable law or by the terms of any instrument to which Borrower is a party or by which Borrower or any of its property is bound, to grant a security interest, if and for so long as the grant of such security interest shall result in (i) the abandonment, invalidation or unenforceability of any right, title or interest of Borrower therein, or (ii) a breach or termination pursuant to the terms of, or a default under, any such lease, license, contract, property right or agreement, or any such license, consent, permit, variance, certification, authorization or approval, or any such instrument (other than, in any case under subclause (i) or subclause (ii), to the extent that any such result would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code of any relevant jurisdiction or any other applicable law or principles of equity).

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, the Warrant, the Subordination Agreements 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;

 

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(b) certified copy of resolutions of Borrower’s and ZP Holdings’ 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 Commitment Fee (both of which have already been paid) and reimbursement of Lender’s 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.

4.2 All Advances. On each Advance Date:

(a) Lender shall have received (i) an Advance Request for the relevant Advance as required by Section 2.1(b), each duly executed by Borrower’s Chief Executive Officer or Chief Financial Officer, and (ii) any other documents Lender may reasonably request.

(b) The representations and warranties set forth in this Agreement and in the Warrant 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 with all the terms and provisions set forth herein, in each other Loan Document and the Warrant 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, (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 event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing.

SECTION 5. REPRESENTATIONS AND WARRANTIES OF BORROWER

 

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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. Borrower’s present name, former names (if any), 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 the Collateral and the Intellectual Property, free of all Liens, except for Permitted Liens. Borrower has the power and authority to grant to Lender a Lien in the Collateral as security for the Secured Obligations.

5.3 Consents. Borrower’s execution, delivery and performance of this Agreement and all other Loan Documents, and ZP Holdings’ 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 Liens and the Liens created by this Agreement and the other Loan Documents, (iii) do not violate any provisions of Borrower’s and ZP Holdings’ Certificate of Incorporation, bylaws, or any, law, regulation, order, injunction, judgment, decree or writ to which Borrower or ZP Holdings is subject and (iv) except as described on Schedule 5.3, do not violate any contract or agreement or require the consent or approval of any other Person which has not already been obtained. The individual or individuals executing the Loan Documents and the Warrant are duly authorized to do so.

5.4 Material Adverse Effect. No event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing. Borrower is not aware of any event likely to occur that is reasonably expected to result in a Material Adverse Effect.

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 or by or before any governmental authority now pending or, to the best of Borrower’s knowledge after due inquiry, threatened against or affecting Borrower or its property.

5.6 Laws. Except as described on Schedule 5.6, Borrower is not in violation of any law, rule or regulation in any material respect, or in default with respect to any judgment, writ, injunction or decree of any governmental authority in any material respect. Borrower is not in default in any material respect 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.

5.7 Information Correct and Current. No information, report, Advance Request, financial statement, exhibit or schedule furnished, by or on behalf of Borrower to Lender in

 

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connection with any Loan Document or the Warrant or included therein or delivered pursuant thereto contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be 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, whether prior to or after the Closing Date, shall be (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 Borrower’s Board of Directors.

5.8 Tax Matters. Except as described on Schedule 5.8, (a) Borrower has filed all federal, state and local tax returns that it is required to file, (b) Borrower has duly paid or fully reserved for all taxes (other than de minimis amounts not exceeding $10,000) 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 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).

5.9 Intellectual Property Claims. Borrower is the sole owner of, or otherwise has the right to use, the Intellectual Property. Except as described on Schedule 5.9, to the best of Borrower’s knowledge after due inquiry (i) each of the material Copyrights, Trademarks and Patents is valid and enforceable, (ii) no material part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and (iii) no claim has been made to Borrower that any material part of the Intellectual Property violates the rights of any third party. Exhibit D is a true, correct and complete list of each of Borrower’s Patents, registered Trademarks, registered Copyrights, and material agreements under which Borrower licenses Intellectual Property from third parties (other than shrink-wrap software licenses), 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 the best of Borrower’s knowledge after due inquiry, no third party to any such contract, license or agreement is in material breach thereof or has failed to perform any material obligations thereunder.

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 Borrower’s business as currently conducted and proposed to be conducted by Borrower. Without limiting the generality of the foregoing, and in the case of Licenses, except for restrictions that are unenforceable under Division 9 of the UCC, Borrower has the right, to the extent required to operate Borrower’s business as currently conducted and proposed to be conducted by Borrower, to freely transfer, license or assign Intellectual Property without condition, restriction or payment of any kind (other than license payments in the ordinary course of business) to any third party, and Borrower owns or has the right to use, pursuant to valid licenses, all software development tools, library functions, compilers and all other third-

 

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party software and other items that are used in the design, development, promotion, sale, license, manufacture, import, export, use or distribution of Borrower Products.

5.11 Borrower Products. Except as described on Schedule 5.11, to the best of Borrower’s knowledge after due inquiry, no Intellectual Property used by Borrower or used in any Borrower Product has been or is subject to any actual or threatened litigation, 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 manner Borrower’s use, transfer or licensing thereof or that may affect the validity, use or enforceability thereof. 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 interests in any future Intellectual Property related to the operation or conduct of the business of Borrower or the production, sale or license of Borrower Products. Borrower has not received any written notice or claim, or, to the best of Borrower’s knowledge after due inquiry, oral notice or claim, challenging or questioning Borrower’s ownership in any Intellectual Property (or written notice of any claim challenging or questioning the ownership in any licensed Intellectual Property of the owner thereof) or suggesting that any third party has any claim of legal or beneficial ownership with respect thereto nor, to the best of Borrower’s knowledge after due inquiry, is there a reasonable basis for any such claim. Neither Borrower’s use of the Intellectual Property nor the production and sale of Borrower Products infringes any intellectual property 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 the name, address and telephone number of each bank or other institution, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor.

5.13 Employee Loans. 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. Borrower’s 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

 

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in Borrower’s 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 for each occurrence. Borrower has and agrees to maintain a minimum of $2,000,000 of directors’ and officers’ insurance for each occurrence and $3,000,000 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 $25,000.

6.2 Certificates. Borrower shall deliver to Lender certificates of insurance that evidence Borrower’s compliance with its insurance obligations in Section 6.1 and the obligations contained in this Section 6.2. Borrower’s insurance certificates shall state Lender is an additional insured for commercial general liability, an additional insured and a loss payee for all risk property damage insurance, 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 lender’s loss payable endorsements for all risk property damage insurance and fidelity in compliance with the foregoing sentences. All certificates of insurance will provide for a minimum of thirty (30) days advance written notice to Lender of cancellation or any other change adverse to Lender’s interests. Any failure of Lender to scrutinize such insurance certificates for compliance is not a waiver of any of Lender’s 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 (each, an “ Indemnified Person ”) 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) (collectively, “ Liabilities ”), that may be instituted or asserted against or incurred by such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement, the other Loan Documents and the Warrant 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 Liabilities to the extent resulting solely from any Indemnified Person’s 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.

SECTION 7. COVENANTS OF BORROWER

 

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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 and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that would reasonably be expected to have a Material Adverse Effect, all certified by Borrower’s Chief Executive 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, and (iii) they do not contain certain non-cash items that are customarily included in quarterly and annual financial statements;

(b) as soon as practicable (and in any event within ninety (90) days) after the end of each fiscal year, unaudited financial statements as of the end of such year (prepared on a consolidated and consolidating 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;

(c) as soon as practicable (and in any event within two hundred ten (210) days) after the end of each fiscal year, unqualified audited financial statements as of the end of such year (prepared on a consolidated and consolidating 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, it being acknowledged that as of the Closing Date Marcum LLP is acceptable, accompanied by any management report from such accountants;

(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 attached hereto;

(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 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) at the same time and in the same manner as it gives to its directors, copies of all informational materials that Borrower provides to its directors in connection with meetings of the Board of Directors; and

 

Zosano Pharma, Inc. LSA


(g) financial and business projections promptly following their approval by Borrower’s Board of Directors, and in any event, within 30 days prior to the end of Borrower’s fiscal year, as well as budgets, operating plans and other financial information reasonably requested by Lender.

Except as permitted by GAAP, Borrower shall not make any change in its (a) accounting policies or reporting practices, or (b) fiscal years or fiscal quarters. 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 hbhalla@herculestech.com. All Financial Statements shall be sent via e-mail to financialstatements@herculestech.com with a copy to hbhalla@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. 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 Borrower’s 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 Borrower’s management or policies.

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 documents to perfect or give the highest priority to Lender’s Lien on the Collateral. 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 Lender’s name or in the name of Lender as agent and attorney-in-fact for Borrower. Borrower shall protect and defend Borrower’s title to the Collateral and Lender’s Lien thereon against all Persons claiming any interest adverse to Borrower or Lender other than Permitted Liens.

 

Zosano Pharma, Inc. LSA


7.4 Notification of Event of Default. Borrower shall notify Lender immediately of the occurrence of any Event of Default, such notice to be sent via facsimile to Lender at (650) 473-9194 with a copy by e-mail to hbhalla@herculestech.com.

7.5 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, except for the conversion of Indebtedness into equity securities and the payment of Cash in lieu of fractional shares in connection with such conversion.

7.6 Collateral. Borrower shall at all times keep the Collateral and all other property and assets used in Borrower’s business or in which Borrower now or hereafter holds any interest free and clear from any legal process or Liens whatsoever, and shall give Lender prompt written notice of any legal process affecting the Collateral, the Intellectual Property, such other property and assets, or any Liens thereon, provided however, that the Collateral and such other property and assets may be subject to Permitted Liens. Borrower shall cause its Subsidiaries to protect and defend such Subsidiary’s title to its assets from and against all Persons claiming any interest adverse to such Subsidiary, and Borrower shall cause its Subsidiaries at all times to keep such Subsidiary’s property and assets free and clear from any legal process or Liens whatsoever (except for Permitted Liens), and shall give Lender prompt written notice of any legal process affecting such Subsidiary’s assets. Borrower shall not agree with any Person other than Lender not to encumber its property.

7.7 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.

7.8 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 pursuant to employee, director or consultant repurchase plans or other similar agreements, provided, however, in each case the repurchase or redemption price does not exceed the original consideration paid for such stock or equity interest, or (b) declare or pay any Cash dividend or 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 in excess of $100,000 in the aggregate or (d) waive, release or forgive any Indebtedness owed by any employees, officers or directors in excess of $100,000 in the aggregate.

7.9 Transfers. Except for Permitted Transfers and Licenses set forth on Schedule 7.9, neither ZP Holdings or Borrower shall 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 respective assets.

7.10 Mergers or Acquisitions. Neither ZP Holdings nor Borrower shall engage in any transaction, or permit any Subsidiary to engage in any transaction, that would

 

Zosano Pharma, Inc. LSA


constitute a Change in Control. Neither ZP Holdings nor Borrower shall acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person.

7.11 Taxes. Borrower and its Subsidiaries shall pay when due all 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 Borrower’s ownership, possession, use, operation or disposition thereof or upon Borrower’s rents, receipts or earnings arising therefrom. Borrower shall file on or before the due date therefor all personal property tax returns 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.

7.12 Corporate Changes. 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. Neither Borrower nor any Subsidiary shall suffer a Change in Control. 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. Neither Borrower nor any Subsidiary shall relocate any item of Collateral (other than (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 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, it has delivered a bailee agreement in form and substance reasonably acceptable to Lender.

7.13 Deposit Accounts. Neither Borrower nor any Subsidiary other than a Foreign Subsidiary shall maintain any Deposit Accounts, or accounts holding Investment Property, except with respect to which Lender has an Account Control Agreement, provided however,

(a) Borrower may maintain the following Deposit Accounts with Silicon Valley Bank:

8800062146 and 3300931784

without such accounts being subject to an Account Control Agreement provided that the respective balance of each such account does not exceed $35,000 and $140,000, respectively.

7.14 Subsidiaries. Borrower shall notify Lender of each Subsidiary formed subsequent to the Closing Date and, within 15 days of formation, shall cause any Domestic Subsidiary to execute and deliver to Lender a Joinder Agreement.

7.15 Subordination Provisions.

 

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(a) Without Lender’s prior written consent,

(i) the BMR Agreements shall not be amended or modified, or any rights or remedies thereunder waived, other than as permitted in the BMR Subordination Agreement;

(ii) the Indebtedness owed to the 2013 Noteholders which is the subject of the 2013 Noteholders Subordination Agreement, and the agreement(s) underlying that Indebtedness, shall not be amended or modified, or any rights or remedies thereunder waived, other than as permitted in the 2013 Noteholders Subordination Agreement; and

(iii) the Indebtedness owed to the 2014 Noteholders which is the subject of the 2014 Noteholders Subordination Agreement, and the agreement(s) underlying that Indebtedness, shall not be amended or modified, or any rights or remedies thereunder waived, other than as permitted in the 2014 Noteholders Subordination Agreement.

(b) Borrower shall provide Lender not less than 10 Business Days advance written notice (the “ BMR Payment Notice ”) of any amount proposed to be paid on account of any Indebtedness subordinated under the BMR Subordination Agreement and the date of such proposed payment, even if the BMR Subordination Agreement allows for such amount to be paid. Upon written request provided by Lender to Borrower after Lender’s receipt of the BMR Payment Notice, Lender may accelerate any or all of the entire Term Loan principal balance, all accrued but unpaid interest hereunder and any other outstanding Secured Obligations, whereupon such amounts shall immediately become due and payable. Under no circumstances shall Borrower make any payment of Subordinated Debt (as defined in the BMR Subordination Agreement) prior to paying all of the entire Term Loan principal balance, all accrued but unpaid interest hereunder and any other outstanding Secured Obligations. A Prepayment Charge shall apply to the payment of all such amounts.

(c) Borrower shall provide Lender not less than 10 Business Days advance written notice (the “ 2013 Payment Notice ”) of any amount proposed to be paid on account of any Indebtedness subordinated under the 2013 Noteholders Subordination Agreement and the date of such proposed payment, even if the 2013 Noteholders Subordination Agreement allows for such amount to be paid. Upon written request provided by Lender to Borrower after Lender’s receipt of the 2013 Payment Notice, Lender may accelerate any or all of the entire Term Loan principal balance, all accrued but unpaid interest hereunder and any other outstanding Secured Obligations, whereupon such amounts shall immediately become due and payable. Under no circumstances shall Borrower make any payment of Subordinated Debt (as defined in the 2013 Subordination Agreement) prior to paying all of the entire Term Loan principal balance, all accrued but unpaid interest hereunder and any other outstanding Secured Obligations. A Prepayment Charge shall apply to the payment of all such amounts.

 

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(d) Borrower shall provide Lender not less than 10 Business Days advance written notice (the “ 2014 Payment Notice ”) of any amount proposed to be paid on account of any Indebtedness subordinated under the 2014 Noteholders Subordination Agreement and the date of such proposed payment, even if the 2014 Noteholders Subordination Agreement allows for such amount to be paid. Upon written request provided by Lender to Borrower after Lender’s receipt of the 2014 Payment Notice, Lender may accelerate any or all of the entire Term Loan principal balance, all accrued but unpaid interest hereunder and any other outstanding Secured Obligations, whereupon such amounts shall immediately become due and payable. Under no circumstances shall Borrower make any payment of Subordinated Debt (as defined in the 2014 Subordination Agreement) prior to paying all of the entire Term Loan principal balance, all accrued but unpaid interest hereunder and any other outstanding Secured Obligations. A Prepayment Charge shall apply to the payment of all such amounts.

SECTION 8. RIGHT TO INVEST/CONVERT

8.1 Lender or its assignee or nominee shall have the right, in its discretion, to participate in the first Subsequent Financing after the Closing Date in an amount of up to $1,000,000 on the same terms, conditions and pricing afforded to others participating in such Subsequent Financing provided Lender shall agree to become a party to all of the agreements executed by other purchasers in such Subsequent Financing.

8.2 Lender shall have the right, in its discretion to convert in the first Subsequent Financing after the Closing Date, an amount of up to $500,000 of the principal amount of the Term Loan on the same terms, conditions and pricing afforded to others participating in any such Subsequent Financing provided Lender shall agree to become a party to all of the agreements executed by other purchasers in such Subsequent Financing.

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 other Loan Documents or the Warrant on the due date, provided, however, that an Event of Default shall not occur on account of a failure to pay due solely to an administrative or operational error of Lender if Borrower had the funds to make the payment when due and makes the payment within two Business Days following Borrower’s knowledge of such failure to pay; or

9.2 Covenants. Borrower breaches or defaults in the performance of any covenant or Secured Obligation under this Agreement, any of the other Loan Documents or the Warrant and (a) with respect to a default under any covenant under this Agreement (other than under Sections 6, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, or 7.15) such default continues for more than ten (10) 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, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, or 7.15, the occurrence of such default; or

 

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9.3 Material Adverse Effect. A circumstance has occurred that has had a Material Adverse Effect; or

9.4 Other Loan Documents. Except as specified in Section 9.1 and 9.2, the occurrence of any default under any Loan Document or any other agreement between Borrower and Lender and such default continues for more than ten (10) days after the earlier of the date on which (a) Lender has given notice of such default to Borrower, or (b) Borrower has actual knowledge of such default; or

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 when made or deemed made; 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 or perform under the Loan Documents or Warrant, 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, 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) thirty (30) 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) thirty (30) 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 Borrower’s assets is attached or seized, or a levy is filed against any such assets, or a judgment or judgments against Borrower is/are entered for the payment of money, individually or in the aggregate, of at least $100,000, or Borrower is enjoined or in any way prevented by court order from conducting any 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 $100,000, or the

 

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occurrence of any default under any agreement or obligation of Borrower that could reasonably be expected to have a Material Adverse Effect.

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 the type described in Section 9.6, all of the Secured Obligations shall automatically be accelerated and made due and payable, in each case without any further notice or act), (ii) Lender may, at its option, sign and file in Borrower’s name any and all collateral assignments, notices, control agreements, security agreements and other documents it deems necessary or appropriate to perfect or protect the repayment of the Secured Obligations, and in furtherance thereof, Borrower hereby grants Lender an irrevocable power of attorney coupled with an interest, and (iii) Lender may notify any of Borrower’s account debtors to make payment directly to Lender, compromise the amount of any such account on Borrower’s behalf and endorse Lender’s name without recourse on any such payment for deposit directly to Lender’s 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 Lender’s 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 Lender’s 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 and interest as calculated pursuant to Sections 2.2 and 2.3), in such order and priority as Lender may choose in its sole discretion; and

Finally, after the full, final, and indefeasible 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.

 

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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 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.

10.4 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 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) 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 Himani Bhalla

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Facsimile: 650-473-9194

Telephone: 650-289-3060

(b) If to Borrower:

 

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Zosano Pharma, Inc.

Attention: Vikram Lamba

34790 Ardentech Court

Fremont, CA 94555

Facsimile: 510-952-4632

Telephone: 510-745-1297

or to such other address as each party may designate for itself by like notice.

11.3 Entire Agreement; Amendments. This Agreement 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, non-disclosure or confidentiality agreements, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof or thereof (including Lender’s revised proposal letter dated April 30, 2013, revised again in a proposal letter dated May 8, 2014). None of the terms of this Agreement 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 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 the expiration or other termination of this Agreement.

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 or any of the other Loan Documents without Lender’s 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 without prior notice to Borrower, and all of such rights shall inure to the benefit of Lender’s successors and assigns.

 

Zosano Pharma, Inc. LSA


11.8 Governing Law. This Agreement and the other Loan Documents have been negotiated and delivered to Lender in the State of California, and shall have been accepted by Lender in the State of California. Payment to Lender by Borrower of the Secured Obligations is due in the State of California. This Agreement and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of California, 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 or any of the other Loan Documents may be brought in any state or federal court located in the State of California. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to nonexclusive personal jurisdiction in Santa Clara County, State of California; (b) waives any objection as to jurisdiction or venue in Santa Clara County, State of California; (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 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, 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.

(b) If the waiver of jury trial set forth in Section 11.10(a) is ineffective or unenforceable, the parties agree that all Claims shall be resolved by reference to a private judge sitting without a jury, pursuant to Code of Civil Procedure Section 638, before a mutually acceptable referee or, if the parties cannot agree, a referee selected by the Presiding Judge of Santa Clara County, California. Such proceeding shall be conducted

 

Zosano Pharma, Inc. LSA


in Santa Clara County, California, with California rules of evidence and discovery applicable to such proceeding.

(c) In the event Claims are to be resolved by judicial reference, either party may seek from a court identified in Section 11.9, any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all Claims are otherwise subject to resolution by judicial reference.

11.11 Professional Fees. Borrower promises to pay Lender’s fees and expenses necessary to finalize the loan documentation, including but not limited to reasonable attorneys’ fees, UCC searches, filing costs, and other miscellaneous expenses. In addition, Borrower promises to pay any and all reasonable attorneys’ and other professionals’ fees and expenses (excluding fees and expenses of in-house counsel) 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 or Warrant; (d) any waiver, consent, release, or termination under the Loan Documents or Warrant; (e) the protection, preservation, audit, 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 or the Warrant including representing Lender in any adversary proceeding or contested matter commenced or continued by or on behalf of Borrower’s 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 and proprietary information of Borrower, if and to the extent such information either (x) is marked as confidential by Borrower at the time of disclosure, or (y) should reasonably be understood to be confidential (the “Confidential Information”). Accordingly, Lender agrees that any Confidential Information it may obtain in the course of acquiring, administering, or perfecting Lender’s security interest in the Collateral 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 Affiliates if Lender in its sole discretion determines that any such party should have access to such information in connection with such party’s 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; (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 response to any summons or subpoena or in connection with any litigation, to the extent permitted or deemed advisable by Lender’s counsel; (e) to comply

 

Zosano Pharma, Inc. LSA


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 Lender’s sale, lease, or other disposition of Collateral after 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 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, the other Loan Documents or the Warrant.

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 Loan Documents to any Person (an “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. Lender agrees that in the event of any transfer by it of the Note(s)(if any), 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 Borrower’s 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.

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 or Warrant are intended, nor will be interpreted, to provide or create any third-party

 

Zosano Pharma, Inc. LSA


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 and Warrant will be personal and solely between the Lender and the Borrower.

11.17 Publicity.

(a) Borrower consents to the publication and use by Lender and any of its member businesses and Affiliates of (i) Borrower’s name (including a brief description of the relationship between Borrower and Lender) and logo and a hyperlink to Borrower’s web site, separately or together, in written and oral presentations, advertising, promotional and marketing materials, client lists, public relations materials or on its web site (together, the “Lender Publicity Materials”); (ii) the names of officers of Borrower in the Lender Publicity Materials; and (iii) Borrower’s name, trademarks or servicemarks in any news release concerning Lender.

(b) Neither Borrower nor any of its member businesses and Affiliates shall, without Lender’s consent, which consent shall not be unreasonably withheld or delayed, publicize or use (i) Lender’s name (including a brief description of the relationship between Borrower and Lender), logo or hyperlink to Lender’s web site, separately or together, in written and oral presentations, advertising, promotional and marketing materials, client lists, public relations materials or on its web site (together, the “Borrower Publicity Materials”); (ii) the names of officers of Lender in the Borrower Publicity Materials; and (iii) Lender’s name, trademarks, servicemarks in any news release concerning Borrower.

(SIGNATURES TO FOLLOW)

 

Zosano Pharma, Inc. LSA


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:
Zosano Pharma, Inc.
Signature:  

/s/ Vikram Lamba

Print Name:  

Vikram Lamba

Title:  

CEO

Accepted in Palo Alto, California:

 

LENDER:
HERCULES TECHNOLOGY GROWTH CAPITAL, INC. a Maryland corporation
Signature:  

/s/ Ben Bang

Print Name:   Ben Bang
Title:   Senior Counsel

 

Zosano Pharma, Inc. LSA


Table of Exhibits and Schedules

 

Exhibit A:    Advance Request
   Attachment to Advance Request
Exhibit B:    Term Note
Exhibit C:    Name, Locations, and Other Information for Borrower
Exhibit D:    Borrower’s Patents, Trademarks, Copyrights and Licenses
Exhibit E:    Borrower’s Deposit Accounts and Investment Accounts
Exhibit F:    Compliance Certificate
Exhibit G:    Joinder Agreement – Domestic Subsidiary
Exhibit H:    Joinder Agreement – ZP Holdings
Exhibit I:    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 5.6    Laws
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
Schedule 7.9    Licenses

 

Zosano Pharma, Inc. LSA


EXHIBIT A

ADVANCE REQUEST

 

To:      Lender:   Date: June 3, 2014            
    

Hercules Technology Growth Capital, Inc.

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Facsimile: 650-473-9194

Attn: Himani Bhalla

 

Zosano Pharma, Inc. (“Borrower”) hereby requests from Hercules Technology Growth Capital, Inc. (“Lender”) an Advance in the amount of Four Million Dollars ($4,000,000) on June 3, 2014 (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 Borrower’s 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 event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing; (ii) that the representations and warranties set forth in the Agreement and in the Warrant are and 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; (iii) that Borrower is in compliance with all the terms and provisions set forth in each Loan Document and the Warrant on its part to be observed or performed; and (iv) that as of the Advance Date, 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 under the Loan Documents or Warrant. 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.

 

Zosano Pharma, Inc. LSA


Borrower hereby represents that Borrower’s corporate status and locations 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 Advance 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 June 3, 2014.

 

BORROWER:   Zosano Pharma, Inc.
SIGNATURE:  

 

TITLE:  

 

PRINT NAME:  

 

 

Zosano Pharma, Inc. LSA


ATTACHMENT TO ADVANCE REQUEST

Dated: June 3, 2014

Borrower hereby represents and warrants to Lender that Borrower’s current name and organizational status is as follows:

 

Name:      Zosano Pharma, Inc.
Type of organization:      Corporation
State of organization:      Delaware
Organization file number:      4105696

Borrower hereby represents and warrants to Lender that the street addresses, cities, states and postal codes of its current locations are as follows:

 

Zosano Pharma, Inc. LSA


EXHIBIT B

SECURED TERM PROMISSORY NOTE

 

$4,000,000    Advance Date: June 3, 2014

FOR VALUE RECEIVED, Zosano Pharma, Inc., a Delaware corporation, for itself and each of its Domestic Subsidiaries (the “ Borrower ”), hereby promises to pay to the order of Hercules Technology Growth Capital, Inc., a Maryland corporation, or the holder of this Secured Term Promissory 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 “ Note ”) may specify from time to time in writing, in lawful money of the United States of America, the principal amount of Four Million Dollars ($4,000,000) or such other principal amount as Lender has advanced to Borrower, together with interest at a floating rate equal to the Term Loan Interest Rate, with interest computed daily based on the actual number of days in each month.

This Note is one of the Notes referred to in, and is executed and delivered in connection with, that certain Loan and Security Agreement dated June 3, 2014 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 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 Note without setoff, recoupment or deduction and regardless of any counterclaim or defense. This Note has been negotiated and delivered to Lender and is payable in the State of California. This Note shall be governed by and construed and enforced in accordance with, the laws of the State of California, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction.

 

BORROWER FOR ITSELF AND   
ON BEHALF OF ITS DOMESTIC   
SUBSIDIARIES:    Zosano Pharma, Inc.
   By:
   Title:

 

Zosano Pharma, Inc. LSA


EXHIBIT C

NAME, LOCATIONS, AND OTHER INFORMATION FOR BORROWER

1. Borrower represents and warrants to Lender that Borrower’s current name and organizational status as of the Closing Date is as follows:

 

Name:      Zosano Pharma, Inc.
Type of organization:      Corporation
State of organization:      Delaware
Organization file number:      4105696

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: same as above

Used during dates of: since 2007

Type of Organization: corporation

State of organization: Delaware

Organization file Number: merged into above-described corporation

Borrower’s fiscal year ends on December 31

Borrower’s federal employer tax identification number is: 20-4889597

3. Borrower represents and warrants to Lender that its chief executive office is located at 34790 Ardentech Court, Fremont, CA 94555.

 

Zosano Pharma, Inc. LSA


EXHIBIT D

BORROWER’S PATENTS, REGISTERED TRADEMARKS, REGISTERED

COPYRIGHTS, APPLICATIONS FOR THE FOREGOING AND MATERIAL

LICENSES

Intellectual Property License Agreement between ALZA Corporation and The Macroflux Corporation (predecessor in interest to Borrower) dated as of October 5, 2006, as amended by the letter agreement dated February 21, 2011 between ALZA Corporation and Borrower.

Licensed and owned Patents:

 

Patent

  

US

Patent Number

  

EP

Patent Number

  

JP

Patent Number

  

CN

Patent Number

  

KR

Patent Number

Glucagon Formulation    US App 61/868,969            
PTH Formulation   

7,556,821; 8,361,022;

8,633,159; US App

11/686,909;

           
Transdermal Formulation/ Coating/ PK/PD   

7,537,795;7,579,013

7,963,935; 8,663,155;

  

1,333,880;1,392,389;

1,638,523;

  

4,659,336

5,007,427

5,388,415

2006-518731

(allowed)

  

ZL200480040402.9

ZL200480024334.7

ZL200580023222.4

1821359.6,

ZL02812251.8,

ZL01818583.5

   812097
Micro Projection Design and Anchoring to Skin   

6,050,988;6,083,196;

6,322,808;

6,953,589;7,184,826

  

1,037,686;1,037,687;

1,035,889

  

4,012,252;4,061,022

4,012,252

  

ZL98811989.7

ZL98812096.8

  
Patch Retainer Ring and Delivery Control   

6,855,131

10/978,807(allowed)

   1,239,917;1,341,452    4,104,975;4,312,407    ZL00818309.0   
Patch Applicator   

6,953,589;

7,087,035;7,097,631

7,131,960;

7,419,481;7,798,987

US 61/860,001

  

1,035,889;

1,239,916;

1,341,442;1,341,453;

1,680,154;

  

4,198,985;4,659,332;

4,682,144;

JP2008-504343

  

1,820,464.3;ZL2004800

39547.7;

1,820,462.7

   818,545
Manufacturing and Packaging Methods   

6,855,372; 7,435,299;

8,632,801,

  

EP App

6772047.4; EP

App 6849294.1

  

5,438,872;

JP App 2008-548743

   CN200680019269.8   

 

Zosano Pharma, Inc. LSA


Trademarks: (see following 15 pages)

 

Zosano Pharma, Inc. LSA


Active Trademark Status Report for ZP Holdings, Inc.

 

Trademark

  Country   Owner   Status   Appl. No.   Filing Date   Reg. No.   Reg. Date   Next Renewal   Class   Goods

MACROFLUX

  Argentina   Macroflux Corporation, The   No renew   2648182   31-Jan-06   2184995   01-Oct-07   01-Oct-17   005   Pharmaceutical preparations and substances.

MACROFLUX

  Argentina   Macroflux Corporation, The   No renew   2648183   31-Jan-06   2184994   01-Oct-07   01-Oct-17   010   Apparatus, patches, pessaries and receptacles for applying medicines and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices.

MACROFLUX

  Argentina   Macroflux Corporation, The   No renew   2648184   31-Jan-06   2184993   01-Oct-07   01-Oct-17   042   Covering research and product development for others.

MACROFLUX

  Australia   Macroflux Corporation, The   No renew   1050824   14-Apr-05   1050824   01-Sep-06   14-Apr-15   005,010  

5: Transdermal patches, including transdermal patches for sampling glucose, sold without medication; transdermal drug patches sold with medication; iontophoresis dispersive pads for delivery of drugs through the skin, sold with or without medication.

10: Iontophoretic drug delivery devices, including iontophoresis electrodes and iontophoresis apparatus which generates an electric current for the delivery of drugs through the skin, sold with or without medication; intradermal drug delivery devices sold with or without medication.

MACROFLUX

  Australia   Macroflux Corporation, The   No renew   1099430   16-Feb-06   1099430   16-May-07   16-Feb-16   005,010,042  

5: Pharmaceutical preparations and substances; patches for applying medicines.

10: Apparatus, patches, pessaries and receptacles for applying medicine and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices.

42: Research and product development services for others.

MACROFLUX

  Benelux   Macroflux Corporation, The   No renew   1102532   01-Feb-06   790811   02-Feb-06   01-Feb-16   005,010,042  

5: Pharmaceutical preparations and substances.

10: Apparatus, patches, pessaries and receptacles for applying medicine and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices.

42: Research and product development services for others.

MACROFLUX

 

China

(People’s

Republic)

  Macroflux Corporation, The   No renew   5152451   09-Feb-06   5152451   14-Aug-09   13-Aug-19   042   Research and product development services for others.

 

Page 1 of 5


Active Trademark Status Report for ZP Holdings, Inc.

 

MACROFLUX

  European Community   Zosano Pharma, Inc.   Registered   000819730   30-Apr-98   000819730   19-Apr-06   30-Apr-18   005,010  

5: Pharmaceutical preparations and substances.

10: Apparatus, patches, pessaries and receptacles for applying medicines and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices.

42: Research and product development services for others.

MACROFLUX

  Hong Kong   Macroflux Corporation, The   No renew   300572751   26-Jan-06   300572751   26-Jan-06   25-Jan-16   005,010,042  

5: Pharmaceutical preparations and substance.

10: Apparatus, patches, pessaries and receptacles for applying medicines and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices.

42: Research and product development services for others.

MACROFLUX

  India   Macroflux Corporation, The   To be aban   1419150   06-Feb-06               005   Medicinal, pharmaceutical and substance.

MACROFLUX

  India   Macroflux Corporation, The   No renew   1419151   06-Feb-06   740391   31-Jul-08   06-Feb-16   010   Apparatus patches, pessaries and receptacles for applying medicines and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices included in Class 10.

MACROFLUX

  India   Macroflux Corporation, The   No renew   1419152   06-Feb-06   739649   30-Jul-08   06-Feb-16   042   Research and product development services for others.

MACROFLUX

  Int’l Registration-Madrid Protocol Only   Macroflux Corporation, The   No renew       01-Mar-06   880221   01-Mar-06   01-Mar-16   005,010,042  

5: Pharmaceutical preparations and substances.

10: Apparatus, patches, pessaries and receptacles for applying medicines and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices.

42: Research and product development services for others.

MACROFLUX

  Israel   Macroflux Corporation, The   No renew   187772   22-Feb-06   187772   09-Dec-07   22-Feb-16   005   Transdermal patches for sampling glucose, sold without electrodes, iontophoresis dispersive pads and iontophoresis apparatus which generates an electric current for the delivery of drugs through the skin, sold without medication; intradermal drug delivery devices sold without medication; transdermal drug patches sold with medication; all included in Class 5.

MACROFLUX

  Israel   Macroflux Corporation, The   No renew   187773   22-Feb-06   187773   09-Dec-07   22-Feb-16   010   Apparatus, transdermal drug delivery patches sold without medication, pessaries and receptacles for applying medicines and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices; all included in Class 10.

 

Page 2 of 5


Active Trademark Status Report for ZP Holdings, Inc.

 

MACROFLUX

  Israel   Macroflux Corporation, The   No renew   187774   22-Feb-06   187774   09-Dec-07   22-Feb-16   042   Research and product development services for others in the field of transdermal drug delivery; all included in Class 42.

MACROFLUX

  Korea, Republic of   Macroflux Corporation, The   No renew   2006-
0000450
  08-Feb-06   45-20635   23-Jul-07   23-Jul-17   010,042  

10: Electrically-assisted transdermal drug delivery systems, Iontophoretic transdermal drug delivery systems, Electroosmotic transdermal drug delivery systems, Electroporation transdermal drug delivery systems, Patches for applying medicines and transdermal drug delivery devices, Pessaries for applying medicines and transdermal drug delivery devices.

42: Pharmaceutical research, Bacteriological research, Research and development for others, Research services to the development and testing of new pharmaceuticals.

MACROFLUX

  Malaysia   Macroflux Corporation, The   No renew   2006/04864   28-Mar-06   06004864   15-Mar-08   28-Mar-16   010   Apparatus, patches, pessaries and receptacles for applying medicines and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices.

MACROFLUX

  Malaysia   Macroflux Corporation, The   No renew   2006/04865   28-Mar-06   06004865   28-Mar-06   28-Mar-16   042   Research and product development services for others.

MACROFLUX

  Mexico   Macroflux Corporation, The   No renew   768540   28-Feb-06   924368   16-Mar-06   28-Feb-16   042   Research and product development services for others.

MACROFLUX

  New Zealand   Macroflux Corporation, The   No renew   741896   25-Jan-06   741896   27-Jul-06   25-Jan-16   005,010,042  

5: Pharmaceutical preparations and substances.

10: Apparatus, patches, pessaries and receptacles for applying medicines and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices.

42: Research and product development services for others.

MACROFLUX

  Norway   Macroflux Corporation, The   No renew   2006-02451   09-Mar-06   237853   13-Feb-07   13-Feb-17   005,010,042  

5: Pharmaceutical preparations and substances, patches.

10: Apparatus, pessaries and receptacles for applying medicines and transdermal drug delivery devices; devices for transdermally sampling glucose; iontophoretic devices and intradermal devices.

42: Research and product development services for others.

MACROFLUX

  Singapore   Macroflux Corporation, The   No renew   T06/02858J   14-Feb-06   T06/02858J   14-Feb-06   14-Feb-16   005   Pharmaceutical preparations and substances.

MACROFLUX

  Singapore   Macroflux Corporation, The   No renew   T06/028591   14-Feb-06   T06/028591   14-Feb-06   14-Feb-16   010   Apparatus, patches [medical apparatus] pessaries and receptacles for applying medicines and transdermal drug delivery devices, medical devices for transdermally sampling glucose, iontophoretic medical devices and intradermal medical devices.

 

Page 3 of 5


Active Trademark Status Report for ZP Holdings, Inc.

 

MACROFLUX

  Singapore   Macroflux Corporation, The   No renew   T06/02860B   14-Feb-06   T06/02860B   14-Feb-06   14-Feb-16   042   Research and product development services for others.

MACROFLUX

  South Africa   Macroflux Corporation, The   No renew   2006/02108   01-Feb-06   2006/02108   19-Jul-10   01-Feb-16   005   Pharmaceutical preparations and substance.

MACROFLUX

  South Africa   Macroflux Corporation, The   No renew   2006/02109   01-Feb-06   2006/02109   19-Jul-10   01-Feb-16   010   Apparatus, patches, pessaries and receptacles for applying medicines and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices.

MACROFLUX

  South Africa   Macroflux Corporation, The   No renew   2006/02110   01-Feb-06   2006/02110   19-Jul-10   01-Feb-16   042   Research and product development services for others.

MACROFLUX

  Taiwan   Macroflux Corporation, The   No renew   095005192   03-Feb-06   1235892   16-Nov-06   15-Nov-16   005   Pharmaceutical preparations and substance.

MACROFLUX

  Taiwan   Macroflux Corporation, The   No renew   095005193   03-Feb-06   1236405   16-Nov-06   15-Nov-16   010   Apparatus, patches, pessaries and receptacles for applying medicines and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices.

MACROFLUX

  Taiwan   Macroflux Corporation, The   No renew   09005194   03-Feb-06   1237851   16-Nov-06   15-Nov-16   042   Research and product development services for others.

MACROFLUX

  Thailand   Macroflux Corporation, The   No renew   616583   31-Jan-06   Kor256727   31-Jan-06   30-Jan-16   010   Apparatus, patches, pessaries and receptacles for applying medicines; transdermal drug delivery devices; devices for transdermally sampling glucose; iontophoretic devices; intradermal devices for applying medicines and drug delivery.

MACROFLUX

  Thailand   Macroflux Corporation, The   No renew   616584   31-Jan-06   Bor31900   31-Jan-06   30-Jan-16   042   Research and development services related to pharmaceuticals and medical devices.

MACROFLUX

  Venezuela   Macroflux Corporation, The   To be aban   1523/06   30-Jan-06               005   Pharmaceutical preparations and substance.

MACROFLUX

  Venezuela   Macroflux Corporation, The   No renew   1524/06   30-Jan-06   273.229-P   17-Jul-06   17-Jul-16   010   Apparatus, patches, pessaries and receptacles for applying medicines and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices.

MACROFLUX

  Venezuela   Macroflux Corporation, The   No renew   1522/2006   30-Jan-06   32.515-S   17-Jul-06   17-Jul-16   042   Research and product development services for others.

MACROFLUX

  Vietnam   Macroflux Corporation, The   No renew   4-2006-0518   06-Feb-06   94367   10-Jan-08   10-Jan-18   005,010,042  

5: Pharmaceutical preparations and substances.

10: Apparatus, patches, pessaries and receptacles for applying medicines and transdermal drug delivery devices, devices for transdermally sampling glucose, iontophoretic devices and intradermal devices.

42: Research and product development services for others.

 

Page 4 of 5


Active Trademark Status Report for ZP Holdings, Inc.

 

ZOSANO

PHARMA

  United States of America   Zosano Pharma, Inc.   Registered   77/256850   16-Aug-07   3705884   03-Nov-09   03-Nov-19   005,010  

5: Transdermal drug patches sold with medication for use in the treatment of pain, infectious diseases, and cardiovascular, neurological, metabolic and endocrinology disorders; transdermal drug patches sold with medication in the nature of vaccines; intradermal drug delivery devices sold with medication in the nature of vaccines; intradermal drug delivery devices sold with medication in the nature of patches to deliver therapeutic drugs and biopharmaceuticals into the body to treat pain, infectious diseases, and cardiovascular, neurological, metabolic and endocrinology disorders.

10: Intradermal drug delivery devices sold without medication.

 

Page 5 of 5


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 as of June 3, 2014, 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 Zosano Pharma, 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 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 of the Loan Documents, and no Event of Default has occurred since the submission of the Company’s last Compliance Certificate. Attached are the required documents supporting the above certification. The undersigned further certifies that these are prepared in accordance with GAAP (except for the absence of footnotes with respect to unaudited financial statement and subject to normal year-end adjustments) and are consistent from one period to the next except as explained below.

 

REPORTING REQUIREMENT    REQUIRED    CHECK IF ATTACHED
Interim Financial Statements and Compliance Certificate    Monthly within 30 days   

Unaudited Financial Statements

 

Audited Financial Statements

  

FYE within 90 days

 

FYE within 210 days

  

 

Very Truly Yours,
Zosano Pharma, Inc.
By:  

 

Name:  

 

Its:  

 

 

Zosano Pharma, Inc. LSA


EXHIBIT G

FORM OF JOINDER AGREEMENT [DOMESTIC SUBSIDIARY]

This Joinder Agreement (the “ Joinder Agreement ”) is made and dated as of [            ], 20[    ], and is entered into by and between                    ., a                      corporation (“ Subsidiary ”), and Hercules Technology Growth Capital, Inc., a Maryland corporation, as a Lender.

RECITALS

A. Subsidiary’s Affiliate, Zosano Pharma, Inc. (“ Company ”) has entered into that certain Loan and Security Agreement dated June 3, 2014 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 Company’s 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 (a) with respect to (i) Section 5.1 of the Loan Agreement, Subsidiary represents that it is an entity duly organized, legally existing and in good standing under the laws of [                    ], and all exhibits and schedules referred to in Section 5 or 7 of the Agreement are replaced by the exhibits and schedules attached to this Joinder Agreement, (b) 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, and (c) that if Subsidiary is covered by Company’s insurance, Subsidiary shall not be required to maintain separate insurance or comply with the provisions of Sections 6.1 and 6.2 of the Loan Agreement, and (d) that as long as Company satisfies the requirements of Section 7.1 of the Loan Agreement, Subsidiary shall not have to provide Lender separate Financial Statements. 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) Lender’s 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) Lender’s providing an Advance to Company

 

Zosano Pharma, Inc. LSA


  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.

 

3. Subsidiary agrees not to certificate its equity securities without Lender’s prior written consent, which consent may be conditioned on the delivery of such equity securities to Lender in order to perfect Lender’s security interest in such equity securities.

 

4. Subsidiary acknowledges that it benefits, both directly and indirectly, from the Loan Agreement, and hereby waives, for itself and on behalf on any and all successors in interest (including without limitation any assignee for the benefit of creditors, receiver, bankruptcy trustee or itself as debtor-in-possession under any bankruptcy proceeding) to the fullest extent provided by law, any and all claims, rights or defenses to the enforcement of this Joinder Agreement on the basis that (i) it failed to receive adequate consideration for the execution and delivery of this Joinder Agreement or (ii) its obligations under this Joinder Agreement are avoidable as a fraudulent conveyance.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

Zosano Pharma, Inc. LSA


[SIGNATURE PAGE TO JOINDER AGREEMENT]

 

SUBSIDIARY:

 

 

.

 

By:

 
 

Name:

 
 

Title:

 
 

Address:

 
 

Telephone:

 

 

 

Facsimile:

 

 

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC. a Maryland corporation
Signature:  

 

Print Name:   Ben Bang
Title:   Senior Counsel
Address:  

400 Hamilton Ave., Suite 310

Palo Alto, CA 94301

Facsimile: 650-473-9194

  Telephone: 650-289-3060

 

Zosano Pharma, Inc. LSA


EXHIBIT H

FORM OF JOINDER AGREEMENT [ZP HOLDINGS]

JOINDER AGREEMENT

This Joinder Agreement (the “ Joinder Agreement ”) is made and dated as of June 3, 2014, and is entered into by and between ZP Holdings, Inc., a Delaware corporation (“ ZP Holdings ”), and Hercules Technology Growth Capital, Inc., a Maryland corporation, as a Lender.

RECITALS

A. ZP Holdings’s Affiliate, Zosano Pharma, Inc. (“ Company ”) has entered into that certain Loan and Security Agreement dated June 3, 2014 with Lender, as such agreement may be amended (the “ Loan Agreement ”), together with the other agreements executed and delivered in connection therewith;

B. ZP Holdings acknowledges and agrees that it will benefit both directly and indirectly from Company’s execution of the Loan Agreement, the Warrant and the other agreements executed and delivered in connection therewith;

AGREEMENT

NOW THEREFORE, ZP Holdings 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, ZP Holdings 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 (a) all exhibits and schedules referred to in Section 5 or 7 of the Agreement are replaced by the exhibits and schedules attached to this Joinder Agreement, and (b) Lender shall have no duties, responsibilities or obligations to ZP Holdings arising under or related to the Loan Agreement or the other agreements executed and delivered in connection therewith, and (c) that if ZP Holdings is covered by Company’s insurance, ZP Holdings shall not be required to maintain separate insurance or comply with the provisions of Sections 6.1 and 6.2 of the Loan Agreement, and (d) that as long as Company satisfies the requirements of Section 7.1 of the Loan Agreement, ZP Holdings shall not have to provide Lender separate Financial Statements. 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 ZP Holdings or any other person or entity. By way of example (and not an exclusive list): (a) Lender’s providing notice to Company in accordance with the Loan Agreement or as otherwise agreed between Company and Lender shall be deemed provided to ZP Holdings; (b) Lender’s providing an Advance to Company shall be deemed an Advance to ZP Holdings; and (c) ZP Holdings shall have no right to request an Advance or make any other demand on Lender.

 

3.

ZP Holdings acknowledges that it benefits, both directly and indirectly, from the Loan Agreement and the delivery of the Warrant, and hereby waives, for itself and on behalf on any and all successors in interest (including without limitation any assignee for the benefit of creditors, receiver, bankruptcy trustee or itself as debtor-in-possession under any bankruptcy proceeding) to the fullest extent provided by law, any and all claims, rights or defenses to the enforcement of this Joinder Agreement

 

Zosano Pharma, Inc. LSA


  or the Warrant on the basis that (i) it failed to receive adequate consideration for the execution and delivery of this Joinder Agreement or Warrant, or (ii) its obligations under this Joinder Agreement or Warrant are avoidable as a fraudulent conveyance.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

Zosano Pharma, Inc. LSA


[SIGNATURE PAGE TO JOINDER AGREEMENT]

 

ZP HOLDINGS, INC.:

 

  .
By:  
Name:  
Title:  
Address:  
Telephone:  

 

Facsimile:  

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC. a Maryland corporation
Signature:  

 

Print Name:   Ben Bang
Title:   Senior Counsel
Address:  

400 Hamilton Ave., Suite 310

Palo Alto, CA 94301

Facsimile: 650-473-9194

  Telephone: 650-289-3060

 

Zosano Pharma, Inc. LSA


Schedule 1

Subsidiaries

ZP Group LLC, a Delaware limited liability company located at 34790 Ardentech Court, Fremont, CA 94555.

 

Zosano Pharma, Inc. LSA


Schedule 1A

Existing Permitted Indebtedness

Secured Promissory Note in the original principal amount of $8,556,533 issued to BioMed Realty Holdings, Inc. by ZP Holdings, Inc. (and subsequently assigned by BioMed Realty Holdings, Inc. to its affiliate BMV Direct SOTRS LP) on which Borrower is jointly and severally liable, which Secured Promissory Note is subordinated to the Secured Obligations pursuant to the BMR Subordination Agreement. As of the Closing Date, the principal and interest outstanding under such note totals $10,065,540.00.

 

Zosano Pharma, Inc. LSA


Schedule 1B

Existing Permitted Investments

100% membership interest in ZP Group LLC, a Delaware limited liability company located at 34790 Ardentech Court, Fremont, CA 94555.

 

Zosano Pharma, Inc. LSA


Schedule 1C

Existing Permitted Liens

Secured liens on all assets held by BioMed Realty Holdings, Inc. and BMV Direct SOTRS LP, which secured liens are subordinated to Lender’s Lien pursuant to the BMR Subordination Agreement.

 

Zosano Pharma, Inc. LSA


Schedule 5.14

Capitalization

Borrower’s capitalization as of the Closing Date is as follows: 1,000 authorized shares of Common Stock, all of which are outstanding and held by ZP Holdings, Inc.

See Schedule 1 for list of Subsidiaries of Borrower.

 

Zosano Pharma, Inc. LSA


Schedule 7.9

Licenses

 

1. Intellectual Property License Agreement between ALZA Corporation and The Macroflux Corporation (predecessor in interest to Borrower) dated as of October 5, 2006, as amended by the letter agreement dated February 21, 2011 between ALZA Corporation and Borrower.

 

2. Collaboration, Development and License Agreement, dated as of January 31, 2014, by and between Novo Nordisk A/S and Borrower.

 

Zosano Pharma, Inc. LSA

Exhibit 10.21

JOINDER AGREEMENT

This Joinder Agreement (the “ Joinder Agreement ”) is made and dated as of June 3, 2014, and is entered into by and between ZP Holdings, Inc., a Delaware corporation (“ ZP Holdings ”), and Hercules Technology Growth Capital, Inc., a Maryland corporation, as a Lender.

RECITALS

A. ZP Holdings’s Affiliate, Zosano Pharma, Inc. (“ Company ”) has entered into that certain Loan and Security Agreement dated June 3, 2014 with Lender, as such agreement may be amended (the “ Loan Agreement ”), together with the other agreements executed and delivered in connection therewith;

B. ZP Holdings acknowledges and agrees that it will benefit both directly and indirectly from Company’s execution of the Loan Agreement, the Warrant and the other agreements executed and delivered in connection therewith;

AGREEMENT

NOW THEREFORE, ZP Holdings 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, ZP Holdings 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 (a) all exhibits and schedules referred to in Section 5 or 7 of the Agreement are replaced by the exhibits and schedules attached to this Joinder Agreement, and (b) Lender shall have no duties, responsibilities or obligations to ZP Holdings arising under or related to the Loan Agreement or the other agreements executed and delivered in connection therewith, and (c) that if ZP Holdings is covered by Company’s insurance, ZP Holdings shall not be required to maintain separate insurance or comply with the provisions of Sections 6.1 and 6.2 of the Loan Agreement, and (d) that as long as Company satisfies the requirements of Section 7.1 of the Loan Agreement, ZP Holdings shall not have to provide Lender separate Financial Statements. 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 ZP Holdings or any other person or entity. By way of example (and not an exclusive list): (a) Lender’s providing notice to Company in accordance with the Loan Agreement or as otherwise agreed between Company and Lender shall be deemed provided to ZP Holdings; (b) Lender’s providing an Advance to Company shall be deemed an Advance to ZP Holdings; and (c) ZP Holdings shall have no right to request an Advance or make any other demand on Lender.

 

3. ZP Holdings acknowledges that it benefits, both directly and indirectly, from the Loan Agreement and the delivery of the Warrant, and hereby waives, for itself and on behalf on any and all successors in interest (including without limitation any assignee for the benefit of creditors, receiver, bankruptcy trustee or itself as debtor-in-possession under any bankruptcy proceeding) to the fullest extent provided by law, any and all claims, rights or defenses to the enforcement of this Joinder Agreement or the Warrant on the basis that (i) it failed to receive adequate consideration for the execution and delivery of this Joinder Agreement or Warrant, or (ii) its obligations under this Joinder Agreement or Warrant are avoidable as a fraudulent conveyance.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

Joinder Agreement - ZP Holdings


[SIGNATURE PAGE TO JOINDER AGREEMENT]

 

ZP HOLDINGS, INC.:  

/s/ Vikram Lamba

  .
By:    
Name:   Vikram Lamba  
Title:   CEO  
Address: 34790 Ardentech Court
Fremont, CA 94555
Telephone: 510-745-1200
Facsimile: 510-742-6288
HERCULES TECHNOLOGY GROWTH CAPITAL, INC. a Maryland corporation
Signature:  

/s/ Ben Bang

Print Name:   Ben Bang
Title:   Senior Counsel
Address:  

400 Hamilton Ave., Suite 310

Palo Alto, CA 94301

Facsimile: 650-473-9194

  Telephone: 650-289-3060

 

Joinder Agreement - ZP Holdings


EXHIBIT C

NAME, LOCATIONS, AND OTHER INFORMATION FOR ZP HOLDINGS

1. ZP Holdings represents and warrants to Lender that ZP Holdings’ current name and organizational status as of the Closing Date is as follows:

 

Name:    ZP Holdings, Inc.
Type of organization:    Corporation
State of organization:    Delaware
Organization file number:    5101027

2. ZP Holdings represents and warrants to Lender that for five (5) years prior to the Closing Date, ZP Holdings did not do business under any other name or organization or form except the following:

Name: none

Used during dates of: n/a

Type of Organization:

State of organization:

Organization file Number:

ZP Holdings’ fiscal year ends on December 31

ZP Holdings’ federal employer tax identification number is: 45-4488360

3. ZP Holdings represents and warrants to Lender that its chief executive office is located at 34790 Ardentech Court, Fremont, CA 94555.


EXHIBIT D

ZP HOLDINGS PATENTS, REGISTERED TRADEMARKS, REGISTERED

COPYRIGHTS, APPLICATIONS FOR THE FOREGOING AND MATERIAL

LICENSES

None.


Schedule 1

Subsidiaries

Borrower (Zosano Pharma, Inc.), a Delaware corporation located at 34790 Ardentech Court, Fremont, CA 94555.

Zosano, Inc. (formerly named Eco Planet Corp.), a Delaware corporation located at 34790 Ardentech Court, Fremont, CA 94555.

ZP Holdings is the ultimate parent of ZP Group LLC, a Delaware limited liability company and wholly owned subsidiary of Borrower located at 34790 Ardentech Court, Fremont, CA 94555.


Schedule 1A

Existing Permitted Indebtedness

Secured Promissory Note in the original principal amount of $8,556,533 issued to BioMed Realty Holdings, Inc. by ZP Holdings, Inc. (and subsequently assigned by BioMed Realty Holdings, Inc. to its affiliate BMV Direct SOTRS LP), which Secured Promissory Note is subordinated to the Secured Obligations pursuant to the Subordination Agreement. As of the Closing Date, the principal and interest outstanding under such note totals $10,065,540.00.

Convertible Promissory Note dated September 9, 2013 in the original principal amount of $303,372 issued to BMV Direct SO LP by ZP Holdings, Inc. As of the Closing Date, the principal and interest outstanding under such note totals $321,125.50.

Convertible Promissory Note dated September 9, 2013 in the original principal amount of $991,047.43 issued to BMV Direct SOTRS LP by ZP Holdings, Inc. As of the Closing Date, the principal and interest outstanding under such note totals $1,049,044.07.

Convertible Promissory Note dated September 9, 2013 in the original principal amount of $1,159,532.21 issued to New Enterprise Associates 12, Limited Partnership by ZP Holdings, Inc. As of the Closing Date, the principal and interest outstanding under such note totals $1,227,388.67.

Convertible Promissory Note dated September 9, 2013 in the original principal amount of $579,766.10 issued to ProQuest Investments IV, L.P. by ZP Holdings, Inc. As of the Closing Date, the principal and interest outstanding under such note totals $613,694.33.

Convertible Promissory Note dated September 9, 2013 in the original principal amount of $5.30 issued to ProQuest Management LLC by ZP Holdings, Inc. As of the Closing Date, the principal and interest outstanding under such note totals $5.61.

Convertible Promissory Note dated February 26, 2014 in the original principal amount of $249,000 issued to BMV Direct SO LP by ZP Holdings, Inc. As of the Closing Date, the principal and interest outstanding under such note totals $254,293.81.

Convertible Promissory Note dated February 26, 2014 in the original principal amount of $1,069,709.23 issued to BMV Direct SOTRS LP by ZP Holdings, Inc. As of the Closing Date, the principal and interest outstanding under such note totals $1,092,451.54.

Convertible Promissory Note dated February 26, 2014 in the original principal amount of $1,181,290.77 issued to New Enterprise Associates 12, Limited Partnership by ZP Holdings, Inc. As of the Closing Date, the principal and interest outstanding under such note totals $1,206,405.34.


Schedule 1B

Existing Permitted Investments

100% stock ownership of Borrower (Zosano Pharma, Inc.), a Delaware corporation located at 34790 Ardentech Court, Fremont, CA 94555.

100% stock ownership of Zosano, Inc. (formerly named Eco Planet Corp.), a Delaware corporation located at 34790 Ardentech Court, Fremont, CA 94555.

Borrower holds 100% of the membership interests in ZP Group LLC, a Delaware limited liability company located at 34790 Ardentech Court, Fremont, CA 94555.


Schedule 1C

Existing Permitted Liens

Secured liens on all assets held by BioMed Realty Holdings, Inc. and BMV Direct SOTRS LP, which secured liens are subordinated to Lender’s Lien pursuant to the Subordination Agreement.


Schedule 5.14

Capitalization

ZP Holdings’ capitalization as of the Closing Date is as follows: 30,000,000 authorized shares of Common Stock, 20,427,250.579 of which are outstanding and held as follows:**

 

Name of Stockholder

   No. of Shares  

ALZA Corporation

     7,052.067   

Mahmoud Ameri

     16.000   

Christina Anaya

     0.491   

James Barrett

     22.000   

BMV Direct SO LP

     1,816,975.000   

BMV Direct SOTRS LP

     6,193,293.000   

Joseph Bravo

     2.000   

Peter Daddona

     1,275,151.000   

Werner Frei

     2.455   

HMB BioCapital (EUR) L.P.

     391.253   

HMB BioCapital (US) L.P.

     132.442   

HBM BioVentures (Cayman) Ltd.

     2,094.779   

Ederlita C. Kwan

     0.931   

Vikram Lamba

     2,525,000.000   

Laurie Liu

     6.000   

Jimmy Lopez

     1.000   

Jim Mellers

     8.000   

NEA Ventures 2006, Limited Partnership

     19.836   

New Enterprise Associates 12, Limited Partnership

     7,175,524.904   

Nomura Phase4 Ventures L.P.

     787,522.946   

Gary Otake

     17.000   

Elaine Peters

     11.000   

ProQuest Investments IV, L.P.

     643,392.870   

ProQuest Management LLC

     6.000   

Asha Ramdas

     10.605   

John Richard

     30.000   

Samantha Olivia Sadlowski

     1.000   


Gail Schulze

     467.000   

Thorsten von Stein

     44.000   

Cedric Wright

     5.000   

Greg Yedinak

     50.000   

 

** On the Closing Date, ZP Holdings will issue an additional 125,000 shares of Common Stock to BMV Direct SOTRS LP pursuant to a Stock Purchase Agreement dated as of the Closing Date between ZP Holdings and BMV Direct SOTRS LP.

ZP Holdings has reserved 2,264,108 shares of Common Stock for issuance pursuant to the terms of its 2012 Stock Incentive Plan. Options to purchase 2,171,396 of such shares have been granted and are outstanding.

Pursuant to that certain Note Purchase Agreement dated as of September 9, 2013 by and among ZP Holdings and the purchasers named therein, ZP Holdings issued (and there are currently outstanding) Convertible Promissory Notes dated September 9, 2013 in the aggregate original principal amount of $3,033,723.04 (as set forth on Schedule 1A), which Convertible Promissory Notes automatically convert into equity securities of ZP Holdings upon the closing of a Qualified Financing as more fully described in such Note Purchase Agreement.

Pursuant to that certain Note Purchase Agreement dated as of February 26, 2014 by and among ZP Holdings and the purchasers named therein, ZP Holdings issued (and there are currently outstanding) Convertible Promissory Notes dated February 26, 2014 (as set forth in Schedule 1A) in the aggregate original principal amount of $2,500,000, which Convertible Promissory Notes automatically convert into equity securities of ZP Holdings upon the closing of a Qualified Financing as more fully described in such Note Purchase Agreement.

See Schedule 1 for list of Subsidiaries of ZP Holdings.


Schedule 7.9

Licenses

None.

Exhibit 10.22

ZP HOLDINGS, INC. PLEDGE AGREEMENT

This ZP HOLDINGS, INC. PLEDGE AGREEMENT, dated as of June 3, 2014 (together with all amendments, restatements, supplements or other modifications, if any, from time to time hereto, this “ Agreement ) among ZP Holdings, Inc., a Delaware corporation (“ Pledgor ), and Hercules Technology Growth Capital, Inc., a Maryland corporation (“ Hercules ”) (together with any future assignees and successors, the “ Secured Party ).

W I TN E S S E T H:

WHEREAS, Pledgor is the record and beneficial owner of 100% of the capital stock of Zosano Pharma, Inc., a Delaware corporation (“ Pledged Entity ), as set forth on Schedule I hereto (the “ Initial Pledged Stock ”);

WHEREAS, Pledged Entity has agreed to enter into that certain Loan and Security Agreement of even date herewith with Hercules (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified, the “ LSA ”) and the other Loan Documents (as defined therein) in connection therewith;

WHEREAS, Pledgor has agreed to enter into that certain Joinder Agreement of even date herewith with Hercules (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified, the “ Joinder ”);

WHEREAS, Pledgor and Pledged Entity both benefit from the terms of the LSA, the Joinder and the other Loan Documents; and

WHEREAS, in order to induce Hercules to agree to the terms of the LSA and the other Loan Documents, Pledgor has agreed to pledge the Pledged Collateral to Secured Party in accordance herewith.

NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and to induce Hercules to enter into the LSA and other Loan Documents, it is agreed as follows:

1. Definitions . Unless otherwise defined herein, terms defined in the LSA are used herein as therein defined, and the following shall have (unless otherwise provided elsewhere in this Agreement) the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined):

Additional Pledged Stock ” means all capital stock of Pledged Entity acquired by Pledgor after the date hereof.

Bankruptcy Code ” means the provisions of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. , as amended or supplemented from time to time, or any successor statute, and any and all rules and regulations issued or promulgated in connection therewith.

Default ” means the occurrence of an Event of Default or the breach of this Agreement.

 

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Lien ” means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing and (ii) any purchase option, call or similar right of a third party with respect to any Pledged Stock.

Pledged Collateral ” has the meaning assigned to such term in Section 2 hereof.

Pledged Stock ” means Initial Pledged Stock and any Additional Pledged Stock.

Proceeds ” has the meaning set forth in Section 9-102(a)(64) of the UCC.

Secured Obligations ” has the meaning assigned to such term in Section 3 hereof.

UCC ” shall mean the Uniform Commercial Code as in effect from time to time in the State of California; provided, however, that in the event that, by reason of mandatory provisions of law, any or all of the perfection or priority of, or remedies with respect to, any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of California, the term “UCC” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions hereof relating to such perfection, priority or remedies.

2. Pledge . Pledgor hereby pledges and grants to Secured Party a first priority security interest in all of the following (collectively, the “ Pledged Collateral” ):

(a) The Pledged Stock and the certificates representing the Pledged Stock, if any, any securities entitlements relating thereto, including all voting rights associated with the Pledged Stock, and all cash or non-cash dividends and distributions, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Stock;

(b) All options, rights or other agreements relating to the Pledged Stock or the Pledged Entity;

(c) All rights of Pledgor under any shareholder or voting trust agreement or similar agreement; and

(d) All Proceeds of the foregoing.

3. Security for Obligations . This Agreement secures, and the Pledged Collateral is security for, the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise, and performance of all obligations of any kind under or in connection with the LSA, the Joinder, the other Loan Documents and all obligations of Pledgor now or hereafter existing under this Agreement including, without limitation, all fees, costs and expenses whether in connection with collection actions hereunder or otherwise (collectively, the “ Secured Obligations ).

4. Delivery of Pledged Collateral . All certificates and instruments, if any, evidencing the Initial Pledged Stock shall be delivered to Secured Party on or prior to the date hereof and held by or on behalf of Secured Party pursuant hereto. All certificates and instruments, if any, evidencing any

 

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Additional Pledged Stock or other Pledged Collateral shall be delivered to Secured Party promptly after Pledgor acquires rights therein and held by or on behalf of Secured Party pursuant hereto. All Pledged Stock or other Pledged Collateral delivered to the Secured Party shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party.

5. Representations and Warranties . Pledgor represents and warrants to Secured Party that:

(a) Pledgor is, and at the time of delivery of the Pledged Stock to Hercules will be, the sole holder of record and the sole beneficial owner of such Pledged Collateral pledged by Pledgor free and clear of any Lien thereon or affecting the title thereto, except for any Lien created by this Agreement);

(b) Pledgor has the corporate power and requisite authority to pledge, assign, transfer, deliver, deposit and set over the Pledged Collateral pledged by Pledgor to Secured Party as provided herein;

(c) As of the date hereof, there are no existing options, warrants, calls or commitments of any character whatsoever relating to the Pledged Stock;

(d) No consent, approval, authorization or other order or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required (i) for the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by Pledgor, or (ii) for the exercise by Secured Party of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement, except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally;

(e) All of the Initial Pledged Stock was validly issued to Pledgor, and any purchasers of the Pledged Stock will not have any obligation to make additional payments to the Pledged Entity or its creditors or contributions to the Pledged Entity or its creditors solely by reason of the purchasers’ purchase of the Pledged Stock.

(f) The pledge, assignment and delivery of the Pledged Collateral pursuant to this Agreement will create a valid security interest in favor of the Secured Party in the Pledged Collateral and the proceeds thereof, securing the payment of the Secured Obligations, subject to no other Lien;

(g) This Agreement has been duly authorized, executed and delivered by Pledgor and constitutes a legal, valid and binding obligation of Pledgor enforceable against Pledgor in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability;

(h) Pledgor has been duly incorporated under the laws of the state of Delaware and remains validly existing in good standing under the laws of Delaware. The full legal name of Pledgor is as set forth on the signature pages hereof and it has not done in the last five (5) years, and does not do, business under any other name (including any trade-name or fictitious business name); and

 

  (i) No effective UCC financing statement, fixture filing or other instrument similar in effect under any applicable law covering all or any part of the Pledged Collateral is on file in any filing or recording office.

 

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6. Covenants and Agreements . Pledgor covenants and agrees that:

(a) Without the prior written consent of Secured Party, Pledgor will not (i) sell, assign, transfer, pledge, or otherwise encumber any of its rights in or to (x) the Pledged Collateral, or (y) any unpaid dividends, interest or other distributions or payments with respect to the Pledged Collateral or (ii) grant a Lien in the Pledged Collateral;

(b) Pledgor will, at its expense, promptly execute, acknowledge and deliver all such instruments and take all such actions as Secured Party from time to time may reasonably request in order to ensure to Secured Party the benefits of the Liens in and to the Pledged Collateral intended to be created by this Agreement, including the filing of any necessary UCC financing statements, which may be filed by Secured Party with or (to the extent permitted by law) without the signature of Pledgor, and will cooperate with Secured Party, at Pledgor’s expense, in obtaining all necessary approvals and making all necessary filings under federal, state, local or foreign law in connection with such Liens or any sale or transfer of the Pledged Collateral;

(c) Pledgor has and will defend the title to the Pledged Collateral and the Liens of Secured Party in the Pledged Collateral against the claim of any Person and will maintain and preserve such Liens; and

(d) Pledgor hereby irrevocably consents to the transfer and conveyance of the Pledged Stock in the event that the Secured Party exercises its rights pursuant to Section 8(a) upon a Default. Pledgor further covenants to take any such actions as may be reasonably necessary to effectuate the rights of the Secured Party pursuant to Section 8.

7. Voting Rights . So long as Secured Party shall not have given notice to Pledgor that a Default has occurred and is continuing, Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement. Upon the occurrence and during the continuance of a Default of which the Secured Party shall have given Pledgor notice, all rights of Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant hereto shall cease, and, all such rights shall thereupon become vested in the Secured Party which shall thereupon have the sole right to exercise such voting and other consensual rights.

8. Defaults and Remedies; Proxy.

(a) Upon the occurrence of and during the continuation of any Default, and concurrently with written notice to Pledgor, Secured Party (personally or through an agent) may exercise one or more of the following rights or remedies: (i) to exercise the voting and all other rights as a holder with respect to the Pledged Stock; (ii) to collect and receive all cash dividends, interest, principal and other distributions made on the Pledged Stock; or (iii) to collect and receive all cash dividends, interest, principal and other distributions made on the Pledged Stock; or (iii) to exercise and enforce any or all rights and remedies available upon default to a secured party under the UCC, including the right to sell in one or more sales after ten (10) days’ notice of the time and place of any public sale or of the time at which a private sale is to take place (which notice Pledgor agrees is commercially reasonable) the whole or any part of the Pledged Collateral. Any sale shall be made at a public or private sale at Secured Party’s place of business, or at any place to be named in the notice of sale, either for cash or upon credit or for future delivery at such price as Secured Party may deem fair, and Secured Party may be the purchaser of the whole or any part of the Pledged Collateral so sold and hold the same thereafter in its own right free from any claim of Pledgor or any right of redemption. Each sale shall be made to the

 

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highest bidder, but Secured Party reserves the right to reject any and all bids at such sale which, in its discretion, it shall deem inadequate. UPON THE OCCURRENCE OF AND DURING THE CONTINUATION OF ANY DEFAULT, PLEDGOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS SECURED PARTY AS THE PROXY AND ATTORNEY-IN-FACT OF PLEDGOR WITH RESPECT TO THE PLEDGED COLLATERAL FOR THE CONTINUATION OF THE DEFAULT UNTIL SUCH TIME AS THE DEFAULT IS CURED OR THE PLEDGED STOCK ARE SOLD IN ACCORDANCE WITH SECTION 8(a)(iii). THE APPOINTMENT OF SECURED PARTY AS PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF THE PLEDGED STOCK WOULD BE ENTITLED (INCLUDING THE RIGHT TO VOTE THE PLEDGED STOCK, WITH FULL POWER OF SUBSTITUTION TO DO SO). SUCH PROXY SHALL BECOME EFFECTIVE AS SET FORTH IN THIS SECTION 8(a), AUTOMATICALLY AND WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY PLEDGED STOCK ON THE RECORD BOOKS OF PLEDGED ENTITY) BY ANY PERSON (INCLUDING PLEDGED ENTITY OR ANY OFFICER OR SECURED PARTY THEREOF). NOTWITHSTANDING THE FOREGOING, SECURED PARTY SHALL NOT HAVE ANY DUTY TO EXERCISE ANY SUCH RIGHT OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO.

(b) If, at any time when Secured Party shall determine to exercise its right to sell the whole or any part of the Pledged Collateral hereunder, such Pledged Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as amended (or any similar statute then in effect) (the “Act”), Secured Party may, in its discretion (subject only to applicable requirements of law), sell such Pledged Collateral or part thereof by private sale in such manner and under such circumstances as Secured Party may deem necessary or advisable, but subject to the other requirements of this Section 8 and the UCC, and shall not be required to effect such registration or to cause the same to be effected. Without limiting the generality of the foregoing, in any such event, subject to the requirements of the UCC, Secured Party in its discretion (i) may, in accordance with applicable securities laws, proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Collateral or part thereof could be or shall have been filed under said Act (or similar statute), (ii) may approach and negotiate with a single possible purchaser to effect such sale, and (iii) may restrict such sale to a purchaser who is an accredited investor under the Act and who will represent and agree that such purchaser is purchasing for its own account, for investment and not with a view to the distribution or sale of such Pledged Collateral or any part thereof. In addition to a private sale as provided above in this Section 8, if any of the Pledged Collateral shall not be freely distributable to the public without registration under the Act (or similar statute) at the time of any proposed sale pursuant to this Section 8 , then Secured Party shall not be required to effect such registration or cause the same to be effected but, in its discretion (subject only to applicable requirements of law), may require that any sale hereunder (including a sale at auction) be conducted subject to restrictions:

(i) as to the financial sophistication and ability of any Person permitted to bid or purchase at any such sale;

(ii) as to the content of legends to be placed upon any certificates representing the Pledged Collateral sold in such sale, including restrictions on future transfer thereof;

(iii) as to the representations required to be made by each Person bidding or purchasing at such sale relating to that Person’s access to financial information about Pledgor and such

 

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Person’s intentions as to the holding of the Pledged Collateral so sold for investment for its own account and not with a view to the distribution thereof; and

(iv) as to such other matters as Secured Party may, in its discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may be effected in compliance with the Bankruptcy Code and other laws affecting the enforcement of creditors’ rights and the Act and all applicable state securities laws.

(c) Pledgor recognizes that Secured Party may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof in accordance with clause 8(b) above. Pledgor also acknowledges that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private. Secured Party shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit Pledged Entity to register such securities for public sale under the Act, or under applicable state securities laws, even if Pledgor and Pledged Entity would agree to do so.

(d) Pledgor agrees to the maximum extent permitted by applicable law that following the occurrence and during the continuance of a Default it will not at any time plead, claim or take the benefit of any appraisal, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Agreement, or the absolute sale of the whole or any part of the Pledged Collateral or the possession thereof by any purchaser at any sale hereunder, and Pledgor waives the benefit of all such laws to the extent it lawfully may do so. No failure or delay on the part of Secured Party to exercise any such right, power or remedy and no notice or demand which may be given to or made upon Pledgor by Secured Party with respect to any such remedies shall operate as a waiver thereof, or limit or impair Secured Party’s right to take any action or to exercise any power or remedy hereunder, without notice or demand, or prejudice its rights as against Pledgor in any respect.

(e) Pledgor further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to Secured Party, that Secured Party shall have no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 8 shall be specifically enforceable against Pledgor, and Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that the Secured Obligations are not then due and payable in accordance with the agreements and instruments governing and evidencing such obligations.

9. Waiver . No delay on Secured Party’s part in exercising any power of sale, Lien, option or other right hereunder, and no notice or demand which may be given to or made upon Pledgor by Secured Party with respect to any power of sale, Lien, option or other right hereunder, shall constitute a waiver thereof, or limit or impair Secured Party’s right to take any action or to exercise any power of sale, Lien, option, or any other right hereunder, without notice or demand, or prejudice Secured Party’s rights as against Pledgor in any respect.

10. Assignment . The provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. No party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other party provided that the Secured Party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of Pledgor to the acquirer, the surviving entity or the entity that controls such surviving entity in the event of its merger or consolidation or change in

 

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control or similar transaction of the Secured Party.

11. Termination . This Agreement shall terminate and, except as otherwise provided herein, all of the Pledgor’s obligations hereunder shall terminate upon the earlier of: (i) the sale of the Pledged Stock pursuant to Section 8(a)(iii) of this Agreement, (ii) the payment in full and/or satisfaction of any and all Secured Obligations, (iii) the dissolution and winding up of the Pledged Entity and ensuing distribution of proceeds and (iv) the liquidation of the Pledged Entity and ensuing distribution of proceeds.

12. Lien Absolute and Unconditional; Waiver of Suretyship Defenses.

(a) All rights of Secured Party hereunder, and all obligations of Pledgor hereunder, shall be absolute and unconditional irrespective of, and Pledgor hereby waives any defense based on:

(i) any lack of validity or enforceability of the LSA, Joinder or other Loan Documents or any other agreement or instrument governing or evidencing any Secured Obligations;

(ii) any defense, set-off or counterclaim (other than a defense of payment in full) which may at any time be available to or be asserted by Pledgor or any other Person against Secured Party;

(iii) any change in the time, manner or place of payment of, or in any other term of, all or any part of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the LSA, Joinder or other Loan Documents or any other agreement or instrument governing or evidencing any Secured Obligations;

(iv) any exchange, release or non-perfection of any other Collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations;

(v) the insolvency of Pledgor;

(vi) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor; or

(vii) any exchange, release and/or surrender of all or any of the collateral securing the Secured Obligations (including, without limitation, the Pledged Collateral), or any part thereof, by whomsoever deposited, which is now or may hereafter be held by Secured Party in connection with all or any of the Secured Obligations; all in such manner and upon such terms as Secured Party may deem proper, and without notice to or further assent from Pledgor, it being hereby agreed that Pledgor shall be and remain bound upon this Agreement, irrespective of the value or condition of any of the Collateral, and notwithstanding any such change, exchange, settlement, compromise, surrender, release, renewal or extension, and notwithstanding also that the Secured Obligations may, at any time, exceed the aggregate principal amount thereof set forth in the LSA or other Loan Documents, or any other agreement governing any Secured Obligations. Pledgor hereby waives notice of acceptance of this Agreement, and also presentment, demand, protest and notice of dishonor of any and all of the Secured Obligations, and promptness in commencing suit against any party hereto or liable hereon, and in giving any notice to or of making any claim or demand hereunder upon Pledgor. No act or omission of any kind on Secured Party’s part shall in any event affect or impair this Agreement.

(b) Pledgor hereby waives any and all notice of the creation, renewal, extension or accrual of

 

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any of the Secured Obligations and notice of or proof of reliance by Secured Party upon Pledgor’s obligations under this Agreement; the Secured Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon Pledgor’s obligations under this Agreement; and all dealings between Pledgor, on the one hand, and Secured Party, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon Pledgor’s obligations under this Agreement.

(c) Pledgor hereby waives diligence, presentment, demand or protest (to the extent permitted by applicable law) of any kind in connection with this Agreement or any collateral securing the Secured Obligations, including, without limitation, the Pledged Collateral. Except for notices provided for herein, Pledgor hereby waives notice (to the extent permitted by applicable law) of any kind in connection with this Agreement or any collateral securing the Secured Obligations, including, without limitation, the Pledged Collateral. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against Pledgor, Secured Party may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against Pledgor or any other Person or against any collateral security or guarantee for the Secured Obligations or any right of offset with respect thereto, and any failure by Secured Party to make any such demand, to pursue such other rights or remedies or to collect any payments from Pledgor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of Pledgor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve Pledgor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of Secured Party against Pledgor. For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.

13. Reinstatement . This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Pledgor or Pledged Entity for liquidation or reorganization, should Pledgor or Pledged Entity become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Pledgor’s or Pledged Entity’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference”, “fraudulent conveyance”, or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

14. Consent to Jurisdiction and Venue . All judicial proceedings (to the extent that the reference requirement of Section 15 is not applicable) arising in or under or related to this Agreement may be brought in any state or federal court located in the State of California. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to nonexclusive personal jurisdiction in Santa Clara County, State of California; (b) waives any objection as to jurisdiction or venue in Santa Clara County, State of California; (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 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 18, and shall be deemed effective and received as set forth in Section 18. 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.

 

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15. 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 PLEDGOR AND SECURED PARTY 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 BORROWER AGAINST SECURED PARTY OR ITS ASSIGNEE OR BY SECURED PARTY OR ITS ASSIGNEE AGAINST PLEDGOR. This waiver extends to all such Claims, including Claims that involve Persons other than Pledgor and Secured Party; Claims that arise out of or are in any way connected to the relationship between Pledgor and Secured Party; 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, the LSA or any other Loan Document.

(b) If the waiver of jury trial set forth in Section 15(a) is ineffective or unenforceable, the parties agree that all Claims shall be resolved by reference to a private judge sitting without a jury, pursuant to Code of Civil Procedure Section 638, before a mutually acceptable referee or, if the parties cannot agree, a referee selected by the Presiding Judge of Santa Clara County, California. Such proceeding shall be conducted in Santa Clara County, California, with California rules of evidence and discovery applicable to such proceeding.

(c) In the event Claims are to be resolved by judicial reference, either party may seek from a court identified in Section 14, any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all Claims are otherwise subject to resolution by judicial reference.

16. Miscellaneous .

(a) Secured Party may execute any of its duties hereunder by or through agents or employees and shall be entitled to advice of counsel concerning all matters pertaining to its duties hereunder.

(b) Pledgor agrees to promptly reimburse Secured Party for actual out-of-pocket expenses, including, without limitation, reasonable counsel fees, incurred by Secured Party in connection with the administration and enforcement of this Agreement.

(c) Neither Secured Party, nor any of its respective officers, directors, employees, agents or counsel shall be liable for any action lawfully taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction.

(d) THIS AGREEMENT SHALL BE BINDING UPON PLEDGOR AND ITS SUCCESSORS AND ASSIGNS (INCLUDING A DEBTOR-IN-POSSESSION ON BEHALF OF PLEDGOR), AND SHALL INURE TO THE BENEFIT OF, AND BE ENFORCEABLE BY, SECURED PARTY AND ITS SUCCESSORS AND ASSIGNS AND NONE OF THE TERMS OR PROVISIONS OF THIS AGREEMENT MAY BE WAIVED, ALTERED, MODIFIED OR AMENDED EXCEPT IN WRITING DULY SIGNED FOR AND ON BEHALF OF SECURED PARTY AND PLEDGOR. THIS AGREEMENT AND ANY CLAIM OR CONTROVERSY ARISING OUT OF THE SUBJECT MATTER HEREOF (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE) SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN

 

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ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA (OTHER THAN ANY CHOICE OF LAW RULES THAT WOULD RESULT IN THE APPLICATION OF LAWS OTHER THAN THE LAW OF THE STATE OF CALIFORNIA).

(e) In the event any arbitration, court action or other enforcement activity is undertaken by either party, the prevailing or non-breaching party shall be entitled to its out-of-pocket costs, including court costs and reasonable attorney’s fees incurred therein in addition to any other relief to which such party may be entitled.

17. Severability . If for any reason any provision or provisions hereof are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or effect those portions of this Agreement which are valid.

18. Notices . Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon any other a communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and either shall be delivered in person or sent by registered or certified mail, return receipt requested, with proper postage prepaid, or by facsimile transmission and confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided herein:

(a) If to Secured Party, at:

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

Legal Department

Attention: Chief Legal Officer and Himani Bhalla

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Facsimile: 650-473-9194

Telephone: 650-289-3060

(b) If to Pledgor, at:

ZP Holdings, Inc.

34790 Ardentech Court

Fremont, CA 94555

Attn: Chief Executive Officer

or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly served, given or delivered (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 16 ), (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid, or (d) when delivered, if hand-delivered by messenger. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent,

 

Collateral Pledge Agreement – ZP Holdings, Inc.

 

10


approval, declaration or other communication.

19. Section Titles . The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

20. Counterparts . This Agreement may be executed in any number of counterparts, which shall, collectively and separately, constitute one agreement.

21. Benefit of Secured Party . All security interests granted or contemplated hereby shall be for the benefit of Secured Party, and all proceeds or payments realized from the Pledged Collateral in accordance herewith shall be applied to those obligations owed to Secured Party under or in connection with the terms of the LSA, Joinder or other Loan Documents entered into in connection therewith.

[signature page follows]

 

Collateral Pledge Agreement – ZP Holdings, Inc.

 

11


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above.

 

ZP Holdings, Inc.
Signature:  

/s/ Vikram Lamba

Print Name:  

Vikram Lamba

Title:  

CEO

Accepted in Palo Alto, California:

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
Signature:  

/s/ Ben Bang

Print Name:   Ben Bang
Title:   Senior Counsel

[Signature Page to ZP Holdings, Inc. Pledge Agreement]

 

Collateral Pledge Agreement – ZP Holdings, Inc.

 

12


SCHEDULE I

 

Name    Number of Shares      Class/Series

Zosano Pharma, Inc.

     1,000       Common Stock

 

Collateral Pledge Agreement – ZP Holdings, Inc.

 

13

Exhibit 10.23

[ZP LETTERHEAD]

January 16, 2014

Dr. Peter Daddona

 

Re: Amendment No. 2 to Employment Agreement

Dear Pete:

This letter agreement (this “ Amendment No. 2 ”) amends certain provisions of your employment letter agreement with Zosano Pharma, Inc., a Delaware corporation (the “ Company ”), and ZP Holdings, Inc., a Delaware corporation and the Company’s parent (“ Parent ”), dated May 11, 2012 (the “ Original Agreement ”), as amended by the letter agreement dated January 6, 2014 among you, the Company and Parent (“ Amendment No. 1 ” and together with the Original Agreement, the “ Employment Agreement ”).

Pursuant to Section 1 (Level of Effort) of Amendment No. 1, you, the Company and Parent agreed (i) that effective as of January 6, 2014 you would be employed by the Company on a part-time basis and work approximately a half-time schedule, with a base salary of $167,375, two weeks (ten business days) of paid vacation each year, and your benefits as described in Sections 2(b), (c), (d) and (f) of the Original Agreement remaining unchanged, and (ii) that any termination of your employment would be treated as a voluntary termination of employment by you, and would not be deemed a termination by the Company without Cause or a termination by you for Good Reason, for purposes of Section 5(d) of the Original Agreement. Notwithstanding the foregoing, you and the Company now desire that your committed level of effort revert to full-time. Therefore, effective as of January 16, 2014, you will be employed by the Company on a full-time basis (in accordance with Section 1 of the Original Agreement) as its Chief Scientific Officer and Executive Vice President Research & Development, your annual base salary will be $334,745, and you will be entitled to four weeks (twenty business days) of paid vacation per year in accordance with Section 2(e) of the Original Agreement. Your benefits as described in Sections 2(b), (c), (d) and (f) of the Original Agreement will remain unchanged. In addition, the Employment Agreement is hereby amended by deleting the last two sentences of Section 1 (Level of Effort) of Amendment No. 1 in their entirety. As such, a termination of your employment in the future may be treated as a voluntary termination of employment by you, as a termination by you for Good Reason, as a termination by the Company for Cause, or as a termination by the Company other than for Cause, as the case may be.

Except as expressly amended by this Amendment No. 2, the Employment Agreement (including, without limitation, the definition of “Change in Control” as set forth


in Section 2 of Amendment No. 1) remains in full force and effect and otherwise unchanged. The Employment Agreement shall, together with this Amendment No. 2, be read and construed as a single document. This Amendment No. 2 may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. This Amendment No. 2 shall be governed and construed in accordance with the laws of the State of California, without regard to the conflict of laws principles thereof.

Please indicate your agreement to this Amendment No. 2 by signing below and returning a copy of this letter to the Company at your earliest convenience.

 

Very truly yours,
ZOSANO PHARMA, INC.
By:  

/s/ Vikram Lamba

  Name:   Vikram Lamba
  Title:   President and CEO
ZP HOLDINGS, INC.
By:  

/s/ Vikram Lamba

  Name:   Vikram Lamba
  Title:   President and CEO

 

Acknowledged and agreed by:

/s/ Peter Daddona

Peter Daddona

 

2

Exhibit 10.24

[ZP LETTERHEAD]

January 6, 2014

Dr. Peter Daddona

 

Re: Amendment to Employment Agreement

Dear Pete:

This letter agreement (this “ Amendment ”) amends certain provisions of your employment letter agreement with Zosano Pharma, Inc., a Delaware corporation (the “ Company ”), and ZP Holdings, Inc., a Delaware corporation and the Company’s parent (“ Parent ”), dated May 11, 2012 (the “ Original Agreement ”).

1. Level of Effort . You have requested that your committed level of effort be reduced from full-time to half-time. Therefore, notwithstanding Sections 1 and 2 of the Original Agreement, effective as of January 6, 2014, you will be employed on a part-time basis and will work approximately a half-time schedule. Your base salary as of January 6, 2014 will be $167,375 (1/2 of current base salary). During this part-time employment period, you will be entitled to two weeks (ten business days) of paid vacation each year. Your benefits as described in Sections 2(b), (c), (d) and (f) of the Original Agreement will remain unchanged. Any termination of your employment shall be treated as a voluntary termination of employment by you, and shall not be deemed a termination by the Company without Cause or a termination by you for Good Reason, for purposes of Section 5(d) of the Original Agreement. For the avoidance of doubt, such termination of employment will not be effective until the occurrence of a termination date determined by you or the Company.

2. Change in Control . As you know, the Original Agreement contemplates certain benefits to you in the event of a termination of your employment under certain circumstances following a Change in Control, which is defined therein to include various business combinations involving the Company. The Company and Parent desire to amend the definition of Change in Control to include a merger, consolidation or other business combination or stock sale involving the Company or Parent. Accordingly, the parties agree that the Original Agreement is hereby amended to delete Section 6(b) thereof in its entirety, and to insert the following in its place:

(b) “ Change in Control ” means (A) the sale, lease, exchange, transfer or other disposition of all or substantially all of the assets of the Company and its Affiliates, or (B) any merger, consolidation or other business combination or stock sale (other than a sale of stock for capital raising purposes) that results in the holders of the outstanding voting securities of the Company or Parent immediately prior to such transaction beneficially owning or controlling immediately after such transaction


less than a majority of the voting securities of the Company or Parent, respectively, or the surviving entity or the entity that controls such surviving entity.

Except as expressly amended by this Amendment, the Original Agreement remains in full force and affect and otherwise unchanged. The Original Agreement shall, together with this Amendment, be read and construed as a single document. This Amendment may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. This Amendment shall be governed and construed in accordance with the laws of the State of California, without regard to the conflict of laws principles thereof.

Please indicate your agreement to the Amendment by signing below and returning a copy of this letter to the Company at your earliest convenience.

 

Very truly yours,
ZOSANO PHARMA, INC.
By:  

/s/ Vikram Lamba

  Name:   Vikram Lamba
  Title:   President and CEO
ZP HOLDINGS, INC.
By:  

/s/ Vikram Lamba

  Name:   Vikram Lamba
  Title:   President and CEO

 

Acknowledged and agreed by:

/s/ Peter Daddona

Peter Daddona

 

2

Exhibit 10.25

May 11, 2012

Mr. Peter Daddona

Dear Pete:

This letter will confirm the terms and conditions of your employment with Zosano Pharma, Inc., a Delaware corporation (the “ Company ”) and wholly owned subsidiary of ZP Holdings, Inc., a Delaware corporation (“ Parent ”).

1. Position and Duties . The Company hereby employs you on a full-time basis as its Chief Scientific Officer. You agree to perform the duties of your position and such other duties as may reasonably be assigned to you from time to time by the President and Chief Executive Officer. You also agree that, while employed by the Company, you will devote your full business time and your best efforts, business judgment, skill and knowledge to the advancement of the business and interests of the Company and its Affiliates (as defined in Section 6) and to the discharge of your duties and responsibilities for them. Notwithstanding the foregoing, you may engage in civic, charitable and professional activities (including, but not limited to, serving on up to two (2) outside Boards of Directors at any one time), so long as such activities, in the aggregate, do not interfere with your duties hereunder and the business of the Company and subject to the approval of the Board (which shall not be unreasonably withheld).

2. Compensation and Benefits . During your employment, as compensation for the services performed by you for the Company and its Affiliates, the Company will provide you the following pay and benefits:

(a) Base Salary . The Company will pay you a base salary at the rate of $325,000 per year, payable in accordance with the regular payroll practices of the Company and subject to increase from time to time in accordance with salary reviews of senior executives as established by the Company.

(b) Bonus Compensation . During employment, you will be considered annually for a bonus target of 30% of your base salary; provided, however , that such bonus target may range between 0% and 60% of your base salary and may be awarded either in cash or shares of capital stock of Parent. The amount of any bonus awarded, whether in cash or stock, will be determined by the Board of Directors of Parent (the “ Board ”) in its discretion, based on your performance and the performance of the Company against goals established annually by the Compensation Committee of the Board after consultation with you, as well as the then prevailing cash position of the Company.

(c) Stock Options . The Board shall grant you, under Parent’s 2012 Stock Incentive Plan, an incentive stock option to purchase 283,014 shares of common stock, $0.0001 par value per share, of Parent (“ Common Stock ”). Such stock option shall (A) have an exercise


Mr. Peter Daddona

May 11, 2012

Page 2

 

price per share equal to the fair market value per share of Common Stock on the date of the grant, as determined by the Board, and (B) be subject to vesting requirements such that 25% of the total option shares shall vest on first anniversary of the date of grant and an additional 2.0833% of the total option shares shall vest thereafter on the monthly anniversary of such date; provided, however , that 18.75% of the total option shares shall vest upon termination of employment pursuant to the last sentence of Section 4(a) or the first sentence of Section 4(b); provided, further , that 100% of any then unvested option shares shall vest upon a Constructive Termination Event (as defined in Section 5(b)).

(d) Participation in Employee Benefit Plans . You shall be entitled to participate in any and all employee benefit plans from time to time in effect for the full-time employees of the Company generally, but the Company shall not be required to establish any such program or plan. Such participation shall be subject to (i) the terms of the applicable plan documents and (ii) generally applicable Company policies. The Company may alter, modify, add to or delete its employee benefit plans at any time as it, in its sole discretion, determines to be appropriate.

(e) Vacations . You will be entitled to four weeks of paid vacation per year, in addition to holidays observed by the Company. Vacation may be taken at such times and intervals as you shall determine, subject to the reasonable business needs of the Company.

(f) Business Expenses . The Company will pay or reimburse you for all reasonable 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 it may specify from time to time.

3. Confidential Information and Restricted Activities.

(a) Confidential Information . During the course of your employment with the Company, you will learn of Confidential Information (as defined in Section 6), and you may develop Confidential Information on behalf of the Company. You agree that you will not use or disclose to any Person (as defined in Section 6) any Confidential Information obtained by you incident to your employment or any other association with the Company or any of its Affiliates, except as required by applicable law or for the proper performance of your regular duties and responsibilities for the Company. You understand that this restriction shall continue to apply for three (3) years after your employment terminates, regardless of the reason for such termination. In addition, you agree to sign the Company’s standard form of invention assignment agreement as a condition of your employment hereunder.

(b) Protection of Documents . All documents, records and files, in any media of whatever kind and description, relating to the business, present or otherwise, of the Company or any of its Affiliates, and any copies, in whole or in part, thereof (the “ Documents ”), whether or not prepared by you, shall be the sole and exclusive property of the Company. You agree to safeguard all Documents and to surrender to the Company, at the time


Mr. Peter Daddona

May 11, 2012

Page 3

 

your employment terminates or at such earlier time or times as the President and Chief Executive Officer may specify, all Documents then in your possession or control.

(c) Non-Solicitation . You acknowledge that in your employment with the Company you will have access to Confidential Information which, if disclosed, would assist in competition against the Company and its Affiliates, and that you will also generate good will for the Company and its Affiliates in the course of your employment. Therefore, you agree that the following restrictions on your activities during and after the termination of your employment are necessary to protect the good will, Confidential Information and other legitimate interests of the Company and its Affiliates: While you are employed by the Company and during the 12 months immediately following termination of your employment for whatever reason, you shall not, directly or through any other Person, (A) seek to persuade any employee of the Company or any of its Affiliates to discontinue employment or (B) solicit or encourage any customer, distributor, vendor, or other business partner of the Company or any of its Affiliates or any independent contractor providing services to the Company or any of its Affiliates to terminate or diminish its relationship with them. For purposes of the foregoing, the terms “ employee ,” “ customer ,” “ distributor ,” and “ vendor ” shall also include any person or party who held such status during the immediately preceding six (6) months.

(d) Enforcement of Restrictions . In signing this letter agreement, you give the Company assurance that you have carefully read and considered all the terms and conditions of this letter agreement, including the restraints imposed on you under this Section 3. You agree without reservation that these restraints are necessary for the reasonable and proper protection of the Company and its Affiliates, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. You further agree that, were you to breach any of the covenants contained in this Section 3, the damage to the Company and its Affiliates would be irreparable. You therefore agree that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by you of any of those covenants, without having to post bond. You also agree that the period of restriction in Section 3(c) shall be tolled and shall not run during any period you are in violation thereof. You and the Company further agree that, in the event that any provision of this Section 3 is determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, that provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law. It is also agreed that each of the Company’s Affiliates shall have the right to enforce all of your obligations to that Affiliate under this letter agreement, including without limitation pursuant to this Section 3. It is agreed and understood that the terms of this letter agreement are severable, and that no breach of any provision of this letter agreement or any other purported violation of law by the Company shall operate to excuse you from the performance of your obligations under this Section 3.


Mr. Peter Daddona

May 11, 2012

Page 4

 

4. Termination of Employment . Your employment under this letter agreement shall continue for no definite term until terminated pursuant to this Section 4.

(a) The Company may terminate your employment for Cause upon notice to you setting forth in reasonable detail the nature of the Cause (as defined below). The following, as determined by the Company in its reasonable judgment with the approval of the Board, which approval shall include the affirmative vote of at least 2/3rds of the then current members of the Board other than you, shall constitute “ Cause ” for termination: (i) your persistent and willful refusal to follow reasonable directives of the President and Chief Executive Officer; (ii) gross negligence or willful misconduct in the performance of your duties and responsibilities to the Company or any of its Affiliates; (iii) your material breach of this letter agreement or any other agreement between you and the Company or any of its Affiliates, which breach continues for more than 15 days after the Company gives you written notice which sets forth in reasonable detail the nature of such breach; or (iv) other conduct by you that is or could reasonably anticipated to be materially harmful to the business, interests or reputation of the Company or any of its Affiliates. The Company also may terminate your employment other than for Cause upon written notice to you.

(b) You may terminate your employment for Good Reason (as defined below) upon notice to the Company setting forth in reasonable detail the nature of the Good Reason. The following shall constitute “ Good Reason ” for termination: (i) the Company’s failure to continue you in the position of Chief Scientific Officer with such duties typically associated with such position, or (ii) material failure of the Company to provide you compensation and benefits in accordance with the terms of Section 2, above, for more than ten (10) business days after notice from you specifying in reasonable detail the nature of such failure, except in connection with a decrease in salary affecting each senior management employee of the Company in a proportionate manner, or (iii) relocation of your principal place of employment to a location other than the San Francisco Bay Area, California. You may also terminate your employment other than for Good Reason upon 30 days’ written notice to the Company.

(c) In the event you become disabled during employment and, as a result, are unable to continue to perform substantially all of your duties and responsibilities under this letter agreement, either with or without reasonable accommodation, the Company will continue to pay you your base salary and to provide you benefits in accordance with Section 2(d) above, to the extent permitted by plan terms, for up to twelve (12) weeks of disability during any period of three hundred and sixty-five (365) consecutive calendar days. If you are unable to return to work after twelve (12) weeks of disability, the Company may terminate your employment, upon notice to you. If any question shall arise as to whether you are disabled to the extent that you are unable to perform substantially all of your duties and responsibilities for the Company and its Affiliates, you shall, at the Company’s request, submit to a medical examination by a physician selected by the Company to whom you or your guardian, if any, has no reasonable objection to determine whether you are so disabled, and such determination shall for the purposes of this letter agreement be conclusive of the issue. If such a question arises


Mr. Peter Daddona

May 11, 2012

Page 5

 

and you fail to submit to the requested medical examination, the Company’s determination of the issue shall be binding on you.

5. Severance Payments and Other Matters Related to Termination.

(a) Involuntary Termination . In the event of termination of your employment by the Company other than for Cause, or in the event of your termination of employment for Good Reason, the Company will (i) continue to pay you your base salary for a period of nine (9) months from and after the date of termination, (ii) pay you an amount equal to the lesser of (x) the target bonus of 30% of your base salary pro rata for such nine (9) months or (y) the amount of the annual bonus awarded to you in respect of the prior year pro rata for nine (9) months, such bonus severance to be paid in equal installments during the nine (9)-month period following the date of termination, and (iii) continue to provide you with group health and dental plan benefits for a period of nine (9) months from and after the date of termination, with the cost of the regular premiums for such benefits shared in the same relative proportion by the Company and you as in effect on the date of termination. The Company will also pay you on the date of termination any base salary and bonus compensation earned but not paid through the date of termination, and pay for any vacation time accrued but not used to that date. In addition, as provided in Section 2(c), the vesting schedule for any stock options outstanding on the date of termination will automatically accelerate so that 18.75% of the total option shares shall immediately vest and become exercisable upon such termination. Except as set forth in clause (ii) of the first sentence of this Section 5(a), benefits shall terminate in accordance with the terms of the applicable benefit plans based on the date of termination of your employment.

(b) Involuntary Termination after Change in Control . In the event of termination of your employment by the Company other than for Cause, or in the event of your termination of employment for Good Reason, in either case during the one (1)-year period following a Change in Control (a “ Constructive Termination Event ”), the Company (or its successor) will, in lieu of any severance under Section 5(a) above, (i) continue to pay you your base salary for a period of nine (9) months from and after the date of termination, (ii) pay you an amount equal to the lesser of (x) the target bonus of 30% of your base salary pro rata for such nine (9) months or (y) the amount of the annual bonus awarded to you in respect of the prior year pro rata for nine (9) months, such bonus severance to be paid in equal installments during the nine (9)-month period following the date of termination, and (iii) continue to provide you with group health and dental plan benefits for a period of nine (9) months from and after the date of termination, with the cost of all regular premiums for such benefits paid by the Company. The Company will also pay you on the date of termination any base salary and bonus compensation earned but not paid through the date of termination, and pay for any vacation time accrued but not used to that date. In addition, as provided in Section 2(c), the vesting schedule for any stock options outstanding on the date of termination will automatically accelerate so that 100% of any then unvested option shares shall immediately vest and become exercisable upon such termination. Except as set forth in clause (ii) of the first sentence of this


Mr. Peter Daddona

May 11, 2012

Page 6

 

Section 5(b), benefits shall terminate in accordance with the terms of the applicable benefit plans based on the date of termination of your employment.

(c) Severance Conditional Upon Release . Any obligation of the Company to provide you severance payments under Sections 5(a) and 5(b) above shall be conditioned upon your signing a general release of claims in the form provided by the Company (the “ Employee Release ”) within twenty-one (21) days after the date on which you give or receive, as applicable, notice of termination of your employment and upon your not revoking the Employee Release thereafter. All base salary and bonus severance payments will be payable in accordance with the normal payroll practices of the Company, and will begin at the Company’s next regular payroll period following the effective date of the Employee Release, but shall be retroactive to the date of termination. For the avoidance of doubt, no cash compensation that may be earned by you pursuant to employment or a consulting arrangement with a Person other than the Company during the period of time that the Company (or its successor) is making payments to you pursuant to this Section 5 shall be credited toward the Company’s severance obligations under this Section 5. Notwithstanding anything to the contrary contained in this letter agreement, in the event that at the time of your separation from service you are a “specified employee,” as hereinafter defined, any and all amounts payable under this Section 5 in connection with such separation from service that constitute deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (“ Section 409A ”), as determined by the Company in its sole discretion, and that would (but for this sentence) be payable within six (6) months following such separation from service, shall instead be paid on the date that follows the date of such separation from service by six (6) months. For purposes of the preceding sentence, “ separation from service ” shall be determined in a manner consistent with subsection (a)(2)(A)(i) of Section 409A and the term “ specified employee ” shall mean an individual determined by the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of Section 409A.

(d) Termination for Cause or Voluntary Termination . In the event of termination of your employment by the Company for Cause or your termination other than for Good Reason, the Company will pay you any base salary and bonus compensation earned but not paid through the date of termination and pay for any vacation time accrued but not used to that date. The Company shall have no obligation to you for any severance payments. Except for any right you may have under the federal law known as “COBRA” to continue participation in the Company’s group health and dental plans at your cost, benefits shall terminate in accordance with the terms of the applicable benefit plans based on the date of termination of your employment.

(e) Section 280G . If any payments or benefits made in respect of Section 5(b) become subject to the excise tax described in Section 4999 of the Internal Revenue Code of 1986, as amended (“ Section 4999 ”) (or any successor to such section), and exceed the safe harbor amount as provided in Section 280G of the Internal Revenue Code of 1986, as amended (“ Section 280G ”), then the Company shall use commercially reasonable efforts to obtain


Mr. Peter Daddona

May 11, 2012

Page 7

 

stockholder approval contemplated by Section 280G, which would permit you to lawfully avoid the excise tax imposed by Section 4999.

(f) Survival of Certain Provisions . Provisions of this letter agreement shall survive any termination if so provided in this letter agreement or if necessary or desirable to accomplish the purposes of other surviving provisions, including without limitation your obligations under Section 3 of this letter agreement. The obligation of the Company to make payments to you under this Section 5, and your right to retain such payments, are expressly conditioned upon your continued full performance of your obligations under Section 3 hereof. Upon termination by either you or the Company, all rights, duties and obligations of you and the Company to each other shall cease, except as otherwise expressly provided in this letter agreement.

6. Definitions . For purposes of this letter agreement, the following definitions apply:

Affiliates ” means all persons and entities directly or indirectly controlling, controlled by or under common control with the Company, where control may be by management authority, equity interest or otherwise.

Confidential Information ” means any and all information of the Company and its Affiliates that is not generally available to the public. Confidential Information also includes any information received by the Company or any of its Affiliates from any Person with any understanding, express or implied, that it will not be disclosed. Confidential Information does not include information that enters the public domain, other than through your breach of your obligations under this letter agreement.

Change in Control ” means (A) the sale, lease, exchange, transfer or other disposition of all or substantially all of the assets of the Company and its Affiliates, or (B) any merger, consolidation or other business combination that results in the holders of the outstanding voting securities of the Company immediately prior to such transaction beneficially owning or controlling less than a majority of the voting securities of the surviving entity immediately thereafter.

Person ” means an individual, a corporation, a limited liability company, an association, a partnership, an estate, a trust or any other entity or organization, other than the Company or any of its Affiliates.

7. Conflicting Agreements . You hereby represent and warrant that your signing of this letter agreement and the performance of your obligations under it will not breach or be in conflict with any other agreement to which you are a party or are bound, and that you are not now subject to any covenants against competition or similar covenants or any court orders that could affect the performance of your obligations under this letter agreement. You agree that


Mr. Peter Daddona

May 11, 2012

Page 8

 

you will not disclose to or use on behalf of the Company any proprietary information of a third party without that party’s consent.

8. Withholding. All payments made by the Company under this letter agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law.

9. Assignment. Neither you, the Company nor Parent may make any assignment of this letter agreement or any interest in it, by operation of law or otherwise, without the prior written consent of the other parties; provided, however , that each of the Company and Parent may assign its rights and obligations under this letter agreement without your consent to one of its Affiliates or to any Person with whom it shall hereafter effect a reorganization, consolidate with, or merge into or to whom it transfers all or substantially all of its properties or assets. This letter agreement shall inure to the benefit of and be binding upon you, the Company and Parent, and each of our respective successors, executors, administrators, heirs and permitted assigns.

10. Severability. If any portion or provision of this letter agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this letter agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this letter agreement shall be valid and enforceable to the fullest extent permitted by law.

11. Miscellaneous. This letter agreement sets forth the entire agreement between you and the Company and replaces all prior and contemporaneous communications, agreements and understandings, written or oral, with respect to the terms and conditions of your employment with the Company. This letter agreement may not be modified or amended, and no breach shall be deemed to be waived, unless agreed to in writing by you, a duly authorized officer of the Company and a duly authorized officer of Parent. The headings and captions in this letter agreement are for convenience only and in no way define or describe the scope or content of any provision of this letter agreement. The words “ include ,” “ includes ” and “ including ” when used herein shall be deemed in each case to be followed by the words “without limitation.” This letter agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. This is a California contract and shall be governed and construed in accordance with the laws of the State of California, without regard to the conflict of laws principles thereof.

12. Notices . Any notices provided for in this letter agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to you at your last known address on the books of the Company or, in the case of the Company, to it at its principal place of business, attention of the President and Chief Executive Officer, or to such other address as either party may specify by notice to the other actually received.


Mr. Peter Daddona

May 11, 2012

Page 9

 

At the time this letter agreement is signed by you and on behalf of the Company and Parent, it will take effect as a binding agreement among you, the Company and Parent on the basis set forth above.

 

ZOSANO PHARMA, INC.   EMPLOYEE:
By:  

/s/ Vikram Lamba

   

/s/ Peter Daddona

  Name:   Vikram Lamba     Peter Daddona
  Title:   President and Chief Executive Officer      
Date signed:   May     , 2012     Date signed:   May 11, 2012
ZP HOLDINGS, INC.    
By:  

/s/ Vikram Lamba

     
  Name:   Vikram Lamba      
  Title:   President and Chief Executive Officer      
Date signed:   May     , 2012      

Exhibit 10.26

[ZP LETTERHEAD]

December 17, 2013

Mr. Vikram Lamba

 

Re: Amendment to Employment Agreement

Dear Vikram:

This letter agreement (this “ Amendment ”) amends certain provisions of your employment letter agreement with Zosano Pharma, Inc., a Delaware corporation (the “ Company ”), and ZP Holdings, Inc., a Delaware corporation and the Company’s parent (“ Parent ”), dated May 11, 2012, 2013 (the “ Original Agreement ”).

As you know, the Original Agreement contemplates certain benefits to you in the event of a termination of your employment under certain circumstances following a Change in Control, which is defined therein to include various business combinations involving the Company. The Company and Parent desire to amend the definition of Change in Control to include a merger, consolidation or other business combination or stock sale involving the Company or Parent. Accordingly, the parties agree that the Original Agreement is hereby amended to delete Section 6(b) thereof in its entirety, and to insert the following in its place:

“(b) “ Change in Control ” means (A) the sale, lease, exchange, transfer or other disposition of all or substantially all of the assets of the Company and its Affiliates, or (B) any merger, consolidation or other business combination or stock sale (other than a sale of stock for capital raising purposes) that results in the holders of the outstanding voting securities of the Company or Parent immediately prior to such transaction beneficially owning or controlling immediately after such transaction less than a majority of the voting securities of the Company or Parent, respectively, or the surviving entity or the entity that controls such surviving entity.”

Except as expressly amended by this Amendment, the Original Agreement remains in full force and affect and otherwise unchanged. The Original Agreement shall, together with this Amendment, be read and construed as a single document. This Amendment may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. This Amendment shall be governed and construed in accordance with the laws of the State of California, without regard to the conflict of laws principles thereof.


Please indicate your agreement to the Amendment by signing below and returning a copy of this letter to the Company at your earliest convenience.

 

Very truly yours,
ZOSANO PHARMA, INC.
By:  

/s/ Peter Daddona

  Name:   Peter Daddona
  Title:   CSO
ZP HOLDINGS, INC.
By:  

/s/ Peter Daddona

  Name:   Peter Daddona
  Title:   CSO

 

Acknowledged and agreed by:

/s/ Vikram Lamba

Vikram Lamba

 

2

Exhibit 10.27

May 11, 2012

Mr. Vikram Lamba

Dear Vikram:

This letter will confirm the terms and conditions of your employment with Zosano Pharma, Inc., a Delaware corporation (the “ Company ”) and wholly owned subsidiary of ZP Holdings, Inc., a Delaware corporation (“ Parent ”).

1. Position and Duties . Effective July 1, 2012, the Company will employ you on a full-time basis as its President and Chief Executive Officer. You agree to perform the duties of your positions and such other duties as may reasonably be assigned to you from time to time by the Board of Directors of Parent (the “ Board ”). You also agree that, while employed by the Company, you will devote your full business time and your best efforts, business judgment, skill and knowledge to the advancement of the business and interests of the Company and its Affiliates (as defined in Section 6) and to the discharge of your duties and responsibilities for them. Notwithstanding the foregoing, you may engage in civic, charitable and professional activities (including, but not limited to, serving on up to two (2) outside Boards of Directors at any one time), so long as such activities, in the aggregate, do not interfere with your duties hereunder and the business of the Company and subject to the approval of the Board (which shall not be unreasonably withheld).

2. Compensation and Benefits . During your employment, as compensation for the services performed by you for the Company and its Affiliates, the Company will provide you the following pay and benefits:

(a) Base Salary . The Company will pay you a base salary at the rate of $400,000 per year, payable in accordance with the regular payroll practices of the Company and subject to increase from time to time by the Compensation Committee of the Board in its discretion.

(b) Bonus Compensation . During employment, you will be considered annually for a bonus target of 40% of your base salary; provided, however , that such bonus target may range between 0% and 80% of your base salary and may be awarded either in cash or shares of capital stock of Parent. The amount of any bonus awarded, whether in cash or stock, will be determined by the Board in its discretion, based on your performance and the performance of the Company against goals established annually by the Compensation Committee of the Board after consultation with you, as well as the then prevailing cash position of the Company.

(c) Stock Options . The Board shall grant you, under Parent’s 2012 Stock Incentive Plan, an incentive stock option to purchase 566,027 shares of common stock, $0.0001 par value per share, of Parent (“ Common Stock ”). Such stock option shall (A) have an exercise


Mr. Vikram Lamba

May 11, 2012

Page 2

 

price per share equal to the fair market value per share of Common Stock on the date of the grant, as determined by the Board, and (B) be subject to vesting requirements such that 25% of the total option shares shall vest on first anniversary of the date of grant and an additional 2.0833% of the total option shares shall vest thereafter on the monthly anniversary of such date; provided, however , that 18.75% of the total option shares shall vest upon termination of employment pursuant to the last sentence of Section 4(a) or the first sentence of Section 4(b); provided, further , that 100% of any then unvested option shares shall vest upon a Constructive Termination Event (as defined in Section 5(b)).

(d) Participation in Employee Benefit Plans . You shall be entitled to participate in any and all employee benefit plans from time to time in effect for the full-time employees of the Company generally, but the Company shall not be required to establish any such program or plan. Such participation shall be subject to (i) the terms of the applicable plan documents and (ii) generally applicable Company policies. The Company may alter, modify, add to or delete its employee benefit plans at any time as it, in its sole discretion, determines to be appropriate.

(e) Vacations . You will be entitled to four weeks of paid vacation per year, in addition to holidays observed by the Company. Vacation may be taken at such times and intervals as you shall determine, subject to the reasonable business needs of the Company.

(f) Business Expenses . The Company will pay or reimburse you for all reasonable 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 it may specify from time to time.

3. Confidential Information and Restricted Activities.

(a) Confidential Information . During the course of your employment with the Company, you will learn of Confidential Information (as defined in Section 6), and you may develop Confidential Information on behalf of the Company. You agree that you will not use or disclose to any Person (as defined in Section 6) any Confidential Information obtained by you incident to your employment or any other association with the Company or any of its Affiliates, except as required by applicable law or for the proper performance of your regular duties and responsibilities for the Company. You understand that this restriction shall continue to apply for three (3) years after your employment terminates, regardless of the reason for such termination. In addition, you agree to sign the Company’s standard form of invention assignment agreement as a condition of your employment hereunder.

(b) Protection of Documents . All documents, records and files, in any media of whatever kind and description, relating to the business, present or otherwise, of the Company or any of its Affiliates, and any copies, in whole or in part, thereof (the “ Documents ”), whether or not prepared by you, shall be the sole and exclusive property of the Company. You agree to safeguard all Documents and to surrender to the Company, at the time


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your employment terminates or at such earlier time or times as the Board or its designee may specify, all Documents then in your possession or control.

(c) Non-Solicitation . You acknowledge that in your employment with the Company you will have access to Confidential Information which, if disclosed, would assist in competition against the Company and its Affiliates, and that you will also generate good will for the Company and its Affiliates in the course of your employment. Therefore, you agree that the following restrictions on your activities during and after the termination of your employment are necessary to protect the good will, Confidential Information and other legitimate interests of the Company and its Affiliates: While you are employed by the Company and during the 12 months immediately following termination of your employment for whatever reason, you shall not, directly or through any other Person, (A) seek to persuade any employee of the Company or any of its Affiliates to discontinue employment or (B) solicit or encourage any customer, distributor, vendor, or other business partner of the Company or any of its Affiliates or any independent contractor providing services to the Company or any of its Affiliates to terminate or diminish its relationship with them. For purposes of the foregoing, the terms “ employee ,” “ customer ,” “ distributor ,” and “ vendor ” shall also include any person or party who held such status during the immediately preceding six (6) months.

(d) Enforcement of Restrictions . In signing this letter agreement, you give the Company assurance that you have carefully read and considered all the terms and conditions of this letter agreement, including the restraints imposed on you under this Section 3. You agree without reservation that these restraints are necessary for the reasonable and proper protection of the Company and its Affiliates, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. You further agree that, were you to breach any of the covenants contained in this Section 3, the damage to the Company and its Affiliates would be irreparable. You therefore agree that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by you of any of those covenants, without having to post bond. You also agree that the period of restriction in Section 3(c) shall be tolled and shall not run during any period you are in violation thereof. You and the Company further agree that, in the event that any provision of this Section 3 is determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, that provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law. It is also agreed that each of the Company’s Affiliates shall have the right to enforce all of your obligations to that Affiliate under this letter agreement, including without limitation pursuant to this Section 3. It is agreed and understood that the terms of this letter agreement are severable, and that no breach of any provision of this letter agreement or any other purported violation of law by the Company shall operate to excuse you from the performance of your obligations under this Section 3.


Mr. Vikram Lamba

May 11, 2012

Page 4

 

4. Termination of Employment . Your employment under this letter agreement shall continue for no definite term until terminated pursuant to this Section 4.

(a) The Company may terminate your employment for Cause upon notice to you setting forth in reasonable detail the nature of the Cause (as defined below). The following, as determined by the Company in its reasonable judgment with the approval of the Board, which approval shall include the affirmative vote of at least 2/3rds of the then current members of the Board other than you, shall constitute “ Cause ” for termination: (i) your persistent and willful refusal to follow reasonable directives of the Board; (ii) gross negligence or willful misconduct in the performance of your duties and responsibilities to the Company or any of its Affiliates; (iii) your material breach of this letter agreement or any other agreement between you and the Company or any of its Affiliates, which breach continues for more than 15 days after the Company gives you written notice which sets forth in reasonable detail the nature of such breach; or (iv) other conduct by you that is or could reasonably anticipated to be materially harmful to the business, interests or reputation of the Company or any of its Affiliates. The Company also may terminate your employment other than for Cause upon written notice to you.

(b) You may terminate your employment for Good Reason (as defined below) upon notice to the Company setting forth in reasonable detail the nature of the Good Reason. The following shall constitute “ Good Reason ” for termination: (i) the Company’s failure to continue you in the positions of President and Chief Executive Officer with such duties typically associated with such positions, unless the Company provides you another senior management position in replacement thereof with compensation and benefits as set forth in Section 2 above, or (ii) material failure of the Company to provide you compensation and benefits in accordance with the terms of Section 2, above, for more than ten (10) business days after notice from you specifying in reasonable detail the nature of such failure, except in connection with a decrease in salary affecting each senior management employee of the Company in a proportionate manner, or (iii) relocation of your principal place of employment to a location other than the San Francisco Bay Area, California. You may also terminate your employment other than for Good Reason upon 30 days’ written notice to the Company.

(c) In the event you become disabled during employment and, as a result, are unable to continue to perform substantially all of your duties and responsibilities under this letter agreement, either with or without reasonable accommodation, the Company will continue to pay you your base salary and to provide you benefits in accordance with Section 2(d) above, to the extent permitted by plan terms, for up to twelve (12) weeks of disability during any period of three hundred and sixty-five (365) consecutive calendar days. If you are unable to return to work after twelve (12) weeks of disability, the Company may terminate your employment, upon notice to you. If any question shall arise as to whether you are disabled to the extent that you are unable to perform substantially all of your duties and responsibilities for the Company and its Affiliates, you shall, at the Company’s request, submit to a medical examination by a physician selected by the Company to whom you or your guardian, if any, has no reasonable objection to determine whether you are so disabled, and such determination shall


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May 11, 2012

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for the purposes of this letter agreement be conclusive of the issue. If such a question arises and you fail to submit to the requested medical examination, the Company’s determination of the issue shall be binding on you.

5. Severance Payments and Other Matters Related to Termination.

(a) Involuntary Termination . In the event of termination of your employment by the Company other than for Cause, or in the event of your termination of employment for Good Reason, the Company will (i) continue to pay you your base salary for a period of nine (9) months from and after the date of termination, (ii) pay you an amount equal to the lesser of (x) the target bonus of 40% of your base salary pro rata for such nine (9) months or (y) the amount of the annual bonus awarded to you in respect of the prior year pro rata for nine (9) months, such bonus severance to be paid in equal installments during the nine (9)-month period following the date of termination, and (iii) continue to provide you with group health and dental plan benefits for a period of nine (9) months from and after the date of termination, with the cost of the regular premiums for such benefits shared in the same relative proportion by the Company and you as in effect on the date of termination. The Company will also pay you on the date of termination any base salary and bonus compensation earned but not paid through the date of termination, and pay for any vacation time accrued but not used to that date. In addition, as provided in Section 2(c), the vesting schedule for any stock options outstanding on the date of termination will automatically accelerate so that 18.75% of the total option shares shall immediately vest and become exercisable upon such termination. Except as set forth in clause (ii) of the first sentence of this Section 5(a), benefits shall terminate in accordance with the terms of the applicable benefit plans based on the date of termination of your employment.

(b) Involuntary Termination after Change in Control . In the event of termination of your employment by the Company other than for Cause, or in the event of your termination of employment for Good Reason, in either case during the one (1)-year period following a Change in Control (a “ Constructive Termination Event ”), the Company (or its successor) will, in lieu of any severance under Section 5(a) above, (i) continue to pay you your base salary for a period of nine (9) months from and after the date of termination, (ii) pay you an amount equal to the lesser of (x) the target bonus of 40% of your base salary pro rata for such nine (9) months or (y) the amount of the annual bonus awarded to you in respect of the prior year pro rata for nine (9) months, such bonus severance to be paid in equal installments during the nine (9)-month period following the date of termination, and (iii) continue to provide you with group health and dental plan benefits for a period of nine (9) months from and after the date of termination, with the cost of all regular premiums for such benefits paid by the Company. The Company will also pay you on the date of termination any base salary and bonus compensation earned but not paid through the date of termination, and pay for any vacation time accrued but not used to that date. In addition, as provided in Section 2(c), the vesting schedule for any stock options outstanding on the date of termination will automatically accelerate so that 100% of any then unvested option shares shall immediately vest and become exercisable upon such termination. Except as set forth in clause (ii) of the first sentence of this


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May 11, 2012

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Section 5(b), benefits shall terminate in accordance with the terms of the applicable benefit plans based on the date of termination of your employment.

(c) Severance Conditional Upon Release . Any obligation of the Company to provide you severance payments under Sections 5(a) and 5(b) above shall be conditioned upon your signing a general release of claims in the form provided by the Company (the “ Employee Release ”) within twenty-one (21) days after the date on which you give or receive, as applicable, notice of termination of your employment and upon your not revoking the Employee Release thereafter. All base salary and bonus severance payments will be payable in accordance with the normal payroll practices of the Company, and will begin at the Company’s next regular payroll period following the effective date of the Employee Release, but shall be retroactive to the date of termination. For the avoidance of doubt, no cash compensation that may be earned by you pursuant to employment or a consulting arrangement with a Person other than the Company during the period of time that the Company (or its successor) is making payments to you pursuant to this Section 5 shall be credited toward the Company’s severance obligations under this Section 5. Notwithstanding anything to the contrary contained in this letter agreement, in the event that at the time of your separation from service you are a “specified employee,” as hereinafter defined, any and all amounts payable under this Section 5 in connection with such separation from service that constitute deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (“ Section 409A ”), as determined by the Company in its sole discretion, and that would (but for this sentence) be payable within six (6) months following such separation from service, shall instead be paid on the date that follows the date of such separation from service by six (6) months. For purposes of the preceding sentence, “ separation from service ” shall be determined in a manner consistent with subsection (a)(2)(A)(i) of Section 409A and the term “ specified employee ” shall mean an individual determined by the Company to be a specified employee as defined in subsection (a)(2)(B)(i) of Section 409A.

(d) Termination for Cause or Voluntary Termination . In the event of termination of your employment by the Company for Cause or your termination other than for Good Reason, the Company will pay you any base salary and bonus compensation earned but not paid through the date of termination and pay for any vacation time accrued but not used to that date. The Company shall have no obligation to you for any severance payments. Except for any right you may have under the federal law known as “COBRA” to continue participation in the Company’s group health and dental plans at your cost, benefits shall terminate in accordance with the terms of the applicable benefit plans based on the date of termination of your employment.

(e) Section 280G . If any payments or benefits made in respect of Section 5(b) become subject to the excise tax described in Section 4999 of the Internal Revenue Code of 1986, as amended (“ Section 4999 ”) (or any successor to such section), and exceed the safe harbor amount as provided in Section 280G of the Internal Revenue Code of 1986, as amended (“ Section 280G ”), then the Company shall use commercially reasonable efforts to obtain


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stockholder approval contemplated by Section 280G, which would permit you to lawfully avoid the excise tax imposed by Section 4999.

(f) Survival of Certain Provisions . Provisions of this letter agreement shall survive any termination if so provided in this letter agreement or if necessary or desirable to accomplish the purposes of other surviving provisions, including without limitation your obligations under Section 3 of this letter agreement. The obligation of the Company to make payments to you under this Section 5, and your right to retain such payments, are expressly conditioned upon your continued full performance of your obligations under Section 3 hereof. Upon termination by either you or the Company, all rights, duties and obligations of you and the Company to each other shall cease, except as otherwise expressly provided in this letter agreement.

6. Definitions . For purposes of this letter agreement, the following definitions apply:

Affiliates ” means all persons and entities directly or indirectly controlling, controlled by or under common control with the Company, where control may be by management authority, equity interest or otherwise.

Confidential Information ” means any and all information of the Company and its Affiliates that is not generally available to the public. Confidential Information also includes any information received by the Company or any of its Affiliates from any Person with any understanding, express or implied, that it will not be disclosed. Confidential Information does not include information that enters the public domain, other than through your breach of your obligations under this letter agreement.

Change in Control ” means (A) the sale, lease, exchange, transfer or other disposition of all or substantially all of the assets of the Company and its Affiliates, or (B) any merger, consolidation or other business combination that results in the holders of the outstanding voting securities of the Company immediately prior to such transaction beneficially owning or controlling less than a majority of the voting securities of the surviving entity immediately thereafter.

Person ” means an individual, a corporation, a limited liability company, an association, a partnership, an estate, a trust or any other entity or organization, other than the Company or any of its Affiliates.

7. Conflicting Agreements . You hereby represent and warrant that your signing of this letter agreement and the performance of your obligations under it will not breach or be in conflict with any other agreement to which you are a party or are bound, and that you are not now subject to any covenants against competition or similar covenants or any court orders that could affect the performance of your obligations under this letter agreement. You agree that


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you will not disclose to or use on behalf of the Company any proprietary information of a third party without that party’s consent.

8. Withholding. All payments made by the Company under this letter agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law.

9. Assignment. Neither you, the Company nor Parent may make any assignment of this letter agreement or any interest in it, by operation of law or otherwise, without the prior written consent of the other parties; provided, however , that each of the Company and Parent may assign its rights and obligations under this letter agreement without your consent to one of its Affiliates or to any Person with whom it shall hereafter effect a reorganization, consolidate with, or merge into or to whom it transfers all or substantially all of its properties or assets. This letter agreement shall inure to the benefit of and be binding upon you, the Company and Parent, and each of our respective successors, executors, administrators, heirs and permitted assigns.

10. Severability. If any portion or provision of this letter agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this letter agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this letter agreement shall be valid and enforceable to the fullest extent permitted by law.

11. Miscellaneous. This letter agreement sets forth the entire agreement between you and the Company and replaces all prior and contemporaneous communications, agreements and understandings, written or oral, with respect to the terms and conditions of your employment with the Company. This letter agreement may not be modified or amended, and no breach shall be deemed to be waived, unless agreed to in writing by you, a duly authorized officer of the Company and an expressly authorized representative of the Board. The headings and captions in this letter agreement are for convenience only and in no way define or describe the scope or content of any provision of this letter agreement. The words “ include ,” “ includes ” and “ including ” when used herein shall be deemed in each case to be followed by the words “without limitation.” This letter agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. This is a California contract and shall be governed and construed in accordance with the laws of the State of California, without regard to the conflict of laws principles thereof.

12. Notices . Any notices provided for in this letter agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, and addressed to you at your last known address on the books of the Company or, in the case of the Company, to it at its principal place of business, attention of the Chairman of the Board, or to such other address as either party may specify by notice to the other actually received.


Mr. Vikram Lamba

May 11, 2012

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At the time this letter agreement is signed by you and on behalf of the Company and Parent, it will take effect as a binding agreement among you, the Company and Parent on the basis set forth above.

 

ZOSANO PHARMA, INC.   EMPLOYEE:
By:  

/s/ Peter Daddona

   

/s/ Vikram Lamba

  Name:   Peter Daddona     Vikram Lamba
  Title:   Chief Scientific Officer      
Date signed:   May 11, 2012     Date signed:   May     , 2012
ZP HOLDINGS, INC.      
By:  

/s/ Peter Daddona

     
  Name:   Peter Daddona      
  Title:   Chief Scientific Officer      
Date signed:   May 11, 2012      

Exhibit 10.28

[ZP LETTERHEAD]

July 15, 2013

Kleanthis G. Xanthopoulos, Ph.D.

c/o Regulus Therapeutics

3545 John Hopkins Ct., Suite 210

San Diego, CA 92121-1121

 

Re: Modification to Consulting Agreement

Dear Kleanthis:

This letter agreement (this “ Amendment ”) amends certain provisions of your Independent Director Agreement with ZP Holdings, Inc. (the “ Company ”) dated as of March 28, 2013 (the “ Original Agreement ”).

Per your request, beginning on the Company’s next scheduled pay date, all payments of the consulting fee and out-of-pocket expenses under the Original Agreement will be made to “Helios Capital, Inc.,” a California corporation controlled by you and located at 6305 El Camino Del Teatro, La Jolla, California 92037. Accordingly, your Original Agreement is hereby amended such that each occurrence of the word “Director” in Section 2(i) and Section 2(iii) of the Original Agreement, Section 2(a) of Schedule A to the Original Agreement, and the first sentence of Section 2(c) of Schedule A to the Original Agreement shall be deleted and replaced with the words “Director or his designee.”

Except as expressly amended by this Amendment, the Original Agreement remains in full force and affect and otherwise unchanged. The Original Agreement shall, together with this Amendment, be read and construed as a single document. Please indicate your agreement to the Amendment by signing below and returning a copy of this letter to the Company at your earliest convenience.

 

Very truly yours,
ZP HOLDINGS, INC.
By:  

/s/ Vikram Lamba

  Vikram Lamba
  President and Chief Executive Officer

 

Acknowledged and agreed by:

/s/ Kleanthis G. Xanthopoulos

Kleanthis G. Xanthopoulos

Exhibit 10.29

ZP HOLDINGS, INC.

INDEPENDENT DIRECTOR AGREEMENT

(Kleanthis Xanthopoulos)

This Independent Director Agreement (this “ Agreement ”) dated as of March [    ], 2013 (the “ Effective Date ”), is made by and between ZP Holdings, Inc., a Delaware corporation (the “ Company ”), and Kleanthis G. Xanthopoulos, Ph.D. (the “ Director ”).

WHEREAS, the Company desires to engage the Director as a member of the Board of Directors of the Company (the “ Board ”) and the Director desires to serve as a member of the Board.

NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein the parties hereby agree as follows:

1. Services .

(a) The Company hereby retains the Director and the Director hereby agrees to perform such consulting and advisory services relating to the Field of Interest (as defined in Section 12(j)) as the Company may request and as set forth in Schedule A (the “ Services ”).

(b) The Director agrees to make himself available to render the Services, at such times and locations as may be mutually agreed, from time to time as requested by the Company. Except as provided in Schedule A , the Director may deliver the Services over the telephone, in person or by written correspondence.

(c) The Company acknowledges that the Director has obligations to provide services to other Persons (collectively, “ Other Clients ”) and that the Director must take such obligations into account when scheduling meetings or calls with the Company. The Director acknowledges that the Company has the right to terminate this Agreement in accordance with Section 4 if the Director is not able satisfy the Company’s reasonable requests for meetings and calls.

(d) The Director agrees to devote his best efforts to performing the Services. The Director shall comply with all rules, procedures and standards promulgated and made known to the Director from time to time by the Company with regard to the Director’s access to and use of the Company’s property, information, equipment and facilities.

2. Compensation . The Company shall (i) pay the Director a consulting fee as provided in Schedule A , (ii) grant the Director an option to purchase shares of the common stock, $0.0001 par value per share, of the Company (“ Common Stock ”) as provided in Schedule A and (iii) reimburse the Director for business expenses as provided in Schedule A .

3. Independent Contractor . In furnishing the Services, the Director understands that he will at all times be acting as an independent contractor of the Company and, as such, will not be an employee of the Company (nor will the Director be an employee of Zosano Pharma, Inc., a


Delaware corporation and wholly owned subsidiary of the Company (“ Zosano ”), or of ZP Group LLC, a Delaware limited liability company and indirect subsidiary of the Company (the “ LLC ”; Zosano and the LLC are sometimes collectively referred to herein as the “ Subsidiaries ” and each as a “ Subsidiary ”)) and will not by reason of this Agreement or by reason of his Services to the Company be entitled to participate in or to receive any benefit or right under any of the Company’s or any Subsidiary’s employee benefit or welfare plans. The Director also will be responsible for paying all withholding and other taxes required by law to be paid as and when the same become due and payable. The Director shall not enter into any agreements or incur any obligations on behalf of the Company or any Subsidiary.

4. Term . The Director may terminate this Agreement at any time and for any reason or for no reason. The Company may terminate this Agreement by removing the Director as a director in accordance with the laws of the State of Delaware.

5. Exceptions to this Agreement . The Company acknowledges that (i) the Director is now or may become an employee, consultant or director of Other Clients, and (ii) the Director is now or may become a party to agreements with Other Clients relating to the disclosure of information, the ownership of inventions, restrictions against competition and/or similar matters. The Director represents and agrees that the execution, delivery and performance of this Agreement does not and will not conflict with any other agreement, policy or rule applicable to the Director. The Director will not (i) disclose to the Company or to any Subsidiary any information that he is required to keep secret pursuant to an existing confidentiality agreement with Other Clients or any other third party, (ii) use the funding, resources, facilities or inventions of Other Clients or any other third party to perform the Services, or (iii) perform the Services in any manner that would give Other Clients or any other third party rights to any intellectual property created in connection with the Services.

6. Confidential Information . While providing the Services to the Company and for five (5) years thereafter, the Director shall not, directly or indirectly, use any Confidential Information (as defined below) other than pursuant to his provision of the Services by and for the benefit of the Company, or disclose to anyone outside of the Company any such Confidential Information. The term “ Confidential Information ” as used throughout this Agreement shall mean all trade secrets, proprietary information and other data or information (and any tangible evidence, record or representation thereof), written or oral, whether prepared, conceived or developed by a Director or employee of the Company (including the Director) or of any Subsidiary or received by the Company from an outside source, which is in the possession of the Company or any Subsidiary (whether or not the property of the Company or such Subsidiary) and which is maintained in secrecy or confidence by the Company or such Subsidiary. Without limiting the generality of the foregoing, Confidential Information shall include:

(a) any idea, improvement, invention, innovation, development, concept, technical data, design, formula, device, pattern, sequence, method, process, composition of matter, computer program or software, source code, object code, algorithm, model, diagram, flow chart, product specification or design, plan for a new or revised product, sample, compilation of information, or work in process, or parts thereof, and any and all revisions and improvements relating to any of the foregoing (in each case whether or not reduced to tangible form); and

 

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(b) the name of any customer, supplier, employee, prospective customer, sales agent, supplier or consultant, any sales plan, marketing material, plan or survey, business plan or opportunity, product or development plan or specification, business proposal, financial record, or business record or other record or information relating to the present or proposed business of the Company or any Subsidiary.

Notwithstanding the foregoing, the term Confidential Information shall not apply to information which the Company or any Subsidiary has voluntarily disclosed to the public without restriction, which has otherwise lawfully entered the public domain or which becomes available to the Director on a non-confidential basis from a third-party source that is entitled to disclose it to the Director.

The Director acknowledges that the Company and the Subsidiaries from time to time have in their respective possession information (including product and development plans and specifications) which is claimed by others to be proprietary and which the Company or the applicable Subsidiary has agreed to keep confidential. The Director agrees that all such information shall be Confidential Information for purposes of this Agreement.

The Director agrees that all originals and all copies of materials containing, representing, evidencing, recording, or constituting any Confidential Information, however and whenever produced (whether by the Director or others), shall be the sole property of the Company or the applicable Subsidiary, as the case may be.

7. Company Inventions . Director agrees that all Confidential Information and all other discoveries, inventions, ideas, concepts, products or formulas, or any new uses therefor or improvements thereon, or any new designs or modifications or configurations of any kind, or works of authorship of any kind, including, without limitation, compilations and derivative works, whether or not patentable or copyrightable, conceived, developed, reduced to practice or otherwise made by the Director during the term of this Agreement, either alone or with others, and related to or arising out of: (i) the Field of Interest; (ii) the Services; or (iii) Confidential Information, whether or not conceived, developed, reduced to practice or made on the Company’s or any Subsidiary’s premises (collectively, “ Company Inventions ”), and any and all services and products which embody, emulate or employ any such Company Inventions or Confidential Information, shall be the sole property of the Company and all copyrights, patents, patent rights, trademarks and reproduction rights to, and other proprietary rights in, each such Company Invention or Confidential Information, whether or not patentable or copyrightable, shall belong exclusively to the Company. The Director agrees that all such Company Inventions shall constitute works made for hire under the copyright laws of the United States and hereby assigns and, to the extent any such assignment cannot be made at the present time, agrees to assign, to the Company any and all copyrights, patents and other proprietary rights he may have in any such Company Invention, together with the right to file and/or own wholly without restrictions applications for United States and foreign patents, trademark registration and copyright registration and any patent, or trademark or copyright registration issuing thereon.

8. Director’s Obligation to Keep Records . The Director shall make and maintain adequate and current written records of all Company Inventions, and shall disclose all Company

 

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Inventions promptly, fully and in writing to the Company immediately upon development of the same and at any time upon request.

9. Director’s Obligation to Cooperate . The Director will, during or after the term of this Agreement, upon request of the Company, execute all documents and perform all lawful acts which are reasonably necessary or advisable to secure the Company’s rights hereunder and to carry out the intent of this Agreement. Without limiting the generality of the foregoing, the Director will assist the Company in any reasonable manner to obtain for its own benefit patents or copyrights in any and all countries with respect to all Company Inventions assigned pursuant to Section 7, and the Director will execute, when requested, patent and other applications and assignments thereof to the Company, or Persons designated by it, and any other lawful documents deemed necessary by the Company to carry out the purposes of this Agreement, and the Director will further assist the Company as reasonably necessary to enforce any patents and copyrights obtained, including testifying in any suit or proceeding involving any of said patents or copyrights or executing any documents deemed necessary by the Company, all without further consideration than provided for herein. It is understood that reasonable out-of-pocket expenses of the Director incurred at the request of the Company under this Section 9 will promptly be reimbursed by the Company and that in the event that the Director is required to devote more than a de minimis amount of time to assisting the Company under this Section 9 subsequent to the term of this Agreement, the Director will be compensated by the Company at his then current per diem rate for Services.

10. Indemnification . The Company and the Director shall enter into an Indemnification Agreement providing for indemnification of the Director in his capacity as a director, to the maximum extent permissible under applicable law, such Indemnification Agreement to be in substantially the form provided to the Company’s other outside directors.

11. Nonsolicitation . During the term of this Agreement and for a period of one (1) year after the termination of this Agreement, the Director shall not (i) solicit, encourage, or take any other action which is intended to induce any employee of, or consultant to, the Company or any Subsidiary (or any other Person who may have been employed by, or may have been a consultant to, the Company or any Subsidiary during the term of this Agreement) to terminate his or her employment or relationship with the Company or such Subsidiary in order to become employed by or otherwise perform services for any other Person, or (ii) solicit, endeavor to entice away from the Company or any Subsidiary or otherwise interfere with the relationship of the Company or any Subsidiary with any Person who is, or was within the then-most recent 12-month period, a client or customer of the Company or any Subsidiary.

12. Miscellaneous .

(a) Entire Agreement . This Agreement and the documents referred to herein constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, between the parties with respect to such subject matter.

(b) Assignment . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. This

 

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Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder, except as otherwise expressly provided herein and shall not be assignable by operation of law or otherwise.

(c) Amendments and Supplements . This Agreement may not be altered, changed or amended, except by an instrument in writing signed by the parties hereto.

(d) No Waiver . The terms and conditions of this Agreement may be waived only by a written instrument signed by the party waiving compliance. The failure of any party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of or non-compliance with this Agreement shall be held to be a waiver of any other or subsequent breach or non-compliance.

(e) Governing Law . This Agreement shall be governed by, and construed and enforced in accordance with, the substantive laws of the State of Delaware, without regard to its principles of conflicts of laws.

(f) Notice . All notices and other communications hereunder shall be in writing and shall be deemed given if delivered by hand, sent by facsimile transmission with confirmation of receipt, sent via a reputable overnight courier service with confirmation of receipt requested, or mailed by registered or certified mail (postage prepaid and return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice), and shall be deemed given on the date on which delivered by hand or otherwise on the date of receipt as confirmed:

To the Company:

ZP Holdings, Inc.

34790 Ardentech Court

Fremont, CA 94555

Attn: President and Chief Executive Officer

To the Director at the address set forth beneath his signature below.

(g) Remedies . The Director recognizes that money damages alone would not adequately compensate the Company in the event of breach by the Director of his obligations set forth in Sections 6, 7, 8, 9, 11 and 12, and the Director therefore agrees that, in addition to all other remedies available to the Company at law, in equity or otherwise, the Company shall be entitled to injunctive relief for the enforcement thereof. All rights and remedies hereunder are cumulative and are in addition to and not exclusive of any other rights and remedies available at law, in equity, by agreement or otherwise.

(h) Survival; Validity . Notwithstanding the termination of the Director’s relationship with the Company (whether pursuant to Section 4 or otherwise), the Director’s covenants and obligations set forth in Sections 6, 7, 9, 11 and 12 shall remain in effect and be fully enforceable in accordance with the provisions thereof. In the event that any provision of

 

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this Agreement shall be determined to be unenforceable by reason of its extension for too great a period of time or over too large a geographic area or over too great a range of activities, it shall be interpreted to extend only over the maximum period of time, geographic area or range of activities as to which it may be enforceable. If, after application of the preceding sentence, any provision of this Agreement shall be determined to be invalid, illegal or otherwise unenforceable by a court of competent jurisdiction, the validity, legality and enforceability of the other provisions of this Agreement shall not be affected thereby. Except as otherwise provided in this Section 12(h), any invalid, illegal or unenforceable provision of this Agreement shall be severable, and after any such severance, all other provisions hereof shall remain in full force and effect.

(i) Construction . A reference to a Section or a Schedule shall mean a Section in or Schedule to this Agreement unless otherwise expressly stated. The titles and headings herein are for reference purposes only and shall not in any manner limit the construction of this Agreement which shall be considered as a whole. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.” Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of names and pronouns shall include the plural and vice-versa.

(j) Certain Definitions .

Field of Interest ” shall mean the discovery, development or commercialization of transdermal delivery technology.

Person ” shall mean an individual, a corporation, an association, a partnership, an estate, a trust and any other entity or organization.

(k) Counterparts . This Agreement may be executed in one or more counterparts, all of which together shall constitute one and the same agreement.

*****

 

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IN WITNESS WHEREOF, the parties have caused this Independent Director Consulting Agreement to be executed as an agreement under seal as of the date first written above.

 

ZP HOLDINGS, INC.
By:  

/s/ Vikram Lamba

Name:   Vikram Lamba
Title:   Director, President and CEO
DIRECTOR:

/s/ Kleanthis G. Xanthopoulos

Kleanthis G. Xanthopoulos, Ph.D.
Address:   c/o Regulus Therapeutics
  3545 John Hopkins Ct., Suite 210
  San Diego, CA 92121-1121
  Fax No.:                     

 

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Schedule A

1. Description of the Services . The Director shall:

(a) Serve as a member of the Board of Directors, including attendance at meetings of the Board of Directors. The Company’s Board of Directors currently meets approximately 12 times per year (with approximately four (4) of such meetings in person), however, this rate may vary as determined by the Board of Directors.

(b) Provide guidance on preclinical and clinical research and development plans, regulatory and commercialization strategy, competitive therapies and technologies, and business development. The Director and the Company will be flexible regarding these commitments in light of the Company’s needs and the Director’s other professional obligations and commitments.

2. Compensation .

(a) During the term of this Agreement, the Company shall pay the Director an annual consulting fee of $25,000, to be paid in monthly installments of $2,083.33 each, in arrears, with one such installment payable on the last day of each one-month period following the Effective Date.

(b) Promptly after the Effective Date, the Company shall grant to the Director, under the Company’s 2012 Stock Incentive Plan, a nonstatutory option (the “ Option ”) to purchase 113,207 shares of Common Stock (the “ Option Shares ”) at a purchase price per share equal to the fair market value of the Common Stock (as determined by the Board of Directors) on the date of the grant. The Option shall be subject to vesting requirements as follows: 2.0833% of the Option Shares shall vest on the first monthly anniversary of the Effective Date and an additional 2.0833% of the Option Shares shall vest at the end of each one-month period thereafter, so that 100% of the Option Shares shall be fully vested on the fourth anniversary of the Effective Date; provided, however , that 100% of the Option Shares shall become vested immediately prior to a Change in Control. For purposes hereof, “ Change in Control ” means (i) the sale, lease, exchange, transfer or other disposition of all or substantially all of the assets of the Company and Zosano, or (B) any merger, consolidation or other business combination that results in the holders of the outstanding voting securities of the Company immediately prior to such transaction beneficially owning or controlling less than a majority of the voting securities of the surviving entity immediately thereafter.

(c) The Director shall be reimbursed for all reasonable, appropriate or necessary travel and other out-of-pocket expenses incurred in the performance of his duties hereunder upon submission and approval of written statements and bills in accordance with the then regular reimbursement procedures of the Company, including, without limitation, travel and lodging expenses incurred in traveling to and from the Company’s offices to render the Services and to attend meetings of the Board of Directors. In the event that the Director performs services on behalf of Other Clients during a trip in which he also provides Services on behalf of the Company, he shall equitably allocate the costs of such trip among the Company and such Other Clients.

 

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Exhibit 10.30

ZP HOLDINGS, INC.

2012 Stock Incentive Plan

(As adopted by the Board of Directors on April 25, 2012)

1. Purpose.

The purpose of this plan (the “Plan”) is to secure for ZP Holdings, Inc., a Delaware corporation (the “Company”), and its shareholders the benefits arising from capital stock ownership by employees, officers and directors of, and consultants or advisors to, the Company and its parent and subsidiary corporations who are expected to contribute to the Company’s future growth and success. Under the Plan recipients may be awarded both (i) Options (as defined in Section 2.1) to purchase the Company’s common stock, $0.0001 par value per share (“Common Stock”) and (ii) shares of Common Stock (“Restricted Stock Awards”). Except where the context otherwise requires, the term “Company” shall include any parent and all present and future subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from time to time (the “Code”). Those provisions of the Plan which make express reference to Section 422 of the Code shall apply only to Incentive Stock Options (as that term is defined below). Appendix A to this Plan shall apply only to participants in the Plan who are residents of the State of California.

2. Types of Awards and Administration.

2.1 Options. Options granted pursuant to the Plan (“Options”) shall be authorized by action of the Board of Directors of the Company (the “Board” or “Board of Directors”) and may be either incentive stock options (“Incentive Stock Options”) meeting the requirements of Section 422 of the Code or non-statutory Options which are not intended to meet the requirements of Section 422. All Options when granted are intended to be non-statutory Options, unless the applicable Option Agreement (as defined in Section 5.1) explicitly states that the Option is intended to be an Incentive Stock Option. The vesting of Options may be conditioned upon the completion of a specified period of employment with the Company and/or such other conditions or events as the Board may determine. The Board may also provide that Options are immediately exercisable subject to certain repurchase rights in the Company dependent upon the continued employment of the optionee and/or such other conditions or events as the Board may determine.

2.1.1 Incentive Stock Options. Incentive Stock Options may only be granted to employees of the Company. For so long as the Code shall so provide, Options granted to any employee under the Plan (and any other incentive stock option plans of the Company) which are intended to constitute Incentive Stock Options shall not constitute Incentive Stock Options to the extent that such Options, in the aggregate, become exercisable for the first time in any one calendar year for shares of Common Stock with an aggregate fair market value (determined as of the respective date or dates of grant) of more than $100,000. If an Option is intended to be an Incentive Stock Option, and if for any reason such Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such


nonqualification, such Option (or portion thereof) shall be regarded as a non-statutory Option appropriately granted under the Plan provided that such Option (or portion thereof) otherwise meets the Plan’s requirements relating to non-statutory Options.

2.2 Restricted Stock Awards. The Board in its discretion may grant Restricted Stock Awards, entitling the recipient to acquire, for a purchase price determined by the Board, shares of Common Stock subject to such restrictions and conditions as the Board may determine at the time of grant (“Restricted Stock”), including continued employment and/or achievement of pre-established performance goals and objectives.

2.3 Administration. The Plan shall be administered by the Board, whose construction and interpretation of the terms and provisions of the Plan shall be final and conclusive. The Board may in its sole discretion authorize issuance of Restricted Stock, the grant of Options and the issuance of shares upon exercise of such Options as provided in the Plan. The Board shall have authority, subject to the express provisions of the Plan, to construe Restricted Stock Agreements, Option Agreements and the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of Restricted Stock Agreements and Option Agreements, and to make all other determinations in the judgment of the Board necessary or desirable for the administration of the Plan. The Board may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Restricted Stock Agreement or Option Agreement 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. No director or person acting pursuant to authority delegated by the Board shall be liable for any action or determination under the Plan made in good faith. The Board may, to the full extent permitted by or consistent with applicable laws or regulations, delegate any or all of its powers under the Plan to a committee (the “Committee”) appointed by the Board, and if the Committee is so appointed, to the extent of such delegation, all references to the Board in the Plan shall mean and relate to such Committee, other than references to the Board in this sentence and in Section 18 (as to amendment or termination of the Plan) and Section 22.

3. Eligibility.

Options may be granted, and Restricted Stock may be issued, to persons who are, at the time of such grant or issuance, employees, officers or directors of, or consultants or advisors to, the Company; provided , that the class of persons to whom Incentive Stock Options may be granted shall be limited to employees of the Company.

3.1 10% Shareholder. If any employee to whom an Incentive Stock Option is to be granted is, at the time of the grant of such Option, the owner of stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (after taking into account the attribution of stock ownership rules of Section 424(d) of the Code) (a “Greater Than 10% Shareholder”), any Incentive Stock Option granted to such individual must: (i) have an exercise price per share of not less than 110% of the fair market value of one share of Common Stock at the time of grant; and (ii) expire by its terms not more than five years from the date of grant.

 

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4. Stock Subject to Plan.

Subject to adjustment as provided in Section 14.2 below, the maximum number of shares of Common Stock which may be issued under the Plan is 2,264,108 shares. If an Option shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject to such Option shall again be available for subsequent Option grants or Restricted Stock Awards under the Plan. If shares of Restricted Stock shall be forfeited to, or otherwise repurchased by, the Company pursuant to a Restricted Stock Agreement, such repurchased shares shall again be available for subsequent Option grants or Restricted Stock Awards under the Plan. If shares issued upon exercise of an Option are tendered to the Company in payment of the exercise price of an Option, such tendered shares shall again be available for subsequent Option grants or Restricted Stock Awards under the Plan.

5. Forms of Restricted Stock Agreements and Option Agreements.

5.1 Option Agreement. Each recipient of an Option shall execute an option agreement (“Option Agreement”) in such form not inconsistent with the Plan as may be approved by the Board of Directors. Such Option Agreements may differ among recipients.

5.2 Restricted Stock Agreement. Each recipient of a grant of Restricted Stock shall execute an agreement (“Restricted Stock Agreement”) in such form not inconsistent with the Plan as may be approved by the Board of Directors. Such Restricted Stock Agreements may differ among recipients.

5.3 “Lock-Up” Agreement. Unless the Board specifies otherwise, each Restricted Stock Agreement and Option Agreement shall provide that upon the request of the Company or the managing underwriter(s) of any offering of securities of the Company that is the subject of a registration statement filed under the United States Securities Act of 1933, as amended from time to time (the “Act”), the holder of any Option or the purchaser of any Restricted Stock shall, in connection therewith, agree in writing (in such form as the Company or such managing underwriter(s) shall request) to the general effect that for a period of time (not to exceed 180 days, plus such additional number of days (not to exceed 35) as may reasonably be requested to enable the underwriter(s) of such offering to comply with Rule 2711(f) of the Financial Industry Regulatory Authority or any amendment or successor thereto) from the effective date of the registration statement under the Act for such offering, the holder or purchaser will not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any shares of the common stock of the Company owned or controlled by him or her.

6. Purchase Price.

6.1 General. The purchase price per share of Restricted Stock and per share of stock deliverable upon the exercise of an Option shall be determined by the Board, provided, however, that in the case of any Option, the exercise price shall not be less than 100% of the fair market value of such stock, as determined by the Board, at the time of grant of such Option, or less than 110% of such fair market value in the case of any Incentive Stock Option granted to a Greater Than 10% Shareholder.

 

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6.2 Payment of Purchase Price. Option Agreements may provide for the payment of the exercise price by delivery of cash or a check to the order of the Company in an amount equal to the exercise price of such Options, or, to the extent provided in the applicable Option Agreement, by one of the following methods:

(i) with the consent of the Board, by delivery to the Company of shares of Common Stock; such surrendered shares shall have a fair market value equal in amount to the exercise price of the Options being exercised,

(ii) with the consent of the Board, a personal recourse note issued by the optionee to the Company in a principal amount equal to such aggregate exercise price and with such other terms, including interest rate and maturity, as the Company may determine in its discretion; provided, however, that the interest rate borne by such note shall not be less than the lowest applicable federal rate, as defined in Section 1274(d) of the Code,

(iii) with the consent of the Board, if the class of Common Stock is registered under the Securities Exchange Act of 1934 at such time, subject to rules as may be established by the Board, by delivery to the Company of a properly executed exercise notice along with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price,

(iv) with the consent of the Board, by reducing the number of Option shares otherwise issuable to the optionee upon exercise of the Option by a number of shares of Common Stock having a fair market value equal to such aggregate exercise price,

(v) with the consent of the Board, by any combination of such methods of payment.

The fair market value of any shares of Common Stock or other non-cash consideration which may be delivered upon exercise of an Option shall be determined by the Board of Directors. Restricted Stock Agreements may provide for the payment of any purchase price in any manner approved by the Board of Directors at the time of authorizing the issuance thereof.

7. Option Period.

Notwithstanding any other provision of the Plan or any Option Agreement, each Option and all rights thereunder shall expire on the date specified in the applicable Option Agreement, provided that such date shall not be later than ten years after the date on which the Option is granted (or five years in the case of an Incentive Stock Option granted to a Greater Than 10% Shareholder), and in either case, shall be subject to earlier termination as provided in the Plan or Option Agreement.

8. Exercise of Options.

8.1 General. Each Option shall be exercisable either in full or in installments at such time or times and during such period as shall be set forth in the Option Agreement

 

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evidencing such Option, subject to the provisions of the Plan. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires.

8.2 Notice of Exercise. An Option may be exercised by the optionee by delivering to the Company on any business day a written notice specifying the number of shares of Common Stock the optionee then desires to purchase and specifying the address to which the certificates for such shares are to be mailed (the “Notice”), accompanied by payment for such shares. In addition, the Company may require any individual to whom an Option is granted, as a condition of exercising such Option, to give written assurances (the “Investment Letter”) in a substance and form satisfactory to the Company to the effect that such individual is acquiring the Common Stock subject to the Option for his or her own account for investment and not with a view to the resale or distribution thereof, and to such other effects as the Company deems necessary or advisable in order to comply with any securities law(s).

8.3 Delivery. As promptly as practicable after receipt of the Notice, the Investment Letter (if required) and payment, the Company shall deliver or cause to be delivered to the optionee certificates for the number of shares with respect to which such Option has been so exercised, issued in the optionee’s name; provided, however, that such delivery shall be deemed effected for all purposes when the Company or a stock transfer agent shall have deposited such certificates in the United States mail, addressed to the optionee, at the address specified in the Notice.

9. Transferability of Options.

No Incentive Stock Option shall be assignable or transferable by the person to whom it is granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and during the life of an optionee, an Incentive Stock Option shall be exercisable only by the optionee. The Board may, in its discretion, determine the extent to which a non-statutory Option shall be transferable.

10. Termination of Employment; Disability; Death. Except as may be otherwise expressly provided in the terms and conditions of the Option Agreement, Options shall terminate on the earliest to occur of:

 

  (i) the date of expiration thereof;

 

  (ii) ten (10) days after the date of termination of the optionee’s employment with, or provision of services to, the Company by the Company for Cause (as hereinafter defined);

 

  (iii) thirty (30) days after the date of voluntary termination of the optionee’s employment with, or provision of services to, the Company by the optionee (other than for death or permanent disability as defined below); or

 

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  (iv) sixty (60) days after the date of termination of the optionee’s employment with, or provision of services to, the Company by the Company without Cause (other than for death or permanent disability as defined below).

Until the date on which the Option so expires, the optionee may exercise that portion of his or her Option which is exercisable at the time of termination of the employment or service relationship.

An employment or service relationship between the Company and the optionee shall be deemed to exist during any period during which the optionee is employed by or providing services to the Company. Whether an authorized leave of absence or an absence due to military or government service shall constitute termination of the employment relationship between the Company and the optionee shall be determined by the Board at the time thereof.

For purposes of this Section 10, the term “Cause” shall mean (a) any material breach by the optionee of any agreement to which the optionee and the Company are both parties, (b) any act (other than retirement) or omission to act by the optionee which may have a material and adverse effect on the Company’s business or on the optionee’s ability to perform services for the Company, including, without limitation, the commission of any crime (other than minor traffic violations), or (c) any material misconduct or material neglect of duties by the optionee in connection with the business or affairs of the Company. An optionee’s employment shall be deemed to have been terminated for Cause if the Company determines within thirty (30) days of the termination of employment (whether such termination was voluntary or involuntary) that termination for Cause was warranted.

In the event of the permanent and total disability or death of an optionee while in an employment or other relationship with the Company, any Option held by such optionee shall terminate on the earlier of the date of expiration of the Option or 180 days following the date of such disability or death. After disability or death, the optionee (or in the case of death, his or her executor, administrator or any person or persons to whom this option may be transferred by will or by laws of descent and distribution) shall have the right, at any time prior to such termination of an Option , to exercise the Option to the extent the optionee was entitled to exercise such Option as of the date of his or her disability or death. An optionee is permanently and totally disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than 12 months; permanent and total disability shall be determined in accordance with Section 22(e)(3) of the Code and the regulations issued thereunder.

11. Rights as a Shareholder. The holder of an Option shall have no rights as a shareholder with respect to any shares covered by the Option (including, without limitation, any rights to receive dividends or non-cash distributions with respect to such shares) until the date of issue of a stock certificate to him or her for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued.

12. Additional Provisions. The Board of Directors may, in its sole discretion, include additional provisions in Restricted Stock Agreements and Option Agreements, including,

 

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without limitation, restrictions on transfer, rights of the Company to repurchase shares of Restricted Stock or shares of Common Stock acquired upon exercise of Options, commitments to pay cash bonuses, to make, arrange for or guaranty loans or to transfer other property to optionees upon exercise of Options, or such other provisions as shall be determined by the Board of Directors; provided that such additional provisions shall not be inconsistent with any other term or condition of the Plan and such additional provisions shall not be such as to cause any Incentive Stock Option to fail to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code.

13. Acceleration, Extension, Etc. The Board of Directors may, in its sole discretion, (i) accelerate the date or dates on which all or any particular Option or Options may be exercised or (ii) extend the period or periods of time during which all, or any particular, Option or Options may be exercised.

14. Adjustment Upon Changes in Capitalization

14.1 No Effect of Options upon Certain Corporate Transactions. The existence of outstanding Options shall not affect in any way the right or power of the Company to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation, or any issue of Common Stock, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

14.2 Adjustment Provisions. If, through or as a result of any merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, (i) the outstanding shares of Common Stock are increased, decreased or exchanged for a different number or kind of shares or other securities of the Company, or (ii) additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Common Stock or other securities, an appropriate and proportionate adjustment shall be made in (x) the maximum number and kind of shares reserved for issuance under the Plan, (y) the number and kind of shares or other securities subject to any then outstanding Options, and (z) the price for each share or other security subject to any then outstanding Options, so that upon exercise of such Options, in lieu of the shares of Common Stock for which such Options were then exercisable, the relevant optionee shall be entitled to receive, for the same aggregate consideration, the same total number and kind of shares or other securities, cash or property that the owner of an equal number of outstanding shares of Common Stock immediately prior to the event requiring adjustment would own as a result of the event. If any such event shall occur, appropriate adjustment shall also be made in the application of the provisions of this Section 14 and Section 15 with respect to Options and the rights of optionees after the event so that the provisions of such Sections shall be applicable after the event and be as nearly equivalent as practicable in operation after the event as they were before the event.

14.3 No Adjustment in Certain Cases. Except as hereinbefore expressly provided, the issue by the Company of shares of stock of any class, or securities convertible into

 

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shares of stock of any class, for cash or property or for labor or services, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock then subject to outstanding options.

14.4 Board Authority to Make Adjustments. Any adjustments under this Section 14 will be made by the Board of Directors, whose determination as to what adjustments, if any, will be made and the extent thereof will be final, binding and conclusive. No fractional shares will be issued under the Plan on account of any such adjustments.

15. Effect of Certain Transactions

15.1 General. Except as provided in any Option Agreement or Restricted Stock Agreement to the contrary, if the Company is merged with or into or consolidated with another corporation under circumstances where the stockholders of the Company immediately prior to such merger or consolidation do not own after such merger or consolidation shares representing at least fifty percent (50%) of the voting power of the Company or the surviving or resulting corporation, as the case may be, or if shares representing fifty percent (50%) or more of the voting power of the Company are transferred to an Unrelated Third Party, as hereinafter defined, or if the Company is liquidated, or sells or otherwise disposes of all or substantially all its assets (each such transaction is referred to herein as a “Change in Control Transaction”), the Board, or the board of directors of any corporation assuming the obligations of the Company, may, in its discretion, take any one or more of the following actions, as to some or all outstanding Options or Restricted Stock Awards (and need not take the same action as to each such Option or Restricted Stock Award): (i) provide that such Options shall be assumed, or equivalent Options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), provided that any such Options substituted for Incentive Stock Options shall meet the requirements of Section 424(a) of the Code, (ii) upon written notice to the optionees, provide that all unexercised Options will terminate immediately prior to the consummation of the Change in Control Transaction unless exercised by the optionee to the extent otherwise then exercisable within a specified period following the date of such notice, (iii) upon written notice to the grantees, provide that all unvested shares of Restricted Stock shall be repurchased at cost, (iv) make or provide for a cash payment to the optionees equal to the difference between (A) the fair market value of the per share consideration (whether cash, securities or other property or any combination of the above) the holder of a share of Common Stock will receive upon consummation of the Change in Control Transaction (the “Per Share Transaction Price”) times the number of shares of Common Stock subject to outstanding vested Options (to the extent then exercisable at prices not equal to or in excess of the Per Share Transaction Price) and (B) the aggregate exercise price of such outstanding vested Options, in exchange for the termination of such Options, or (v) provide that all or any outstanding Options shall become exercisable and all or any outstanding Restricted Stock Awards shall vest in part or in full immediately prior to such event. To the extent that any Options are exercisable at a price equal to or in excess of the Per Share Transaction Price, the Board may provide that such Options shall terminate immediately upon the consummation of the Change in Control Transaction without any payment being made to the holders of such Options. “ Unrelated Third Party ” shall mean any person who

 

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is not, on the date of adoption of this Plan by the Board, a holder of stock of any class or preference or any stock option of the Company.

15.2 Substitute Options. The Company may grant Options in substitution for options held by employees, officers or directors of, or consultants or advisors to, another corporation who become employees, officers or directors of, or consultants or advisors to, the Company, as the result of a merger or consolidation of the employing corporation with the Company or as a result of the acquisition by the Company of property or stock of the employing corporation. The Company may direct that substitute Options be granted on such terms and conditions as the Board considers appropriate in the circumstances.

15.3 Restricted Stock. In the event of a business combination or other transaction of the type detailed in Section 15.1, any securities, cash or other property received in exchange for shares of Restricted Stock shall continue to be governed by the provisions of any Restricted Stock Agreement pursuant to which they were issued, including any provision regarding vesting, and such securities, cash, or other property may be held in escrow on such terms as the Board of Directors may direct, to insure compliance with the terms of any such Restricted Stock Agreement.

16. No Special Employment Rights. Nothing contained in the Plan or in any Option Agreement or Restricted Stock Agreement shall confer upon any optionee or holder of Restricted Stock any right with respect to the continuation of his or her employment by the Company or interfere in any way with the right of the Company at any time to terminate such employment or to increase or decrease his or her compensation.

17. Other Employee Benefits. The amount of any compensation deemed to be received by an employee as a result of the issuance of shares of Restricted Stock or the grant or exercise of an Option or the sale of shares received upon issuance of a Restricted Stock Award or exercise of an Option will not constitute compensation with respect to which any other employee benefits of such employee are determined, including, without limitation, benefits under any bonus, pension, profit-sharing, life insurance or salary continuation plan, except as otherwise specifically determined by the Board of Directors.

18. Amendment of the Plan.

18.1 The Board may at any time, and from time to time, modify or amend in any respect or terminate the Plan. If shareholder approval is not obtained within twelve months after any amendment increasing the number of shares authorized under the Plan or changing the class of persons eligible to receive Options under the Plan, no Options granted pursuant to such amendments shall be deemed to be Incentive Stock Options and no Incentive Stock Options shall be issued pursuant to such amendments thereafter.

18.2 The termination or any modification or amendment of the Plan shall not, without the consent of an optionee or the holder of Restricted Stock, adversely affect his or her rights under an Option or Restricted Stock Award previously granted to him or her. With the consent of the recipient of Restricted Stock or optionee affected, the Board may amend

 

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outstanding Restricted Stock Agreements or Option Agreements in a manner not inconsistent with the Plan.

19. Withholding. The Company shall have the right to deduct from payments of any kind otherwise due to the optionee or recipient of Restricted Stock, any federal, state or local taxes of any kind required by law to be withheld with respect to issuance of any shares of Restricted Stock or shares issued upon exercise of Options. Prior to delivery of any Common Stock pursuant to the terms of this Plan, the Board has the right to require that the optionee or recipient of Restricted Stock remit to the Company an amount sufficient to satisfy any minimum tax withholding obligation. Subject to the prior approval of the Company, which may be withheld by the Company in its sole discretion, the obligor may elect to satisfy any minimum withholding obligations, in whole or in part, (i) by causing the Company to withhold shares of Common Stock otherwise issuable, or (ii) by delivering to the Company a sufficient number of shares of Common Stock. The shares so withheld shall have a fair market value equal to such minimum withholding obligation. The fair market value of the shares used to satisfy such minimum withholding obligation shall be determined by the Company as of the date that the amount of tax to be withheld is to be determined. A person who has made an election pursuant to this Section 19 may only satisfy his or her withholding obligation with shares of Common Stock which are not subject to any repurchase, forfeiture, unfulfilled vesting or other similar restrictions.

20. Effective Date and Duration of the Plan.

20.1 Effective Date. The Plan shall become effective when adopted by the Board of Directors. If shareholder approval is not obtained within twelve months after the date of the Board’s adoption of the Plan, no Options previously granted under the Plan shall be deemed to be Incentive Stock Options and no Incentive Stock Options shall be granted thereafter. Amendments to the Plan not requiring shareholder approval shall become effective when adopted by the Board. Amendments requiring shareholder approval shall become effective when adopted by the Board, but if shareholder approval is not obtained within twelve months of the Board’s adoption of such amendment, any Incentive Stock Options granted pursuant to such amendment shall be deemed to be non-statutory Options provided that such Options are authorized by the Plan. Subject to this limitation, Options may be granted under the Plan at any time after the effective date and before the date fixed for termination of the Plan.

20.2 Termination. Unless sooner terminated by action of the Board of Directors, the Plan shall terminate upon the close of business on the day next preceding the tenth anniversary of the date of its adoption by the Board of Directors.

21. Provision for Foreign Participants. The Board of Directors may, without amending the Plan, modify the terms of Option Agreements or Restricted Stock Agreements to differ from those specified in the Plan with respect to participants who are foreign nationals or employed outside the United States to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.

 

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22. Requirements of Law. The Company shall not be required to sell or issue any shares under any Option or Restricted Stock Award if the issuance of such shares shall constitute a violation by the optionee, the Restricted Stock Award recipient, or by the Company of any provision of any law or regulation of any governmental authority. In addition, in connection with the Act, the Company shall not be required to issue any shares upon exercise of any Option unless the Company has received evidence satisfactory to it to the effect that the holder of such Option will not transfer such shares except pursuant to a registration statement in effect under the Act or unless an opinion of counsel satisfactory to the Company has been received by the Company to the effect that such registration is not required in connection with any such transfer. Any determination in this connection by the Board shall be final, binding and conclusive. In the event the shares issuable on exercise of an Option are not registered under the Act or under the securities laws of each relevant state or other jurisdiction, the Company may imprint on the certificate(s) appropriate legends that counsel for the Company considers necessary or advisable to comply with the Act or any such state or other securities law. The Company may register, but in no event shall be obligated to register, any securities covered by the Plan pursuant to the Act; and in the event any shares are so registered the Company may remove any legend on certificates representing such shares. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option, the grant of any Restricted Stock Award or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority.

23. Conversion of Incentive Stock Options into Non-Qualified Options; Termination. The Board of Directors, with the consent of any optionee, may in its discretion take such actions as may be necessary to convert such optionee’s Incentive Stock Options (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into non-statutory Options at any time prior to the expiration of such Incentive Stock Options, regardless of whether the optionee is an employee of the Company or a parent or subsidiary of the Company at the time of such conversion. At the time of such conversion, the Board of Directors (with the consent of the optionee) may impose such conditions on the exercise of the resulting non-statutory Options as the Board of Directors in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in this Plan shall be deemed to give any optionee the right to have such optionee’s Incentive Stock Options converted into non-statutory Options, and no such conversion shall occur until and unless the Board of Directors takes appropriate action. The Board of Directors, with the consent of the optionee, may also terminate any portion of any Incentive Stock Option that has not been exercised at the time of such termination.

24. Non-Exclusivity of this Plan; Non-Uniform Determinations. Neither the adoption of this Plan by the Board of Directors nor the approval of this Plan by the stockholders of the Company shall be construed as creating any limitations on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under this Plan, and such arrangements may be either applicable generally or only in specific cases.

The determinations of the Board of Directors under this Plan need not be uniform and may be made by it selectively among persons who receive or are eligible to receive Options or Restricted Stock Awards under this Plan (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Board of Directors shall be entitled, among

 

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other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Option Agreements and Restricted Stock Agreements, as to (a) the persons to receive Options or Restricted Stock Awards under this Plan, (b) the terms and provisions of Options or Restricted Stock Awards, (c) the exercise by the Board of Directors of its discretion in respect of the exercise of Options pursuant to the terms of this Plan, and (d) the treatment of leaves of absence pursuant to Section 10 hereof.

25. Governing Law. This Plan and each Option or Restricted Stock Award shall be governed by the laws of the State of Delaware, without regard to its principles of conflicts of law.

 

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APPENDIX A

TO ZP HOLDINGS, INC. 2012 STOCK INCENTIVE PLAN

FOR CALIFORNIA RESIDENTS ONLY

This Appendix to the ZP Holdings, Inc. 2012 Stock Incentive Plan (the “Plan”) shall have application only to participants in the Plan who are residents of the State of California. Capitalized terms contained herein shall have the same meanings given to them in the Plan, unless otherwise provided in this Appendix. Notwithstanding any provision contained in the Plan to the contrary and to the extent required by applicable law, the following terms and conditions shall apply to all Options and Restricted Stock Awards (collectively “Awards”) granted to residents of the State of California, until such time as the Common Stock becomes subject to registration under the Securities Act of 1933:

1. Awards shall be nontransferable other than by will or the laws of descent and distribution. Notwithstanding the foregoing, and to the extent permitted by Section 422 of the Code, the Board, in its discretion, may permit distribution of an Award to an inter vivos or testamentary trust in which the Award is to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to “immediate family” as that term is defined in Rule 16a-1(e) of the United States Exchange Act of 1934.

2. Unless employment is terminated for Cause, the right to exercise an Option in the event of termination of employment, to the extent that the optionee is otherwise entitled to exercise an Option on the date employment terminates, shall be

(a) at least six months from the date of termination of employment if termination was caused by death or permanent disability; and

(b) at least 30 days from the date of termination if termination of employment was caused by other than death or permanent disability;

(c) but in no event later than the remaining term of the Option.

3. Any Award exercised before shareholder approval is obtained shall be rescinded if shareholder approval is not obtained within 12 months of the Board’s adoption of the Plan.

Exhibit 10.31

INCENTIVE STOCK OPTION

Granted by

ZP Holdings, Inc. (the “ Company ”)

Under the 2012 Stock Incentive Plan

This Option is and shall be subject in every respect to the provisions of the Company’s 2012 Stock Incentive Plan, as amended from time to time (the “ Plan ”), which is incorporated herein by reference and made a part hereof. The holder of this Option (the “ Holder ”) hereby accepts this Option subject to all the terms and provisions of the Plan and agrees that (a) in the event of any conflict between the terms hereof and those of the Plan, the latter shall prevail, and (b) all decisions under and interpretations of the Plan by the board of directors of the Company (the “ Board ”) or a designated committee thereof shall be final, binding and conclusive upon the Holder and his or her heirs and legal representatives.

 

1. Name of Holder:                                         

 

2. Date of Grant:                     

 

3. Vesting Start Date:                     

 

4. Maximum number of shares for which this Option is exercisable:                     

 

5. Exercise (purchase) price per share: $         

 

6. Method of Exercise: This Option may be exercised by the delivery of written notice to the Company setting forth the number of shares with respect to which the Option is to be exercised, together with payment by one of the following methods:

 

    cash or a personal, certified or bank check or postal money order payable to the order of the Company for an amount equal to the exercise price of the shares being purchased; or

 

    with the consent of the Company, any of the other methods set forth in the Plan.

As an additional condition to exercise of this Option, the Holder shall deliver to the Company an investment letter in form and substance satisfactory to the Company and its counsel. No such investment letter shall be required as a condition to such exercise at any time when there shall be an effective registration statement under the Securities Act of 1933, as amended (the “ Act ”) covering the shares for which this Option may be exercised.

 

7. Expiration Date of Option:

 

8.

Vesting Schedule: This Option shall become exercisable for [25%] of the maximum number of shares granted on the [first anniversary of the Vesting Start Date,] and shall become exercisable for an additional [2.0833%] of the maximum number of shares granted [on the last day of each month thereafter]; so that the Option shall be fully vested on the [fourth] anniversary of the Vesting Start Date. All vesting shall cease upon the date of


  termination of employment or provision of services to the Company. [ insert acceleration language as needed ]

 

9. Termination of Employment. This Option shall terminate on the earliest to occur of:

 

  (i) the date of expiration hereof;

 

  (ii) immediately after termination of the Holder’s employment with, or provision of services to, the Company by the Company for Cause (as defined in the Plan);

 

  (iii) [0-90] days after the date of voluntary termination of employment or provision of services by the Holder (other than for death or permanent disability as defined in the Plan); or

 

  (iv) [0-90] days after the date of termination of the Holder’s employment with, or provision of services to, the Company by the Company without Cause (other than for death or permanent disability as defined in the Plan).

 

10. Company’s Right of First Refusal. Prior to the effective date of a registration statement under the Act, any shares of stock issued pursuant to exercise of this Option shall be subject to the Company’s right of first refusal as set forth at Appendix A .

 

11. Lock-Up Agreement. The Holder agrees that upon the request of the Company or the managing underwriter(s) of any offering of securities of the Company that is the subject of a registration statement filed under the Act, for a period of time (not to exceed 180 days, plus such additional number of days (not to exceed 35) as may reasonably be requested to enable the underwriter(s) of such offering to comply with Rule 2711(f) of the Financial Industry Regulatory Authority or any amendment or successor thereto) from the effective date of the registration statement under the Act for such offering, the Holder will not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any shares of Common Stock issued pursuant to the exercise of this Option, without the prior written consent of the Company and such underwriters.

 

12.

Incentive Stock Option; Disqualifying Disposition. Although this Option is intended to qualify as an incentive stock option under the Internal Revenue Code of 1986 (the “ Code ”), the Company makes no representation as to the tax treatment upon exercise of this Option or sale or other disposition of the shares covered by this Option, and the Holder is advised to consult a personal tax advisor. Upon a Disqualifying Disposition of shares received upon exercise of this Option, the Holder will forfeit the favorable income tax treatment otherwise available with respect to the exercise of this Option. A “ Disqualifying Disposition ” shall have the meaning specified in Section 421(b) of the Code; as of the date of grant of this Option a Disqualifying Disposition is any disposition (including any sale) of such shares before the later of (a) the second anniversary of the date of grant of this Option and (b) the first anniversary of the date on which the Holder acquired such shares by exercising this Option, provided that such holding period requirements terminate upon the death of the Holder. The Holder shall notify the Company in writing immediately upon making a Disqualifying Disposition of any shares of Common Stock received pursuant to the exercise

 

2


  of this Option, and shall provide the Company with any information that the Company shall request concerning any such Disqualifying Disposition.

 

13. Notice. Any notice to be given to the Company hereunder shall be deemed sufficient if addressed to the Company and delivered to the office of the Company, ZP Holdings, Inc., 34790 Ardentech Court, Fremont, California 94555, attention of the President, or such other address as the Company may hereafter designate.

Any notice to be given to the Holder hereunder shall be deemed sufficient if addressed to and delivered in person to the Holder at his or her address furnished to the Company or when deposited in the mail, postage prepaid, addressed to the Holder at such address.

 

14. Survival of Provisions . Sections 10, 11 and Appendix A shall survive the termination, expiration or exercise of this Option, as shall any other provisions which, by their terms, apply beyond the term of this Option.

IN WITNESS WHEREOF, the parties have executed this Option, or caused this Option to be executed, as of the Date of Grant.

 

ZP HOLDINGS, INC.
By:  

 

Name:  
Title:  

The undersigned Holder hereby acknowledges receipt of a copy of the Plan and this Option (including Appendix A hereto), and agrees to the terms of this Option and the Plan.

 

HOLDER  

 

Name:  
Address:  

 

 

 

 

 

 

3


APPENDIX A

Right of First Refusal

1. General. Prior to the effective date of a registration statement under the Securities Act of 1933, as amended (the “ Act ”), covering any shares of the Company’s Common Stock and until such time as the Company shall have effected a public offering of its Common Stock registered under the Act, in the event that, at any time when the Holder (which term for purposes of this section shall mean the Holder and his or her executors, administrators and any other person to whom this Option may be transferred by will or the laws of descent and distribution) is permitted to do so, the Holder desires to sell, assign or otherwise transfer any of the shares issued upon the exercise of this Option, the Holder shall first offer such shares to the Company by giving written notice of the Holder’s desire so to sell, assign or transfer such shares.

2. Notice of Intended Transfer. The notice shall state the number of shares offered, the name of the person or persons to whom it is proposed to sell, assign or transfer such shares and the price at which such shares are intended to be sold, assigned or transferred. Such notice shall constitute an offer to the Company for the Company to purchase the number of shares set forth in the notice at a price per share equal to the price stated therein.

3. Company to Accept or Decline Within 30 Days. The Company may accept the offer as to all, but not less than all, such shares by notifying the Holder in writing within 30 days after receipt of such notice of its acceptance of the offer. If the offer is accepted, the Company shall have 60 days after such acceptance within which to purchase the offered shares at a price per share as aforesaid. If within the applicable time periods the Holder does not receive notice of the Company’s intention to purchase the offered shares, or if payment in full of the purchase price is not made by the Company, the offer shall be deemed to have been rejected and the Holder may transfer title to such shares within 90 days from the date of the Holder’s written notice to the Company of the Holder’s intention to sell, but such transfer shall be made only to the proposed transferee and at the proposed price as stated in such notice and after compliance with any other provisions of this Option applicable to the transfer of such shares.

4. Transferred Shares to Remain Subject to Right of First Refusal. Shares that are so transferred to such transferee shall remain subject to the rights of the Company set forth in this Appendix A . As a condition to such transfer, such transferee shall execute and deliver all such documents as the Company may require to evidence the binding agreement of such transferee so to remain subject to the rights of the Company.

5. Remedies of Company. No sale, assignment, pledge or other transfer of any of the shares covered by this Option shall be effective or given effect on the books of the Company unless all of the applicable provisions of this Appendix A have been duly complied with, and the Company may inscribe on the face of any certificate representing any of such shares a legend referring to the provisions of this Appendix A . If any transfer of shares is made or attempted in violation of the foregoing restrictions, or if shares are not offered to the Company as required hereby, the Company shall have the right to purchase such shares from the owner thereof or his transferee at any time before or after the transfer, as herein provided. In addition to any other legal

 

4


or equitable remedies which it may have, the Company may enforce its rights by actions for specific performance (to the extent permitted by law) and may refuse to recognize any transferee as one of its stockholders for any purpose, including, without limitation, for purposes of dividend and voting rights, until all applicable provisions hereof have been complied with.

6. Shares Subject to Right of First Refusal. For purposes of the Right of First Refusal pursuant to this Appendix A , the term “ shares ” shall mean any and all new, substituted or additional securities or other property issued to the Holder, by reason of his or her ownership of Common Stock pursuant to the exercise of this Option, in connection with any stock dividend, liquidating dividend, stock split or other change in the character or amount of any of the outstanding securities of the Company, or any consolidation, merger or sale of all or substantially all of the assets of the Company.

7. Legends on Stock Certificates. Any certificate representing shares of stock subject to the provisions of this Appendix A may have endorsed thereon one or more legends, substantially as follows:

 

  (i) “Any disposition of any interest in the securities represented by this certificate is subject to restrictions, and the securities represented by this certificate are subject to certain options, contained in a certain agreement between the record holder hereof and the Company, a copy of which will be mailed to any holder of this certificate without charge upon receipt by the Company of a written request therefor.”

 

  (ii) “The shares of stock represented by this certificate have not been registered under the Securities Act of 1933 or under the securities laws of any state and may not be pledged, hypothecated, sold or otherwise transferred unless such shares have been registered under the Act or unless the Company has received an opinion of counsel satisfactory to the Company, in form and substance satisfactory to the Company, that such registration is not required.”

8. Right of First Refusal to Lapse Upon Registration. The restrictions imposed by this Appendix A shall terminate in all respects upon the effective date of a registration statement under the Act covering any of the Company’s Common Stock.

 

5

Exhibit 10.32

NON-STATUTORY STOCK OPTION

Granted by

ZP Holdings, Inc. (the “ Company ”)

Under the 2012 Stock Incentive Plan

This Option is and shall be subject in every respect to the provisions of the Company’s 2012 Stock Incentive Plan, as amended from time to time (the “ Plan ”), which is incorporated herein by reference and made a part hereof. The holder of this Option (the “ Holder ”) hereby accepts this Option subject to all the terms and provisions of the Plan and agrees that (a) in the event of any conflict between the terms hereof and those of the Plan, the latter shall prevail, and (b) all decisions under and interpretations of the Plan by the board of directors of the Company (the “ Board ”) or a designated committee thereof shall be final, binding and conclusive upon the Holder and his or her heirs and legal representatives.

 

1. Name of Holder:                                         

 

2. Date of Grant:                     

 

3. Vesting Start Date:                     

 

4. Maximum number of shares for which this Option is exercisable:                     

 

5. Exercise (purchase) price per share: $         

 

6. Method of Exercise: This Option may be exercised by the delivery of written notice to the Company setting forth the number of shares with respect to which the Option is to be exercised, together with payment by one of the following methods:

 

    cash or a personal, certified or bank check or postal money order payable to the order of the Company for an amount equal to the exercise price of the shares being purchased; or

 

    with the consent of the Company, any of the other methods set forth in the Plan.

As an additional condition to exercise of this Option, the Holder shall deliver to the Company an investment letter in form and substance satisfactory to the Company and its counsel. No such investment letter shall be required as a condition to such exercise at any time when there shall be an effective registration statement under the Securities Act of 1933, as amended (the “ Act ”) covering the shares for which this Option may be exercised.

 

7. Expiration Date of Option: Tenth anniversary of Date of Grant.

 

8. Vesting Schedule: This Option shall become exercisable for [25%] of the maximum number of shares granted on the [first anniversary of the Date of Grant], and shall become exercisable for an additional [2.0833%] of the maximum number of shares granted on the [last day of each month thereafter]; so that the Option shall be fully vested on the [fourth] anniversary of the Date of Grant. All vesting shall cease upon the date of termination of employment or provision of services to the Company. [ insert acceleration language as needed ]


9. Termination of Employment. This Option shall terminate on the earliest to occur of:

 

  (i) the date of expiration hereof;

 

  (ii) immediately after termination of the Holder’s employment with, or provision of services to, the Company by the Company for Cause (as defined in the Plan);

 

  (iii) [0-90] days after the date of voluntary termination of employment or provision of services by the Holder (other than for death or permanent disability as defined in the Plan); or

 

  (iv) [0-90] days after the date of termination of the Holder’s employment with, or provision of services to, the Company by the Company without Cause (other than for death or permanent disability as defined in the Plan).

 

10. Company’s Right of First Refusal. Prior to the effective date of a registration statement under the Act, any shares of stock issued pursuant to exercise of this Option shall be subject to the Company’s right of first refusal as set forth at Appendix A .

 

11. Lock-Up Agreement. The Holder agrees that upon the request of the Company or the managing underwriter(s) of any offering of securities of the Company that is the subject of a registration statement filed under the Act, for a period of time (not to exceed 180 days, plus such additional number of days (not to exceed 35) as may reasonably be requested to enable the underwriter(s) of such offering to comply with Rule 2711(f) of the Financial Industry Regulatory Authority or any amendment or successor thereto) from the effective date of the registration statement under the Act for such offering, the Holder will not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any shares of Common Stock issued pursuant to the exercise of this Option, without the prior written consent of the Company and such underwriters.

 

12. Tax Withholding . The Company’s obligation to deliver shares shall be subject to the Holder’s satisfaction of any applicable federal, state and local income and employment tax withholding requirements.

 

13. Notice. Any notice to be given to the Company hereunder shall be deemed sufficient if addressed to the Company and delivered to the office of the Company, ZP Holdings, Inc., 34790 Ardentech Court, Fremont, California 94555, attention of the President, or such other address as the Company may hereafter designate.

Any notice to be given to the Holder hereunder shall be deemed sufficient if addressed to and delivered in person to the Holder at his or her address furnished to the Company or when deposited in the mail, postage prepaid, addressed to the Holder at such address.

 

14. Survival of Provisions . Sections 10, 11, 12 and Appendix A shall survive the termination, expiration or exercise of this Option, as shall any other provisions which, by their terms, apply beyond the term of this Option.

 

2


IN WITNESS WHEREOF, the parties have executed this Option, or caused this Option to be executed, as of the Date of Grant.

 

ZP HOLDINGS, INC.
By:  

 

Name:  
Title:  

The undersigned Holder hereby acknowledges receipt of a copy of the Plan and this Option (including Appendix A hereto), and agrees to the terms of this Option and the Plan.

 

HOLDER

 

Name:  
Address:  

 

 

 

 

 

— Signature Page to ZP Holdings, Inc. Non-Statutory Stock Option —


APPENDIX A

Right of First Refusal

1. General. Prior to the effective date of a registration statement under the Securities Act of 1933, as amended (the “ Act ”), covering any shares of the Company’s Common Stock and until such time as the Company shall have effected a public offering of its Common Stock registered under the Act, in the event that, at any time when the Holder (which term for purposes of this section shall mean the Holder and his or her executors, administrators and any other person to whom this Option may be transferred by will or the laws of descent and distribution) is permitted to do so, the Holder desires to sell, assign or otherwise transfer any of the shares issued upon the exercise of this Option, the Holder shall first offer such shares to the Company by giving written notice of the Holder’s desire so to sell, assign or transfer such shares.

2. Notice of Intended Transfer. The notice shall state the number of shares offered, the name of the person or persons to whom it is proposed to sell, assign or transfer such shares and the price at which such shares are intended to be sold, assigned or transferred. Such notice shall constitute an offer to the Company for the Company to purchase the number of shares set forth in the notice at a price per share equal to the price stated therein.

3. Company to Accept or Decline Within 30 Days. The Company may accept the offer as to all, but not less than all, such shares by notifying the Holder in writing within 30 days after receipt of such notice of its acceptance of the offer. If the offer is accepted, the Company shall have 60 days after such acceptance within which to purchase the offered shares at a price per share as aforesaid. If within the applicable time periods the Holder does not receive notice of the Company’s intention to purchase the offered shares, or if payment in full of the purchase price is not made by the Company, the offer shall be deemed to have been rejected and the Holder may transfer title to such shares within 90 days from the date of the Holder’s written notice to the Company of the Holder’s intention to sell, but such transfer shall be made only to the proposed transferee and at the proposed price as stated in such notice and after compliance with any other provisions of this Option applicable to the transfer of such shares.

4. Transferred Shares to Remain Subject to Right of First Refusal. Shares that are so transferred to such transferee shall remain subject to the rights of the Company set forth in this Appendix A . As a condition to such transfer, such transferee shall execute and deliver all such documents as the Company may require to evidence the binding agreement of such transferee so to remain subject to the rights of the Company.

5. Remedies of Company. No sale, assignment, pledge or other transfer of any of the shares covered by this Option shall be effective or given effect on the books of the Company unless all of the applicable provisions of this Appendix A have been duly complied with, and the Company may inscribe on the face of any certificate representing any of such shares a legend referring to the provisions of this Appendix A . If any transfer of shares is made or attempted in violation of the foregoing restrictions, or if shares are not offered to the Company as required hereby, the Company shall have the right to purchase such shares from the owner thereof or his transferee at any time before or after the transfer, as herein provided. In addition to any other legal

 

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or equitable remedies which it may have, the Company may enforce its rights by actions for specific performance (to the extent permitted by law) and may refuse to recognize any transferee as one of its stockholders for any purpose, including, without limitation, for purposes of dividend and voting rights, until all applicable provisions hereof have been complied with.

6. Shares Subject to Right of First Refusal. For purposes of the Right of First Refusal pursuant to this Appendix A , the term “ shares ” shall mean any and all new, substituted or additional securities or other property issued to the Holder, by reason of his or her ownership of Common Stock pursuant to the exercise of this Option, in connection with any stock dividend, liquidating dividend, stock split or other change in the character or amount of any of the outstanding securities of the Company, or any consolidation, merger or sale of all or substantially all of the assets of the Company.

7. Legends on Stock Certificates. Any certificate representing shares of stock subject to the provisions of this Appendix A may have endorsed thereon one or more legends, substantially as follows:

 

  (i) “Any disposition of any interest in the securities represented by this certificate is subject to restrictions, and the securities represented by this certificate are subject to certain options, contained in a certain agreement between the record holder hereof and the Company, a copy of which will be mailed to any holder of this certificate without charge upon receipt by the Company of a written request therefor.”

 

  (ii) “The shares of stock represented by this certificate have not been registered under the Securities Act of 1933 or under the securities laws of any state and may not be pledged, hypothecated, sold or otherwise transferred unless such shares have been registered under the Act or unless the Company has received an opinion of counsel satisfactory to the Company, in form and substance satisfactory to the Company, that such registration is not required.”

8. Right of First Refusal to Lapse Upon Registration. The restrictions imposed by this Appendix A shall terminate in all respects upon the effective date of a registration statement under the Act covering any of the Company’s Common Stock.

 

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Exhibit 10.34

THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), 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 ACT, OR ANY APPLICABLE STATE SECURITIES LAWS.

WARRANT AGREEMENT

To Purchase Shares of Stock of

ZP Holdings, Inc.

Dated as of June 3, 2014 (the “ Effective Date ”)

WHEREAS, Zosano Pharma, Inc., a Delaware corporation (“Zosano Pharma”), is a wholly-owned subsidiary of the Company (as defined below);

WHEREAS, Zosano Pharma has entered into a Loan and Security Agreement of even date herewith (the “ Loan Agreement ”) with Hercules Technology Growth Capital, Inc., a Maryland corporation (“ Hercules ”);

WHEREAS, the Company desires to grant to Hercules, in consideration for, among other things, the financial accommodations provided to Zosano Pharma in the Loan Agreement, the right to purchase shares of Company Stock (as defined below) pursuant to this Warrant Agreement (the “ Agreement ”);

NOW, THEREFORE, in consideration of Hercules’s 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 Hercules agree as follows:

SECTION 1. GRANT OF THE RIGHT TO PURCHASE COMPANY STOCK.

For value received, the Company hereby grants to Hercules, and Hercules is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase, from the Company, an aggregate number of fully paid and non-assessable shares of the Company Stock equal to the quotient derived by dividing (a) the Warrant Amount (defined below) by (b) the Exercise Price (defined below). As used herein, the following terms shall have the following meanings:

Act ” means the Securities Act of 1933, as amended.

Company ” means ZP Holdings, Inc., a Delaware corporation, and any successor or surviving entity that assumes the obligations of the Company under this Agreement pursuant to Section 8(a).

Charter ” means the Company’s Certificate of Incorporation or other constitutional document, as may be amended from time to time.

Common Stock ” means the Company’s common stock, $0.0001 par value per share.

Company Stock ” means, at the election of Hercules, (A) the Common Stock, or (B) the class and series of the preferred stock or Common Stock of the Company issued in the Next Round (such stock, the “ Next Round Stock ”), and, to the extent provided in Sections 8(a) and (b), any other stock into or for which such Company Stock may be converted or exchanged; provided that 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 Company 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, “Company Stock” shall mean the Common Stock.

 

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Equity Round ” means any non-public offering of equity securities by the Company, after the Effective Date but prior to the consummation of an Initial Public Offering, in a transaction or series of related transactions principally for equity financing purposes in which the cash is received by the Company and/or debt of the Company is cancelled or converted in exchange for equity securities of the Company.

Exercise Price ” means, subject to adjustment pursuant to Section 8, the lower of (i) lowest price per share of the Next Round Stock paid in the Next Round, and (ii) $2.21 per share.

Initial Public Offering ” means the initial underwritten public offering of the Company’s Common Stock pursuant to a registration statement under the Act, which registration statement has been declared effective by the Securities and Exchange Commission (“ SEC ”).

Marketable Securities ” means securities issued by a corporation whose equity securities are traded on NASDAQ, NYSE or AMEX, which securities have been registered under the Act and can be sold immediately following the closing of a Merger Event regardless of any lock-up or other restriction.

Merger Event ” means any sale, lease or other transfer of all or substantially all assets of the Company or any merger or consolidation involving the Company in which the Company is not the surviving entity, or in which the outstanding shares of the Company’s capital stock are otherwise converted into or exchanged for shares of Company Stock, other securities or property of another entity.

Next Round ” means an Equity Round in which the Company issues and sells shares of its Company Stock for aggregate gross proceeds of at least $3,000,000.

Next Round Stock ” shall have the meaning provided in the definition of Company Stock.

Purchase Price ” means, with respect to any exercise of this Agreement, an amount equal to the Exercise Price as of the relevant time multiplied by the number of shares of Company Stock requested to be exercised under this Agreement pursuant to such exercise.

Qualified Merger Event ” means a Merger Event in which the consideration to be received by holders of Company Stock at the closing of such Merger Event consists of cash or Marketable Securities (or a combination of cash and Marketable Securities).

Warrant Amount ” means $280,000.

SECTION 2. TERM OF THE AGREEMENT.

(a) Term . Except as otherwise provided for herein, the term of this Agreement and the right to purchase Company Stock as granted herein (the “Warrant”) shall commence on the Effective Date and shall be exercisable for a period ending upon the earlier to occur of (i) ten (10) years from the Effective Date; or (ii) five (5) years after the Initial Public Offering.

(b) Early Termination . The Company shall provide written notice to the registered holder of this Agreement of a Qualified Merger Event at least ten days prior to the consummation of the Merger Event. Notice from the Company to the registered holder of this Agreement of a Qualified Merger Event shall provide detailed information regarding the consideration to be received by holders of Company Stock in connection with such Qualified Merger Event. In the event of a Qualified Merger Event where the registered holder of this Agreement elects not to exercise its rights under this Agreement to acquire shares of Company Stock in connection with the Qualified Merger Event, then the Company may elect to pay to the registered holder of this Agreement, at closing of such Qualified Merger Event, an amount in cash equal to one (1) times the aggregate Exercise Price times the number of shares of Company Stock acquirable under this Agreement as of the date of such Qualified Merger Event, and this Agreement shall be terminated effective upon receipt of such payment, which payment shall be in complete satisfaction hereof.

SECTION 3. EXERCISE OF THE PURCHASE RIGHTS.

 

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(a) Exercise . The purchase rights set forth in this Agreement are exercisable by Hercules, 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 three (3) days thereafter, the Company shall issue to Hercules a certificate for the number of shares of Company 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 Hercules’s election either (i) by cash or check, or (ii) by surrender of all or a portion of the Warrant for shares of Company Stock to be exercised under this Agreement and, if applicable, an amended Agreement representing the remaining number of shares purchasable hereunder, as determined below (“ Net Issuance ”). If Hercules elects the Net Issuance method, the Company will issue Company Stock in accordance with the following formula:

 

  X   =   Y(A-B)   
             A   

 

Where:    X =      the number of shares of Company Stock to be issued to Hercules.
   Y =      the number of shares of Company Stock requested to be exercised under this Agreement.
   A =      the fair market value of one (1) share of Company Stock at the time of issuance of such shares of Company Stock.
   B =      the Exercise Price.

For purposes of the above calculation, current fair market value of Company Stock shall mean with respect to each share of Company Stock:

(i) if the exercise is in connection with an Initial Public Offering, and if the Company’s Registration Statement relating to such Initial Public Offering has been declared 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 Company 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 average of the closing prices over a five (5) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Company 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 over the five (5) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Company 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 current fair market value per share of

 

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Company Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) 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 Company Stock is convertible at the time of such exercise, unless the Company shall become subject to a Merger Event, in which case the fair market value of Company Stock shall be deemed to be the per share value to be received by the holders of the Company’s Company 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 an amended Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Agreement 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 Agreement is not previously exercised as to all Company Stock subject hereto, and if the fair market value of one share of the Company Stock is greater than the Exercise Price then in effect, this Agreement 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 Company Stock upon such expiration shall be determined pursuant to Section 3(a). To the extent this Agreement or any portion thereof is deemed automatically exercised pursuant to this Section 3(b), the Company agrees to promptly notify Hercules of the number of shares of Company Stock, if any, Hercules is to receive by reason of such automatic exercise.

SECTION 4. RESERVATION OF SHARES.

During the term of this Agreement, the Company will (a) with respect to shares of Common Stock, at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of the rights to purchase Company Stock as provided for herein, and (b) with respect to shares of Next Round Stock, authorize and reserve a sufficient number of shares of its Next Round Stock to provide for the exercise of the rights to purchase Company Stock as provided for herein, and shall authorize and reserve a sufficient number of shares of its Common Stock to provide for the conversion of the Company Stock hereunder.

SECTION 5. NO FRACTIONAL SHARES OR SCRIP.

No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Agreement, 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. NO RIGHTS AS STOCKHOLDER.

This Agreement does not entitle Hercules to any voting rights or other rights as a stockholder of the Company prior to the exercise of this Agreement.

SECTION 7. WARRANTHOLDER REGISTRY.

The Company shall maintain a registry showing the name and address of the registered holder of this Agreement. Hercules’s initial address, for purposes of such registry, is set forth in Section 12(g). Hercules 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 Company Stock purchasable hereunder are subject to adjustment, as follows:

 

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(a) Merger Event . If at any time a Merger Event shall occur, then, as a part of such Merger Event, lawful provision shall be made so that Hercules shall thereafter be entitled to receive, upon exercise of this Agreement, the number of shares of capital stock or other securities or property (collectively, “ Reference Property ”) that Hercules would have received in connection with such Merger Event if Hercules had exercised this Agreement immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company’s Board of Directors and reasonably acceptable to Hercules) shall be made in the application of the provisions of this Agreement with respect to the rights and interests of Hercules after the Merger Event to the end that the provisions of this Agreement (including adjustments of the Exercise Price and adjustments to ensure that the provisions of this Section 8 shall thereafter be applicable, as nearly as possible, to the purchase rights under this Agreement in relation to any Reference Property thereafter acquirable upon exercise of such purchase rights) shall continue to 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 Agreement; provided that if the Reference Property includes shares of stock or other securities and assets of an entity other than the successor or purchasing company, as the case may be, in such Merger Event, then such other entity shall assume the obligations under this Agreement and any such assumption shall contain such additional provisions to protect the interests of Hercules as reasonably necessary by reason of the foregoing (as determined in good faith by the Company’s Board of Directors and reasonably acceptable to Hercules). In connection with a Merger Event and upon Hercules’s written election to the Company, the Company shall cause this Warrant Agreement to be exchanged for the consideration that Hercules would have received if Hercules had chosen to exercise its right to have shares issued pursuant to the Net Issuance provisions of this Warrant Agreement without actually exercising such right, acquiring such shares and exchanging such shares for such consideration. The provisions of this Section 8(a) shall similarly apply to successive Merger Events.

(b) Reclassification of Shares . Except for Merger Events subject to Section 8(a), and subject to Section 8(f), 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 Agreement exist into the same or a different number of securities of any other class or classes, this Agreement 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 Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. The provisions of this Section 8(b) shall similarly apply to successive combination, reclassification, exchange, subdivision or other change.

(c) Subdivision or Combination of Shares . If the Company at any time shall combine or subdivide its Company Stock, (i) in the case of a subdivision, the Exercise Price shall be proportionately decreased, or (ii) in the case of a combination, the Exercise Price shall be proportionately increased.

(d) Stock Dividends . If the Company at any time while this Agreement is outstanding and unexpired shall:

(i) pay a dividend with respect to the Company Stock payable in Company 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 Company Stock outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Company Stock outstanding immediately after such dividend or distribution; or

(ii) make any other distribution with respect to Company Stock (or stock into which the Company Stock is convertible), except any distribution specifically provided for in any other clause of this Section 8, then, in each such case, provision shall

 

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be made by the Company such that Hercules shall receive upon exercise or conversion of this Warrant a proportionate share of any such distribution as though it were the holder of the Company Stock (or other stock for which the Company 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 . Additional antidilution rights applicable to the Company Stock purchasable hereunder are, or will be in the case of Next Round Stock, as set forth in the Charter and shall be applicable with respect to the Company Stock issuable hereunder. The Company shall promptly provide Hercules 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 Company Stock as of the date hereof unless such amendment, modification or waiver affects the rights of Hercules with respect to the Company Stock subject to this Warrant in the same manner as it affects all of the outstanding shares of Company Stock. The Company shall provide Hercules with prior written notice of any issuance of its stock or other equity security to occur after the Effective Date of this Agreement that could trigger the antidilution rights provided in the Charter, which notice shall include (a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as necessary for Hercules to determine if a dilutive event has occurred. 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) Other Dilutive Events . In case any event shall occur affecting the Company, as to which the provisions of this Section 8 and the anti-dilution protections in the Charter are not strictly applicable but the failure to make any adjustment would not reasonably and fairly protect the purchase rights represented by this Agreement in accordance with the intent and principles of this Section 8 and the anti-dilution protections in the Charter then, in each such case, the Company’s Board of Directors shall make an appropriate adjustment reasonably acceptable to Hercules in the Exercise Price so as to protect the rights of Hercules in a manner consistent with the provisions of this Section 8 and the anti-dilution protections of the Charter. Notwithstanding the foregoing, no adjustment pursuant to this Section 8(f) shall increase the Exercise Price or decrease the number of shares of Company Stock issuable upon exercise of the purchase rights under this Agreement as otherwise determined pursuant to this Section 8.

(g) Notice of Adjustments . If: (i) the Company shall declare any dividend or distribution upon its stock, whether in stock, cash, property or other securities (assuming Hercules consents to a dividend involving cash, property or other securities); (ii) the Company shall grant, issue or sell any Purchase 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; 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 Hercules: (A) at least ten (10) 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 Company 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 ten (10) days’ prior written notice of the date when the same shall take place (and specifying the date on which the holders of Company Stock shall be entitled to exchange their Company 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 Hercules at least ten (10) days’ written notice prior to the effective date thereof.

Each such written notice shall set forth, in reasonable detail, (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 by first class mail, postage prepaid, or by reputable overnight courier with all charges prepaid, addressed to Hercules at the address for Hercules set forth in the registry referred to in Section 7.

 

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(h) Timely Notice . Failure to timely provide such notice required by subsection (g) above shall entitle Hercules to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Hercules. For purposes of this subsection (h), and notwithstanding anything to the contrary in Section 12(g), the notice period shall begin on the date Hercules actually receives a written notice containing all the information required to be provided in such subsection (g).

SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

(a) Reservation of Company Stock . The Company Stock issuable upon exercise of Hercules’s rights has been or, in the case of Next Round Stock), will be duly and validly reserved and, when issued in accordance with the provisions of this Agreement, 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 Company Stock issuable pursuant to this Agreement may be subject to restrictions on transfer under state and/or federal securities laws. The Company has made available to Hercules true, correct and complete copies of its Charter and current bylaws. The issuance of certificates for shares of Company Stock upon exercise of this Agreement shall be made without charge to Hercules 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 Company 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 Hercules.

(b) Due Authority . The execution and delivery by the Company of this Agreement and the performance of all obligations of the Company hereunder, including the issuance to Hercules of the right to acquire the shares of Company Stock and the Common Stock into which it may be converted, have been (or will be in the case of Next Round Stock) duly authorized by all necessary corporate action on the part of the Company. This Agreement: (1) does not violate the Company’s Charter or current bylaws; (2) does not contravene any law or governmental rule, regulation or order applicable to it; and (3) does not and will 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 Agreement constitutes a legal, valid and binding agreement of the Company, enforceable in accordance with its terms.

(c) Consents and Approvals . 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 Agreement, 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, and any consents or approvals required in connection with the authorization or issuance of any Next Round Stock.

(d) Issued Securities . All issued and outstanding shares of Common Stock, Company 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, Company 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 Agreement:

(i) The authorized capital of the Company consists of (A) 30,000,000 shares of Common Stock, of which 20,427,250.579 shares are issued and outstanding, and (B) no shares of preferred stock.

(ii) The Company has reserved 2,264,108 shares of Common Stock for issuance under its Stock Option Plan(s), pursuant to which (A) 2,171,396 options are outstanding and (B) the Company has granted 50,000 shares of Common Stock. 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 Company’s

 

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capital stock or other securities of the Company other than the Convertible Notes listed on Schedule 1A to the Joinder Agreement between the Company and Hercules dated as of the date hereof. The Company has no outstanding loans to any employee, officer or director of the Company, and the Company agrees not to enter into any such loan or otherwise guarantee the payment of any loan made to an employee, officer or director by a third party.

(iii) In accordance with the Company’s Charter, no stockholder of the Company has preemptive rights to purchase new issuances of the Company’s capital stock.

(e) Insurance . The Company has in full force and effect insurance policies, with extended coverage, insuring the Company and its property and business against such losses and risks, and in such amounts, as are customary for corporations engaged in a similar business and similarly situated and as otherwise may be required pursuant to the terms of any other contract or agreement.

(f) Other Commitments to Register Securities . Except as set forth in this 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.

(g) Exempt Transaction . Subject to the accuracy of Hercules’s representations in Section 10, the issuance of the Company Stock upon exercise of this Agreement, and the issuance of the Common Stock upon conversion of the Company Stock, will each constitute a transaction exempt from (i) the registration requirements of Section 5 of the Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws.

(h) Compliance with Rule 144 . If Hercules proposes to sell Company Stock issuable upon the exercise of this Agreement, or the Common Stock into which it is convertible, in compliance with Rule 144 promulgated by the SEC, then, upon Hercules’s written request to the Company, the Company shall furnish to Hercules, within ten days after receipt of such request, a written statement confirming the Company’s compliance with the filing requirements of the SEC as set forth in such Rule, as such Rule may be amended from time to time.

(i) Information Rights . Hercules shall be entitled to the information rights contained in Section 7.1 of the Loan Agreement, and Section 7.1 of the Loan Agreement is hereby incorporated into this Agreement by this reference as though fully set forth herein, provided, however, that the Company shall not be required to deliver a Compliance Certificate once all Indebtedness (as defined in the Loan Agreement) owed by the Company to Hercules has been repaid. The information rights provided in this Section 9(i) shall terminate upon the Initial Public Offering.

SECTION 10. REPRESENTATIONS AND COVENANTS OF Hercules.

This Agreement has been entered into by the Company in reliance upon the following representations and covenants of Hercules:

(a) Investment Purpose . The right to acquire Company Stock is being acquired for investment and not with a view to the sale or distribution of any part thereof, and Hercules has no present intention of selling or engaging in any public distribution of such rights or the Company Stock except pursuant to an effective registration statement or an exemption from the registration requirements of the Act.

(b) Private Issue . Hercules understands (i) that the Company Stock issuable upon exercise of this Agreement is not (and will not be in the case of Next Round Stock) registered under the Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this

 

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Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company’s reliance on such exemption is predicated on the representations set forth in this Section 10.

(c) Financial Risk . Hercules has such 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.

(d) Risk of No Registration . Hercules understands that if the Company does not register 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 it desires to sell (i) the rights to purchase Company Stock pursuant to this Agreement or (ii) the Company Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. Hercules also understands that any sale of (A) its rights hereunder to purchase Company Stock or (B) Company Stock issued or issuable hereunder 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 . Hercules is an “accredited investor” within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect.

SECTION 11. TRANSFERS.

Subject to compliance with applicable federal and state securities laws, this Agreement 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 Agreement properly endorsed. Each taker and holder of this Agreement, by taking or holding the same, consents and agrees that this Agreement, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Agreement shall have been so endorsed and its transfer recorded on the Company’s books, shall be treated by the Company and all other persons dealing with this Agreement as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Agreement. The transfer of this Agreement 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.

SECTION 12. MISCELLANEOUS.

(a) Effective Date . The provisions of this Agreement 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 Agreement 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 Hercules will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by Hercules or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement.

(c) No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of Hercules against impairment.

 

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(d) Additional Documents . The Company, upon execution of this Agreement, shall provide Hercules with certified resolutions with respect to the representations, warranties and covenants set forth in Sections 9(a) through 9(d), 9(f) and 9(g). The Company shall also supply such other documents as Hercules may from time to time reasonably request.

(e) Attorney’s Fees . In any litigation, arbitration or court proceeding between the Company and Hercules relating hereto, the prevailing party shall be entitled to attorneys’ fees and expenses and all costs of proceedings incurred in enforcing this Agreement. For the purposes of this Section 12(e), attorneys’ fees shall include without limitation fees incurred in connection with the following: (i) contempt proceedings; (ii) discovery; (iii) any motion, proceeding or other activity 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 of any kind, including without limitation any activity taken to collect or enforce any judgment.

(f) Severability . In the event any one or more of the provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Agreement 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.

(g) 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 Agreement 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:

If to Hercules:

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

With a copy (which shall not constitute notice) to :

Steven O. Gasser

PremierCounsel LLP

49 Stevenson Street, 4th Floor

San Francisco, CA 94105

Facsimile: 415-357-1414

Telephone: 415-357-1400

 

(i) If to the Company:

Zosano Pharma, Inc.

Attention: Vikram Lamba

34790 Ardentech Court

Fremont, CA 94555

 

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Facsimile:

Telephone:

With a copy (which shall not constitute notice) to:

Jeffrey L. Quillen

Foley Hoag LLP

155 Seaport Blvd.

Boston, MA 02210

Facsimile: 617-832-7000

Telephone: 617-832-1205

or to such other address as each party may designate for itself by like notice.

(h) Entire Agreement; Amendments . This Agreement constitute the entire agreement and understanding of the parties hereto in respect of the subject matter hereof, 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 (including Hercules’s proposal letter dated April 30, 2013, and revised by that certain proposal letter dated May 8, 12014). None of the terms of this Agreement may be amended except by an instrument executed by each of the parties hereto.

(i) Headings . The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof.

(j) Advice of Counsel . Each of the parties represents to each other party hereto that it has discussed (or had an opportunity to discuss) with its counsel this Agreement and, specifically, the provisions of Sections 12(n), 12(o), 12(p), 12(q) and 12(r).

(k) 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.

(l) No Waiver . No omission or delay by Hercules 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 Company at any time designated, shall be a waiver of any such right or remedy to which Hercules is entitled, nor shall it in any way affect the right of Hercules to enforce such provisions thereafter.

(m) Survival . All agreements, representations and warranties contained in this Agreement or in any document delivered pursuant hereto shall be for the benefit of Hercules and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement.

(n) Governing Law . This Agreement has been negotiated and delivered to Hercules in the State of California, and shall have been accepted by Hercules in the State of California. Delivery of Company Stock to Hercules by the Company under this Agreement is due in the State of California. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

(o) Consent to Jurisdiction and Venue . All judicial proceedings arising in or under or related to this Agreement may be brought in any state or federal court of competent jurisdiction located in the State of California. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to personal jurisdiction in Santa Clara County, State of California; (b) waives

 

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any objection as to jurisdiction or venue in Santa Clara County, State of California; (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. 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 12(g), and shall be deemed effective and received as set forth in Section 12(g). 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.

(p) 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 Hercules 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 Hercules OR ITS ASSIGNEE OR BY Hercules OR ITS ASSIGNEE AGAINST THE COMPANY. This waiver extends to all such Claims, including Claims that involve Persons other than the Company and Hercules; Claims that arise out of or are in any way connected to the relationship between the Company and Hercules; and any Claims for damages, breach of contract, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement.

(q) Judicial Reference . If the waiver of jury trial set forth above is ineffective or unenforceable, the parties agree that all Claims shall be resolved by reference to a private judge sitting without a jury, pursuant to California Code of Civil Procedure Section 638, et seq., before a mutually acceptable referee or, if the parties cannot agree, a referee selected by the Presiding Judge of Santa Clara County, California. Such proceeding shall be conducted in Santa Clara County, California, with California rules of evidence and discovery applicable to such proceeding.

(r) Prejudgment Relief . In the event Claims are to be resolved by judicial reference to a private judge, either party may seek from a court of competent jurisdiction identified in Section 12(o), any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all Claims are otherwise subject to resolution by judicial reference.

(s) 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.

(t) Specific Performance . The parties hereto hereby declare that it is impossible to measure in money the damages which will accrue to Hercules by reason of the Company’s failure to perform any of the obligations under this Agreement and agree that the terms of this Agreement shall be specifically enforceable by Warrrantholder. If Hercules institutes any action or proceeding to specifically enforce the provisions hereof, any person against whom such action or proceeding is brought hereby waives the claim or defense therein that Hercules has an adequate remedy at law, and such person shall not offer in any such action or proceeding the claim or defense that such remedy at law exists.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by its officers thereunto duly authorized as of the Effective Date.

 

COMPANY:     ZP Holdings, Inc.
    By:  

/s/ Vikram Lamba

    Name:  

Vikram Lamba

    Title:  

CEO

Hercules:     HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
    By:  

Ben Bang

    Name:   Ben Bang
    Title:   Senior Counsel

 

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EXHIBIT I

NOTICE OF EXERCISE

 

To: [                            ]

 

(1) The undersigned Hercules hereby elects to purchase [                ] shares of the                      Stock of ZP Holdings, Inc. pursuant to the terms of the Agreement dated the [    ] day of [            ,         ] (the “Agreement”) between [                    ] and Hercules, 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 Agreement to effect a Net Issuance.]

 

(2) Please issue a certificate or certificates representing said shares of                  Stock in the name of the undersigned or in such other name as is specified below.

 

   

 

(Name)

   

 

    (Address)
Hercules:    

HERCULES TECHNOLOGY

GROWTH CAPITAL, INC.

    By:  

 

    Name:   Ben Bang
    Title:   Senior Counsel

 

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EXHIBIT II

ACKNOWLEDGMENT OF EXERCISE

The undersigned [                                        ], hereby acknowledge receipt of the “Notice of Exercise” from Hercules Technology II, L.P. to purchase [                ] shares of the                      Stock of ZP Holdings, Inc., pursuant to the terms of the Agreement, and further acknowledges that [                ] shares remain subject to purchase under the terms of the Agreement.

 

COMPANY:     ZP Holdings, Inc.
    By:  

 

    Title:  

 

    Date:  

 

 

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EXHIBIT III

TRANSFER NOTICE

(To transfer or assign the foregoing Agreement execute this form and supply required information. Do not use this form to purchase shares.)

FOR VALUE RECEIVED, the foregoing Agreement and all rights evidenced thereby are hereby transferred and assigned to

 

 

 
(Please Print)    
whose address is  

 

 

 

 

 

Dated:  

 

Holder’s Signature:  

 

Holder’s Address:  

 

 

 

Signature Guaranteed:  

 

 

NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Agreement.

 

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Exhibit 10.35

SUBORDINATION AGREEMENT

This Subordination Agreement is made as of June 3, 2014 (this “ Agreement ”), by and among BMV DIRECT SOTRS LP, a Delaware limited partnership (“ Creditor ”), BIOMED REALTY HOLDINGS, INC., a Maryland corporation (“ BMR ”), ZOSANO PHARMA, INC. (“ Borrower ”), ZP HOLDINGS, INC. (“ Holdings ”), and HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation (the “ Lender ”).

Recitals

A. Borrower has requested and/or obtained a loan in the principal amount of $4,000,000.00 (the “ Senior Loan ”) from Lender which is or will be from time to time secured by assets and property of Borrower pursuant to the terms of that certain Loan and Security Agreement dated as of June 3, 2014 by and between Borrower and Lender, as the same may be amended from time to time (the “ Senior Loan Agreement ”). Capitalized terms not otherwise defined herein shall have the same meaning as in the Senior Loan Agreement.

B. Creditor’s Affiliate BMR has extended loans or other credit accommodations to Borrower, Holdings and/or ZP Group, LLC (“ Group ” and collectively with Borrower and Holdings, the “ Zosano Group ”), and/or may extend loans or other credit accommodations to the Zosano Group from time to time, subject to the terms of this Agreement. BMR has assigned certain of those credit accommodations to Creditor as provided in that certain Note Assignment dated December 18, 2012, a complete copy of which has been provided to Lender (the “ Assignment ”).

C. In order to induce Lender to extend the Senior Loan to Borrower and, at any time or from time to time, at Lender’s option, to make such further loans or other credit accommodations to or for the account of Borrower not to exceed an aggregate of $800,000, grant such renewals or extensions of the Senior Loan as Lender may deem advisable, Creditor is willing to subordinate the Subordinated Debt (as defined below) to the Senior Debt (as defined below), on the terms and conditions set forth herein.

Agreement

NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree as follows:

1. The term “ Senior Debt ” shall mean all obligations of any of Borrower to Lender, now existing or hereafter arising, under the Senior Loan Agreement and/or any other related documents governing, evidencing or securing the Senior Loan (collectively, “ Senior Debt Documents ”), together with all costs of collecting such obligations (including attorneys’ fees), including, without limitation, all interest accruing after the commencement by or against Borrower of any Bankruptcy, reorganization or similar proceeding. The term “ Senior Security Interest ” shall mean any security interest in or

 

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lien on the “ Collateral ” (as defined in the Senior Loan Agreement) in favor of Lender arising from the Senior Debt. The term “ Enforcement Action ” means any action, whether judicial or nonjudicial, to repossess, collect, accelerate, offset, recoup, give notification to third parties with respect to, sell, dispose of, foreclose upon, give notice of sale, disposition, or foreclosure with respect to, or obtain equitable or injunctive relief with respect to, Lender Claims or the Collateral. The filing of an involuntary Insolvency Proceeding against Borrower is considered to be an Enforcement Action. The term “ Lender Claims ” means any and all present and future “claims” (used in its broadest sense, as contemplated by and defined in Section 101(5) of the Bankruptcy Code, but without regard to whether such claim would be disallowed under the Bankruptcy Code) of Lender now or hereafter arising or existing under or relating to the Senior Loan Agreement or any other Senior Debt Documents, whether joint, several, or joint and several, whether fixed or indeterminate, due or not yet due, contingent or non-contingent, matured or unmatured, liquidated or unliquidated, or disputed or undisputed, whether with respect to any loans, guaranty or letter of credit, and whether arising under contract, in tort, by law, or otherwise, any interest or fees thereon (including interest or fees that accrue after the filing of a petition by or against Borrower or any Subsidiary under the Bankruptcy Code, irrespective of whether allowable under the Bankruptcy Code), any costs of Enforcement Actions, including reasonable attorneys’ fees and costs, and any prepayment or termination premiums. The term “ Insolvency Proceeding ” means Borrower’s insolvency, reorganization or any case or proceeding under the Bankruptcy Code or any other bankruptcy or insolvency law or laws relating to the relief of debtors, including receivership or other similar statutory or common law proceeding or arrangement involving Borrower, the readjustment of its liabilities, any assignment for the benefit of its creditors or any marshaling of its assets or liabilities.

2. The term “ Subordinated Debt ” shall mean all obligations of any of the Zosano Group to Creditor, now existing or hereafter arising, under (a) the Secured Promissory Note dated as of April 26, 2012 executed by ZP Holdings originally in favor of BMR, in the principal amount of $8,556,533.00 (the “ Subordinated Note ”), and/or (b) the agreements securing the Subordinated Note, including the (i) LLC Pledge Agreement, dated as of April 26, 2012 executed by Borrower originally in favor of BMR (the “ LLC Pledge Agreement ”), (ii) the Intellectual Property Security Agreement dated as of April 26, 2012 executed by ZP Holdings originally in favor of BMR, and (iii) the Security Agreement dated as of April 26, 2012 executed by ZP Holdings originally in favor of BMR (collectively, the “ Subordinated Security Agreements ”). The Subordinated Note, the LLC Pledge Agreement and the Subordinated Security Agreements are collectively referred to herein as the “ Subordinated Debt Documents .” Creditor and BMR represent, warrant and agree that the Subordinated Debt Documents have been assigned in their entirety to Creditor in accordance with the Assignment and the Securities Transfer Agreement dated as of December 18, 2012 (“ Securities Transfer Agreement ”), and that the Assignment and Securities Transfer Agreement each remains in full force and effect. The term “ Subordinated Security Interest ” shall mean any security interest in or lien on the Collateral in favor of Creditor arising from the Subordinated Debt.

3. All Subordinated Debt is subordinated in right of payment to the Senior Debt. Creditor subordinates to the Senior Security Interest the Subordinated Security

 

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Interest. Notwithstanding the respective dates of attachment or perfection of the Subordinated Security Interest and the Senior Security Interest, the Senior Security Interest shall at all times be prior to the Subordinated Security Interest. Creditor acknowledges that it will not be entitled to receive payment of the Subordinated Debt when due if, at the time such payment is required, any portion of the Senior Debt remains outstanding.

4. Creditor represents and warrants to Lender that, other than Creditor, there are no Affiliates of Creditor to whom Borrower, Holdings or Group owe any Indebtedness, except pursuant to (a) the Lease dated as of May 1, 2007, as amended by the First Amendment to Lease dated as of June 20, 2008, the Second Amendment to Lease dated as of October 16, 2008, the Third Amendment to Lease dated as of April 29, 2011, the Fourth Amendment to Lease dated as of July 31, 2011, and the Fifth Amendment to Lease dated as of April 1, 2012, between BMR-34790 Ardentech Court LP, a Delaware limited partnership (“ Landlord ,” as successor in interest to BMR-34790 Ardentech Court LLC), and Borrower, which is guaranteed by the Guaranty dated as of April 1, 2012, executed by Holdings in favor of Landlord (collectively, the “ Lease Documents ”), (b) the Note Purchase Agreement dated as of September 9, 2013 among Holdings, BMV Direct SO LP, a Delaware limited partnership (“ BMV SO ”), BMV Direct SOTRS LP, a Delaware limited partnership (“ BMV SOTRS ”) and other unaffiliated third party purchasers, the 8% Subordinated Convertible Promissory Note in the principal amount of $303,372.00 dated as of September 9, 2013 by Holdings in favor of BMV SO, the 8% Subordinated Convertible Promissory Note in the principal amount of $991,047.43 dated as of September 9, 2013 by Holdings in favor of BMV SOTRS, and other related agreements (collectively, the “ Bridge 2013 Documents ”), and (c) the Note Purchase Agreement dated as of February 26, 2014 among Holdings, BMV Direct SO LP, a Delaware limited partnership (“ BMV SO ”), BMV Direct SOTRS LP, a Delaware limited partnership (“ BMV SOTRS ”) and another unaffiliated third party purchaser, the 8% Subordinated Convertible Promissory Note in the principal amount of $249,000.00 dated as of February 26, 2014 by Holdings in favor of BMV SO, the 8% Subordinated Convertible Promissory Note in the principal amount of $1,069,709.23 dated as of February 26, 2014 by Holdings in favor of BMV SOTRS, and other related agreements (collectively, the “ Bridge 2014 Documents ”). For purposes of this Agreement, in no event shall the Subordinated Debt include any of the Lease Documents, the Bridge 2013 Documents, the Bridge 2014 Documents or any obligations thereunder, provided however, that such obligations may be subordinated pursuant to a separate agreement.

5. Without Lender’s written consent, Creditor agrees that it will not demand or receive from Borrower, Holdings or Group (and Borrower and Holdings agrees not to pay to Creditor) all or any part of the Subordinated Debt, by way of payment, prepayment, setoff, lawsuit or otherwise, nor will Creditor exercise any remedy with respect to the Collateral, nor will Creditor commence, or cause to commence, prosecute or participate in any administrative, legal or equitable action against Borrower or Holdings, for so long as any portion of the Senior Debt remains outstanding, provided , however , that Creditor may convert any part of the Subordinated Debt (other than Subordinated Debt owed to Creditor by Group) into equity securities of Borrower in accordance with the terms of the Subordinated Note.

 

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6. Creditor shall promptly deliver to Lender in the form received (except for endorsement or assignment by Creditor, where required by Lender) for application to the Senior Debt any payment, distribution, transfer of property or proceeds received by Creditor with respect to the Subordinated Debt other than in accordance with this Agreement.

7. In the event of Borrower’s, Holding’s or Group’s insolvency, reorganization or any case or proceeding under any Bankruptcy or insolvency law or laws relating to the relief of debtors, this Agreement shall remain in full force and effect, and Lender’s claims arising from the Senior Debt against Borrower and Holdings and the respective estates of Borrower and Holdings, to the extent that such claims have priority over the Subordinated Debt under this Agreement, shall be paid in full before any payment with respect to the Subordinated Debt is made to Creditor.

8. For so long as any of the Senior Debt remains unpaid, Creditor irrevocably appoints Lender as Creditor’s attorney-in-fact, and grants to Lender a power of attorney with full power of substitution in the name of Creditor or in the name of Lender for the use and benefit of Lender, without notice to Creditor, to perform at Lender’s option the following acts in any Bankruptcy, insolvency or similar proceeding involving Borrower, Holdings and/or Group:

(a) To file the appropriate claim or claims in respect of the Subordinated Debt on behalf of Creditor if Creditor does not do so prior to 30 days before the expiration of the time to file claims in such proceeding and if Lender elects, in its sole discretion, to file such claim or claims; and

(b) To accept or reject any plan of reorganization or arrangement on behalf of Creditor and to otherwise vote Creditor’s claims in respect of any Subordinated Debt in any manner that Lender deems appropriate for the enforcement of its rights hereunder.

9. Section 5 of this Agreement shall automatically terminate and be of no further force or effect upon the occurrence of the Termination Date (defined below). “ Termination Date ” means the earlier to occur of ninety (90) days following Lender’s acceleration of the Senior Debt and October 1, 2017 (the “ Enforcement Period ”), provided however, that the Termination Date shall be extended if (and for so long as) at the time the Enforcement Period would otherwise terminate, Lender is, in good faith, diligently pursuing Material Enforcement Actions. If Borrower becomes subject to a bankruptcy proceeding under Title 11 of the United States Code, as amended (the “ Bankruptcy Code ”) prior to the occurrence of the Termination Date, the Termination Date shall be extended to a date ninety (90) days following the effective date of the removal or lifting of any restriction imposed by the Bankruptcy Code which prohibits or materially restricts Lender from enforcing its rights against Borrower or Borrower’s property (the “ Post-Bankruptcy Enforcement Period ”), provided however, that the Termination Date shall be extended for so long as and if immediately prior to the expiration of the Post-Bankruptcy Enforcement Period, Lender is, in good faith, diligently pursuing Material Enforcement Actions. For the purposes of this Section 9, the

 

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following would constitute diligent pursuit of Material Enforcement Actions: the solicitation of bids from third parties to conduct the liquidation of any material portion of the Collateral; the engagement or retention of sales brokers, marketing agents, investment bankers, accountants, auctioneers or other third parties for the purpose of valuing, marketing, promoting or selling any material portion of the Collateral; the initiation of any action to take physical possession of or to exercise dominion or control over (other than cash dominion) any material portion of the Collateral; the notification of all or substantially all account debtors to make payments to Lender in respect of Accounts comprising Collateral; or the commencement of any legal proceedings or actions against or with respect to any material portion of the Collateral.

10. Creditor shall immediately affix a legend to the instruments evidencing the Subordinated Debt stating that the instruments are subject to the terms of this Agreement. No amendment of the documents evidencing or relating to the Subordinated Debt shall directly or indirectly modify the provisions of this Agreement in any manner which might terminate or impair the subordination of the Subordinated Debt.

11. Subject to Section 9 hereof, this Agreement shall remain effective for so long as the Lender has any obligation to make disbursements or credit extensions to Borrower under the Senior Debt Documents or Borrower owes any amounts to Lender under the Senior Debt Documents. If, at any time after payment in full of the Senior Debt, any payments of the Senior Debt must be disgorged by Lender for any reason (including, without limitation, the Bankruptcy of Borrower), this Agreement and the relative rights and priorities set forth herein shall be reinstated as to all such disgorged payments as though such payments had not been made, and Creditor shall immediately pay over to Lender all payments received with respect to the Subordinated Debt to the extent that such payments would have been prohibited hereunder. At any time and from time to time, with notice to Creditor but without Creditor’s consent, Lender may take such actions with respect to the Senior Debt as Lender, in its sole discretion, may deem appropriate, including, without limitation, terminating advances to Borrower, increasing the principal amount as allowed herein, extending the time of payment, increasing applicable interest rates, renewing, compromising or otherwise amending the terms of the Senior Debt Documents, and enforcing or failing to enforce any rights against Borrower or any other person, provided, however, that in no event shall any such actions have the effect of increasing the principal amount of the Senior Debt by more than $800,000. No such action or inaction shall impair or otherwise affect Lender’s rights hereunder.

12. Creditor hereby consents to the incurrence by the Borrower of the Senior Debt.

13. Purchase Option.

(a) Subject to the provisions of this Section 13, Creditor shall have the option (exercisable in its sole discretion) to purchase (the “ Purchase Option ”) all, but not less than all, of the Senior Debt (the “ Assigned Claims ”) at any time following (i) Lender’s acceleration of the Secured Obligations; (ii) the Secured Obligations not having

 

Subordination Agreement – BioMed / Zosano Pharma   -5-  


be repaid on or before the Term Loan Maturity Date; (iii) the commencement of an Enforcement Action by Lender; or (iv) the commencement of any Insolvency Proceeding as defined above (each, a “ Purchase Event ”). Such purchase shall be at par value, without recourse, warranty or representation from Lender, except for representations as to the outstanding balance of the amounts owing to Lender, the absence of prior assignment by Lender of, or encumbrance upon, the Assigned Claims, the delivery of true, complete and correct copies of the Senior Debt Documents (but excluding the Warrant) to Creditor, and the absence of any amendment to the Assigned Claims not disclosed in writing to Creditor.

(b) To exercise the Purchase Option, Creditor shall provide to Lender written notice of Creditor’s intent to exercise the Purchase Option (“ Notice of Intent to Purchase ”) within five (5) Business Days after Lender notifies Creditor in writing of the occurrence of a Purchase Event (the “ Option Expiry Date ”). During the period following a Purchase Event and expiring on the Option Expiry Date, Lender will not take any additional action to enforce its rights with respect to the Collateral unless Lender reasonably determines that exigent circumstances warrant taking such action as necessary to protect the Collateral or the Lender Claims. Exigent circumstances include but are not limited to the theft, removal or dissipation of, or material injury to the Collateral, or the material risk that the foregoing will occur without immediate action by Lender. Absent a Purchase Event, Lender may take such actions necessary to preserve its interests in the Lender Claims and Collateral as it determines in its sole discretion in accordance with the Senior Debt Documents and this Agreement. Notwithstanding the foregoing restrictions on Lender’s ability to take additional action to enforce its rights with respect to the Collateral, Lender may at any time prior to the closing of Purchase Closing Date (defined in Section 13(d), below), deliver one or more notices of exclusive control relating to Borrower’s and its Subsidiaries’ Deposit Accounts and accounts containing Investment Property.

(c) Upon Lender’s receipt of the Notice of Intent to Purchase, Creditor shall be irrevocably obligated to purchase the Assigned Claims, subject to the satisfaction of any conditions precedent (unless waived by Lender) set forth in Section 13(f) below and/or the Purchase Documents required to be satisfied by parties other than Creditor.

(d) Creditor’ purchase of the Assigned Claims under this Section 13 shall close on the date (the “ Purchase Closing Date ”) which is not more than three (3) Business Days following the Option Expiry Date. If Creditor fails to satisfy its obligations required to close such purchase on or before the Purchase Closing Date, then, notwithstanding the occurrence of a subsequent Purchase Event (i) Lender may at any time elect to terminate the Purchase Option, and after which it shall be of no further force and effect; (ii) if the Purchase Option is terminated, Lender shall have no further obligation to Creditor with respect to the Purchase Option; (iii) Creditor shall be liable to

 

Subordination Agreement – BioMed / Zosano Pharma   -6-  


Lender for any damages Lender incurs; (iv) Lender shall be entitled to specific performance of Section 13 of this Agreement; and (v) Lender may exercise all its rights and remedies with respect to the Collateral and the Lender Claims and take such further actions as it deems necessary in its sole discretion in accordance with the Senior Debt Documents and this Agreement.

(e) Creditor’s purchase of the Assigned Claims shall be subject to such additional terms, conditions, covenants, representations and warranties of Lender as are customary in Lender’s documents and agreements providing for the purchase and sale of similar claims and all such documentation shall be in form and substance satisfactory to Lender and its counsel in their sole discretion (collectively, the “ Purchase Documents ”), including, without limitation, that Creditor has conducted, and is responsible for, its own independent due diligence necessary to evaluate the Assigned Claims as Creditor has deemed necessary or appropriate to complete the purchase of the Assigned Claims and the conditions set forth below.

(f) Lender’s obligation to sell the Assigned Claims under the Purchase Option shall be conditioned upon occurrence of the following on or before the Purchase Closing Date: (i) Creditor’s payment to Lender of the purchase price, consisting of the full amount of the Secured Obligations then outstanding and unpaid, which equals all outstanding principal owed to Lender, plus interest, fees and expenses owing to Lender as provided in the Senior Debt Documents (the “ Purchase Price ”); and (ii) Lender’s receipt of a written release of any and all claims against Lender arising under or relating to the Assigned Claims or the Senior Debt Documents, whether known or unknown, other than with respect to any breach under the Purchase Documents in form and substance satisfactory to Lender and executed by Creditor and each Borrower; Guarantor; pledgor of collateral that secures the Secured Obligations; party which has a pending or threatened claim against the Lender arising under or in connection with the Assigned Claims or the Senior Debt Documents; and such other party claiming an interest in or right to the Collateral.

(g) The Purchase Price shall be remitted to Lender by wire transfer in immediately available federal funds to the deposit or escrow account as designated by Lender in the Purchase Documents. Interest shall be calculated up to and include the Business Day upon which such wire transfer is received, unless received before 3:00 p.m. Eastern Time, in which case interest shall not include the Business Day upon which it is received.

(h) Creditor shall indemnify, defend, and hold Lender and its officers, directors, shareholders, affiliates, agents, partners, members, controlling entities, and employees (each an “ Indemnitee ”) harmless from and against any liability, claim, cost, loss, judgment, damage or expense (including without limitation reasonable attorneys’

 

Subordination Agreement – BioMed / Zosano Pharma   -7-  


fees and expenses) that any Indemnitee incurs or suffers as a result of or arising out of (i) the sale of the Assigned Claims to Creditor; (ii) breach of any of Creditor’s representations, warranties, covenants or agreements in the Purchase Documents; or (iii) from and after the sale of the Assigned Claims to Creditor, the Assigned Claims or any of the Senior Debt Documents, except to the extent such liability, claim, cost, loss, judgment, damage or expense (including without limitation reasonable attorneys’ fees and expenses) is the result of the willful misconduct or gross negligence of such Indemnitee prior to the Purchase Closing Date, as determined by a final non-appealable ruling by a court of competent jurisdiction or other tribunal as agreed under this Section 13; provided, however, that Creditor shall reasonably cooperate with such Indemnitee in connection with the defense of any liability, claim, cost, loss, judgment, damage or expense that may fall within the foregoing exception.

(i) Within ten (10) Business Days following the Purchase Closing Date, Lender shall (i) deliver or cause to be delivered to Creditor the original Senior Debt Documents, but excluding any Warrants in Lender’s possession, or copies thereof if originals are not available, and (ii) execute in favor of Creditor such documentation as necessary to assign to Creditor, on a non-recourse basis, the Assigned Claims and Lender’s rights under such documents.

(j) Notwithstanding anything to the contrary set forth in this Section 13, in the event that, prior to the Purchase Closing Date, any action, suit or proceeding (whether judicial, administrative or otherwise), or claim arising under, relating to, or in connection with the Secured Obligations or the Senior Debt Documents (each an “ Adverse Claim ”), is pending against Lender or Lender in good faith believes that such an Adverse Claim is threatened or will be commenced against it, regardless of the lack of merit of such Adverse Claim, the Purchase Option may be revoked by Lender by providing written notice of such revocation to Creditor prior to the Purchase Closing Date (the “ Revocation ”). Following the Revocation, Lender shall have no further obligation to Creditor under this Section 13.

14. This Agreement shall bind and benefit any successors or assignees of Creditor and any successors or assigns of Lender. This Agreement is solely for the benefit of Creditor and Lender and not for the benefit of Borrower, Holdings, Group or any other party. Creditor further agrees that if Borrower is in the process of refinancing a portion of the Senior Debt with a new lender, and if Lender makes a request of Creditor, Creditor shall agree to enter into a new subordination agreement with the new lender on substantially the terms and conditions of this Agreement.

15. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

 

Subordination Agreement – BioMed / Zosano Pharma   -8-  


16. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Jurisdiction shall lie in the State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES. If the jury waiver set forth in this Section is not enforceable, then any dispute, controversy or claim arising out of or relating to this Agreement or any of the transactions contemplated herein shall be resolved by judicial reference pursuant to Code of Civil Procedure Section 638 et seq. before a mutually acceptable referee or, if none is selected, then a referee chosen by the Presiding Judge of the California Superior Court for Santa Clara County, provided this provision shall not restrict any party from seeking to enforce any prejudgment remedies.

17. This Agreement represents the entire agreement with respect to the subject matter hereof, and supersedes all prior negotiations, agreements and commitments. Creditor is not relying on any representations by Lender or any of the Zosano Group in entering into this Agreement, and Creditor has kept and will continue to keep itself fully apprised of the financial and other condition of the Zosano Group. This Agreement may be amended only by written instrument signed by Creditor and Lender.

18. In the event of any legal action to enforce the rights of a party under this Agreement, the party prevailing in such action shall be entitled, in addition to such other relief as may be granted, all reasonable costs and expenses, including reasonable attorneys’ fees, incurred in such action.

 

Subordination Agreement – BioMed / Zosano Pharma   -9-  


IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

“Lender”
HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation
Signature:  

/s/ Ben Bang

Print Name:   Ben Bang
Title:   Senior Counsel
“Borrower”
ZOSANO PHARMA, INC.
Signature:  

/s/ Vikram Lamba

By:  

Vikram Lamba

Title:  

CEO

“Holdings”
ZP HOLDINGS, INC.
Signature:  

/s/ Vikram Lamba

By:  

Vikram Lamba

Title:  

CEO

[C REDITOR S IGNATURE P AGE F OLLOWS ]

 

Subordination Agreement – BioMed / Zosano Pharma   -10-  


“BMR”
BIOMED REALTY HOLDINGS, INC.
Signature:  

/s/ Kevin M. Simonsen

By:  

Kevin M. Simonsen

Title:  

VP, Real Estate Legal

“Creditor”
BMV DIRECT SOTRS LP
Signature:  

/s/ Kevin M. Simonsen

By:  

Kevin M. Simonsen

Title:  

VP, Real Estate Legal

 

Subordination Agreement – BioMed / Zosano Pharma   -11-  

Exhibit 10.36

SUBORDINATION AGREEMENT

This Subordination Agreement is made as of June 3, 2014 (this “ Agreement ”), by and among the parties listed on Exhibit A hereto (each a “ Creditor ” and collectively, the “ Creditors ”), ZOSANO PHARMA, INC. (“ Borrower ”), ZP HOLDINGS, INC. (“ Holdings ”), and HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation (the “ Lender ”).

Recitals

A. Borrower has requested and/or obtained a loan in the principal amount of $4,000,000.00 (the “ Senior Loan ”) from Lender which is or will be from time to time secured by assets and property of Borrower pursuant to the terms of that certain Loan and Security Agreement dated as of June 3, 2014 by and between Borrower and Lender, as the same may be amended from time to time (the “ Senior Loan Agreement ”). Capitalized terms not otherwise defined herein shall have the same meaning as in the Senior Loan Agreement.

B. Creditors have extended loans or other credit accommodations to Borrower, Holdings and/or ZP Group, LLC (“ Group ” and collectively with Borrower and Holdings, the “ Zosano Group ”), and/or may extend loans or other credit accommodations to the Zosano Group from time to time, subject to the terms of this Agreement.

C. In order to induce Lender to extend the Senior Loan to Borrower and, at any time or from time to time, at Lender’s option, to make such further loans or other credit accommodations to or for the account of Borrower, grant such renewals or extensions of the Senior Loan as Lender may deem advisable, Creditors are willing to subordinate the Subordinated Debt (as defined below) to the Senior Debt (as defined below), on the terms and conditions set forth herein.

Agreement

NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree as follows:

1. The term “ Senior Debt ” shall mean all obligations of any of Borrower to Lender, now existing or hereafter arising, under the Senior Loan Agreement and/or any other related documents governing, evidencing or securing the Senior Loan (collectively, “ Senior Debt Documents ”), together with all costs of collecting such obligations (including attorneys’ fees), including, without limitation, all interest accruing after the commencement by or against Borrower of any Bankruptcy, reorganization or similar proceeding. The term “ Senior Security Interest ” shall mean any security interest in or lien on the “ Collateral ” (as defined in the Senior Loan Agreement) in favor of Lender arising from the Senior Debt.

 

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2. The term “ Subordinated Debt ” shall mean all obligations of any of the Zosano Group to any Creditor, now existing or hereafter arising, under (a) the Note Purchase Agreement dated as of September 9, 2013, executed by ZP Holdings in favor of the Creditors (the “ NPA ”), and (b) the series of related 8% Subordinated Convertible Promissory Notes dated even date therewith issued to the Creditors in the principal amount of $3,033,723.04 (the “ Subordinated Notes ”). The NPA and the Subordinated Notes are collectively referred to herein as the “ Subordinated Debt Documents .” The term “ Subordinated Security Interest ” shall mean any security interest in or lien, if any, on the Collateral in favor of the Creditors, or any of them, arising from the Subordinated Debt.

3. All Subordinated Debt is subordinated in right of payment to the Senior Debt. Creditor subordinates to the Senior Security Interest the Subordinated Security Interest, if any. Notwithstanding the respective dates of attachment or perfection of the Subordinated Security Interest, if any, and the Senior Security Interest, the Senior Security Interest shall at all times be prior to the Subordinated Security Interest. Creditor acknowledges that it will not be entitled to receive payment of the Subordinated Debt when due if, at the time such payment is required, any portion of the Senior Debt remains outstanding.

4. Each Creditor represents and warrants to Lender that, other than such Creditor, there are no Affiliates of Creditor to whom Borrower, Holdings or Group owe any Indebtedness, except:

(a) in the case of BMV Direct SO LP and BMV Direct SOTRS LP, pursuant to (i) the Lease dated as of May 1, 2007, as amended by the First Amendment to Lease dated as of June 20, 2008, the Second Amendment to Lease dated as of October 16, 2008, the Third Amendment to Lease dated as of April 29, 2011, the Fourth Amendment to Lease dated as of July 31, 2011, and the Fifth Amendment to Lease dated as of April 1, 2012, between BMR-34790 Ardentech Court LP, a Delaware limited partnership (“ Landlord ,” as successor in interest to BMR-34790 Ardentech Court LLC), and Borrower, which is guaranteed by the Guaranty dated as of April 1, 2012, executed by Holdings in favor of Landlord (collectively, the “ Lease Documents ”), (ii) the Secured Promissory Note dated as of April 26, 2012 executed by ZP Holdings originally in favor of BioMed Realty Holdings, Inc., a Maryland corporation (“ BMR ”), in the principal amount of $8,556,533.00, together with the agreements securing such note, including the (A) LLC Pledge Agreement, dated as of April 26, 2012 executed by Borrower originally in favor of BMR (the “ LLC Pledge Agreement ”), (B) the Intellectual Property Security Agreement dated as of April 26, 2012 executed by ZP Holdings originally in favor of BMR, and (C) the Security Agreement dated as of April 26, 2012 executed by ZP Holdings originally in favor of BMR, all of which have been assigned to BMV DIRECT SOTRS LP, a Delaware limited partnership, and collectively are referred to as the “ BMV Debt ”; and (iii) the Note Purchase Agreement dated as of February 26, 2014 (the “ 2014 NPA ”) among Holdings, BMV Direct SO LP, a Delaware limited partnership (“ BMV SO ”), BMV Direct SOTRS LP, a Delaware limited partnership (“ BMV SOTRS ”), and New Enterprise Associates 12, Limited Partnership (“ NEA ”), the 8% Subordinated Convertible Promissory Notes in the principal amount of $249,000.00 dated as of

 

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February 26, 2014 by Holdings in favor of BMV SO, the 8% Subordinated Convertible Promissory Note in the principal amount of $1,069,709.23 dated as of February 26, 2014 by Holdings in favor of BMV SOTRS, and other related agreements (collectively, the “ BMV Notes ”);

(b) in the case of NEA, the 2014 NPA and the 8% Subordinated Convertible Promissory Note in the principal amount of $1,181,290.77 dated as of February 26, 2014 by Holdings in favor of NEA; and

(c) in the case of ProQuest Investments IV, L.P. and ProQuest Management LLC, none.

For purposes of this Agreement, in no event shall the Subordinated Debt include any of the Lease Documents, the BMV Debt, the 2014 NPA or the Indebtedness owed pursuant thereto, provided however, that such obligations are to be subordinated pursuant to a separate agreement.

5. Without Lender’s written consent, each Creditor agrees that it will not demand or receive from Borrower, Holdings or Group (and Borrower and Holdings agrees not to pay to Creditor) all or any part of the Subordinated Debt, by way of payment, prepayment, setoff, lawsuit or otherwise, nor will such Creditor exercise any remedy with respect to the Collateral, nor will such Creditor commence, or cause to commence, prosecute or participate in any administrative, legal or equitable action against Borrower or Holdings, for so long as any portion of the Senior Debt remains outstanding, provided , however , that each Creditor may convert any part of the Subordinated Debt (other than Subordinated Debt owed to such Creditor by Group) into equity securities of Borrower in accordance with the terms of the Subordinated Notes.

6. Each Creditor shall promptly deliver to Lender in the form received (except for endorsement or assignment by such Creditor, where required by Lender) for application to the Senior Debt any payment, distribution, transfer of property or proceeds received by such Creditor with respect to the Subordinated Debt other than in accordance with this Agreement.

7. In the event of Borrower’s, Holding’s or Group’s insolvency, reorganization or any case or proceeding under any Bankruptcy or insolvency law or laws relating to the relief of debtors, this Agreement shall remain in full force and effect, and Lender’s claims arising from the Senior Debt against Borrower and Holdings and the respective estates of Borrower and Holdings, to the extent that such claims have priority over the Subordinated Debt under this Agreement, shall be paid in full before any payment with respect to the Subordinated Debt is made to any Creditor.

8. For so long as any of the Senior Debt remains unpaid, each Creditor irrevocably appoints Lender as such Creditor’s attorney-in-fact, and grants to Lender a power of attorney with full power of substitution in the name of such Creditor or in the name of Lender for the use and benefit of Lender, without notice to such Creditor, to perform at Lender’s option the following acts in any Bankruptcy, insolvency or similar

 

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proceeding involving Borrower, Holdings and/or Group:

(a) To file the appropriate claim or claims in respect of the Subordinated Debt on behalf of any Creditor if such Creditor does not do so prior to 30 days before the expiration of the time to file claims in such proceeding and if Lender elects, in its sole discretion, to file such claim or claims; and

(b) To accept or reject any plan of reorganization or arrangement on behalf of any Creditor and to otherwise vote any Creditor’s claims in respect of any Subordinated Debt in any manner that Lender deems appropriate for the enforcement of its rights hereunder.

9. Section 5 of this Agreement shall automatically terminate and be of no further force or effect upon the occurrence of the Termination Date (defined below). “ Termination Date ” means the earlier to occur of ninety (90) days following Lender’s acceleration of the Senior Debt and October 1, 2017 (the “ Enforcement Period ”), provided however, that the Termination Date shall be extended if (and for so long as) at the time the Enforcement Period would otherwise terminate, Lender is, in good faith, diligently pursuing Material Enforcement Actions. If Borrower becomes subject to a bankruptcy proceeding under Title 11 of the United States Code, as amended (the “ Bankruptcy Code ”) prior to the occurrence of the Termination Date, the Termination Date shall be extended to a date ninety (90) days following the effective date of the removal or lifting of any restriction imposed by the Bankruptcy Code which prohibits or materially restricts Lender from enforcing its rights against Borrower or Borrower’s property (the “ Post-Bankruptcy Enforcement Period ”), provided however, that the Termination Date shall be extended for so long as and if immediately prior to the expiration of the Post-Bankruptcy Enforcement Period, Lender is, in good faith, diligently pursuing Material Enforcement Actions. For the purposes of this Section 9, the following would constitute diligent pursuit of Material Enforcement Actions: the solicitation of bids from third parties to conduct the liquidation of any material portion of the Collateral; the engagement or retention of sales brokers, marketing agents, investment bankers, accountants, auctioneers or other third parties for the purpose of valuing, marketing, promoting or selling any material portion of the Collateral; the initiation of any action to take physical possession of or to exercise dominion or control over (other than cash dominion) any material portion of the Collateral; the notification of all or substantially all account debtors to make payments to Lender in respect of Accounts comprising Collateral; or the commencement of any legal proceedings or actions against or with respect to any material portion of the Collateral.

10. Each Creditor shall immediately affix a legend to the instruments evidencing the Subordinated Debt stating that the instruments are subject to the terms of this Agreement. No amendment of the documents evidencing or relating to the Subordinated Debt shall directly or indirectly modify the provisions of this Agreement in any manner which might terminate or impair the subordination of the Subordinated Debt.

11. Subject to Section 9 hereof, this Agreement shall remain effective for so long as the Lender has any obligation to make disbursements or credit extensions to

 

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Borrower under the Senior Debt Documents or Borrower owes any amounts to Lender under the Senior Debt Documents. If, at any time after payment in full of the Senior Debt, any payments of the Senior Debt must be disgorged by Lender for any reason (including, without limitation, the Bankruptcy of Borrower), this Agreement and the relative rights and priorities set forth herein shall be reinstated as to all such disgorged payments as though such payments had not been made, and each Creditor shall immediately pay over to Lender all payments received with respect to the Subordinated Debt to the extent that such payments would have been prohibited hereunder. At any time and from time to time, with notice to Creditors but without Creditors’ consent, Lender may take such actions with respect to the Senior Debt as Lender, in its sole discretion, may deem appropriate, including, without limitation, terminating advances to Borrower, increasing the principal amount as allowed herein, extending the time of payment, increasing applicable interest rates, renewing, compromising or otherwise amending the terms of the Senior Debt Documents, and enforcing or failing to enforce any rights against Borrower or any other person. No such action or inaction shall impair or otherwise affect Lender’s rights hereunder.

12. Creditors hereby consent to the incurrence by the Borrower of the Senior Debt.

13. This Agreement shall bind and benefit any successors or assignees of each Creditor and any successors or assigns of Lender. This Agreement is solely for the benefit of Creditors and Lender and not for the benefit of Borrower, Holdings, Group or any other party. Creditors further agree that if Borrower is in the process of refinancing a portion of the Senior Debt with a new lender, and if Lender makes a request of Creditors, Creditors shall agree to enter into a new subordination agreement with the new lender on substantially the terms and conditions of this Agreement.

14. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

15. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Jurisdiction shall lie in the State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES. If the jury waiver set forth in this Section is not enforceable, then any dispute, controversy or claim arising out of or relating to this Agreement or any of the transactions contemplated herein shall be resolved by judicial reference pursuant to Code of Civil

 

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Procedure Section 638 et seq. before a mutually acceptable referee or, if none is selected, then a referee chosen by the Presiding Judge of the California Superior Court for Santa Clara County, provided this provision shall not restrict any party from seeking to enforce any prejudgment remedies.

16. This Agreement represents the entire agreement with respect to the subject matter hereof, and supersedes all prior negotiations, agreements and commitments. Creditors are not relying on any representations by Lender or any of the Zosano Group in entering into this Agreement, and each Creditor has kept and will continue to keep itself fully apprised of the financial and other condition of the Zosano Group. This Agreement may be amended, modified, or terminated, and the observance of any term of this Agreement may be waived, with respect to all parties to this Agreement (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Lender and a majority in interest of the Creditors based on amount of the outstanding Subordinated Debt, provided, however, that no such amendment, modification or waiver shall be effective to the extent such amendment, modification or waiver adversely affects the rights of any Creditor in a manner different from the consenting Creditors (other than differences related to the different principal amounts of the Subordinated Notes) without the consent of each such differently affected Creditor.

17. In the event of any legal action to enforce the rights of a party under this Agreement, the party prevailing in such action shall be entitled, in addition to such other relief as may be granted, all reasonable costs and expenses, including reasonable attorneys’ fees, incurred in such action.

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

“Lender”
HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation
Signature:  

/s/ Ben Bang

Print Name:   Ben Bang
Title:   Senior Counsel
“Borrower”
ZOSANO PHARMA, INC.
Signature:  

/s/ Vikram Lamba

By:  

Vikram Lamba

Title:  

CEO

“Holdings”
ZP HOLDINGS, INC.
Signature:  

/s/ Vikram Lamba

By:  

Vikram Lamba

Title:  

CEO

[C REDITOR S IGNATURE P AGE F OLLOWS ]

 

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“Creditors”    
BMV DIRECT SO LP     BMV DIRECT SOTRS LP
By:  

BioMed Realty, L.P.,

its general partner

    By:  

BioMed Realty Holdings, Inc.,

its general partner

Signature:  

/s/ Kevin M. Simonsen

    Signature:  

/s/ Kevin M. Simonsen

By:  

Kevin M. Simonsen

    By:  

Kevin M. Simonsen

Title:  

VP, Real Estate Legal

    Title:  

VP, Real Estate Legal

PROQUEST INVESTMENTS IV, L.P.      
By:  

ProQuest Associates IV, LLC,

its general partner

    PROQUEST MANAGEMENT LLC
Signature:  

/s/ Pasquale DeAngelis

    Signature:  

/s/ Pasquale DeAngelis

By:  

Pasquale DeAngelis

    By:  

Pasquale DeAngelis

Title:  

Managing Member

    Title:  

Administrative Partner

NEW ENTERPRISES ASSOCIATES 12,
LIMITED PARTNERSHIP
     
By:  

NEA Partners 12, Limited Partnership,

its general partner

     
Signature:  

/s/ Louis S. Citron

     
By:  

Louis S. Citron

     
Title:  

Chief Legal Officer

     

 

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EXHIBIT A

CREDITORS

BMV DIRECT SO LP

BMV DIRECT SOTRS LP

PROQUEST INVESTMENTS IV, L.P.

PROQUEST MANAGEMENT LLC

NEW ENTERPRISES ASSOCIATES 12, LIMITED PARTNERSHIP

 

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Exhibit 10.37

SUBORDINATION AGREEMENT

This Subordination Agreement is made as of June 3, 2014 (this “ Agreement ”), by and among the parties listed on Exhibit A hereto (each a “ Creditor ” and collectively, the “ Creditors ”), ZOSANO PHARMA, INC. (“ Borrower ”), ZP HOLDINGS, INC. (“ Holdings ”), and HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation (the “ Lender ”).

Recitals

A. Borrower has requested and/or obtained a loan in the principal amount of $4,000,000.00 (the “ Senior Loan ”) from Lender which is or will be from time to time secured by assets and property of Borrower pursuant to the terms of that certain Loan and Security Agreement dated as of June 3, 2014 by and between Borrower and Lender, as the same may be amended from time to time (the “ Senior Loan Agreement ”). Capitalized terms not otherwise defined herein shall have the same meaning as in the Senior Loan Agreement.

B. Creditors have extended loans or other credit accommodations to Borrower, Holdings and/or ZP Group, LLC (“ Group ” and collectively with Borrower and Holdings, the “ Zosano Group ”), and/or may extend loans or other credit accommodations to the Zosano Group from time to time, subject to the terms of this Agreement.

C. In order to induce Lender to extend the Senior Loan to Borrower and, at any time or from time to time, at Lender’s option, to make such further loans or other credit accommodations to or for the account of Borrower, grant such renewals or extensions of the Senior Loan as Lender may deem advisable, Creditors are willing to subordinate the Subordinated Debt (as defined below) to the Senior Debt (as defined below), on the terms and conditions set forth herein.

Agreement

NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree as follows:

1. The term “ Senior Debt ” shall mean all obligations of any of Borrower to Lender, now existing or hereafter arising, under the Senior Loan Agreement and/or any other related documents governing, evidencing or securing the Senior Loan (collectively, “ Senior Debt Documents ”), together with all costs of collecting such obligations (including attorneys’ fees), including, without limitation, all interest accruing after the commencement by or against Borrower of any Bankruptcy, reorganization or similar proceeding. The term “ Senior Security Interest ” shall mean any security interest in or lien on the “ Collateral ” (as defined in the Senior Loan Agreement) in favor of Lender arising from the Senior Debt.

 

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2. The term “ Subordinated Debt ” shall mean all obligations of any of the Zosano Group to any Creditor, now existing or hereafter arising, under (a) the Note Purchase Agreement dated as of February 26, 2014, executed by ZP Holdings in favor of the Creditors (the “ NPA ”), and (b) the series of related 8% Subordinated Convertible Promissory Notes dated even date therewith issued to the Creditors in the principal amount of $2,500,000.00 (the “ Subordinated Notes ”). The NPA and the Subordinated Notes are collectively referred to herein as the “ Subordinated Debt Documents .” The term “ Subordinated Security Interest ” shall mean any security interest in or lien, if any, on the Collateral in favor of the Creditors, or any of them, arising from the Subordinated Debt.

3. All Subordinated Debt is subordinated in right of payment to the Senior Debt. Creditor subordinates to the Senior Security Interest the Subordinated Security Interest, if any. Notwithstanding the respective dates of attachment or perfection of the Subordinated Security Interest, if any, and the Senior Security Interest, the Senior Security Interest shall at all times be prior to the Subordinated Security Interest. Creditor acknowledges that it will not be entitled to receive payment of the Subordinated Debt when due if, at the time such payment is required, any portion of the Senior Debt remains outstanding.

4. Each Creditor represents and warrants to Lender that, other than such Creditor, there are no Affiliates of Creditor to whom Borrower, Holdings or Group owe any Indebtedness, except:

(a) in the case of BMV Direct SO LP and BMV Direct SOTRS LP, pursuant to (i) the Lease dated as of May 1, 2007, as amended by the First Amendment to Lease dated as of June 20, 2008, the Second Amendment to Lease dated as of October 16, 2008, the Third Amendment to Lease dated as of April 29, 2011, the Fourth Amendment to Lease dated as of July 31, 2011, and the Fifth Amendment to Lease dated as of April 1, 2012, between BMR-34790 Ardentech Court LP, a Delaware limited partnership (“ Landlord ,” as successor in interest to BMR-34790 Ardentech Court LLC), and Borrower, which is guaranteed by the Guaranty dated as of April 1, 2012, executed by Holdings in favor of Landlord (collectively, the “ Lease Documents ”), (ii) the Secured Promissory Note dated as of April 26, 2012 executed by ZP Holdings originally in favor of BioMed Realty Holdings, Inc., a Maryland corporation (“ BMR ”), in the principal amount of $8,556,533.00, together with the agreements securing such note, including the (A) LLC Pledge Agreement, dated as of April 26, 2012 executed by Borrower originally in favor of BMR (the “ LLC Pledge Agreement ”), (B) the Intellectual Property Security Agreement dated as of April 26, 2012 executed by ZP Holdings originally in favor of BMR, and (C) the Security Agreement dated as of April 26, 2012 executed by ZP Holdings originally in favor of BMR, all of which have been assigned to BMV DIRECT SOTRS LP, a Delaware limited partnership, and collectively are referred to as the “ BMV Debt ”; and (iii) the Note Purchase Agreement dated as of September 9, 2013 (the “ 2013 NPA ”) among Holdings, BMV Direct SO LP, a Delaware limited partnership (“ BMV SO ”), BMV Direct SOTRS LP, a Delaware limited partnership (“ BMV SOTRS ”), ProQuest Investments IV, L.P., ProQuest Management LLC, and New Enterprise Associates 12, Limited Partnership (“ NEA ”), the 8% Subordinated Convertible

 

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Promissory Notes in the principal amount of $303,372.00 dated as of February 26, 2014 by Holdings in favor of BMV SO, the 8% Subordinated Convertible Promissory Note in the principal amount of $991,047.43 dated as of September 9, 2013, by Holdings in favor of BMV SOTRS, and other related agreements (collectively, the “ BMV Notes ”); and

(b) in the case of NEA, the 2013 NPA and the 8% Subordinated Convertible Promissory Note in the principal amount of $1,159,532.21 dated as of September 9, 2013 by Holdings in favor of NEA.

For purposes of this Agreement, in no event shall the Subordinated Debt include any of the Lease Documents, the BMV Debt, the 2013 NPA or the Indebtedness owed pursuant thereto, provided however, that such obligations are to be subordinated pursuant to a separate agreement.

5. Without Lender’s written consent, each Creditor agrees that it will not demand or receive from Borrower, Holdings or Group (and Borrower and Holdings agrees not to pay to Creditor) all or any part of the Subordinated Debt, by way of payment, prepayment, setoff, lawsuit or otherwise, nor will such Creditor exercise any remedy with respect to the Collateral, nor will such Creditor commence, or cause to commence, prosecute or participate in any administrative, legal or equitable action against Borrower or Holdings, for so long as any portion of the Senior Debt remains outstanding, provided , however , that each Creditor may convert any part of the Subordinated Debt (other than Subordinated Debt owed to such Creditor by Group) into equity securities of Borrower in accordance with the terms of the Subordinated Notes.

6. Each Creditor shall promptly deliver to Lender in the form received (except for endorsement or assignment by such Creditor, where required by Lender) for application to the Senior Debt any payment, distribution, transfer of property or proceeds received by such Creditor with respect to the Subordinated Debt other than in accordance with this Agreement.

7. In the event of Borrower’s, Holding’s or Group’s insolvency, reorganization or any case or proceeding under any Bankruptcy or insolvency law or laws relating to the relief of debtors, this Agreement shall remain in full force and effect, and Lender’s claims arising from the Senior Debt against Borrower and Holdings and the respective estates of Borrower and Holdings, to the extent that such claims have priority over the Subordinated Debt under this Agreement, shall be paid in full before any payment with respect to the Subordinated Debt is made to any Creditor.

8. For so long as any of the Senior Debt remains unpaid, each Creditor irrevocably appoints Lender as such Creditor’s attorney-in-fact, and grants to Lender a power of attorney with full power of substitution in the name of such Creditor or in the name of Lender for the use and benefit of Lender, without notice to such Creditor, to perform at Lender’s option the following acts in any Bankruptcy, insolvency or similar proceeding involving Borrower, Holdings and/or Group:

(a) To file the appropriate claim or claims in respect of the

 

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Subordinated Debt on behalf of any Creditor if such Creditor does not do so prior to 30 days before the expiration of the time to file claims in such proceeding and if Lender elects, in its sole discretion, to file such claim or claims; and

(b) To accept or reject any plan of reorganization or arrangement on behalf of any Creditor and to otherwise vote any Creditor’s claims in respect of any Subordinated Debt in any manner that Lender deems appropriate for the enforcement of its rights hereunder.

9. Section 5 of this Agreement shall automatically terminate and be of no further force or effect upon the occurrence of the Termination Date (defined below). “ Termination Date ” means the earlier to occur of ninety (90) days following Lender’s acceleration of the Senior Debt and October 1, 2017 (the “ Enforcement Period ”), provided however, that the Termination Date shall be extended if (and for so long as) at the time the Enforcement Period would otherwise terminate, Lender is, in good faith, diligently pursuing Material Enforcement Actions. If Borrower becomes subject to a bankruptcy proceeding under Title 11 of the United States Code, as amended (the “ Bankruptcy Code ”) prior to the occurrence of the Termination Date, the Termination Date shall be extended to a date ninety (90) days following the effective date of the removal or lifting of any restriction imposed by the Bankruptcy Code which prohibits or materially restricts Lender from enforcing its rights against Borrower or Borrower’s property (the “ Post-Bankruptcy Enforcement Period ”), provided however, that the Termination Date shall be extended for so long as and if immediately prior to the expiration of the Post-Bankruptcy Enforcement Period, Lender is, in good faith, diligently pursuing Material Enforcement Actions. For the purposes of this Section 9, the following would constitute diligent pursuit of Material Enforcement Actions: the solicitation of bids from third parties to conduct the liquidation of any material portion of the Collateral; the engagement or retention of sales brokers, marketing agents, investment bankers, accountants, auctioneers or other third parties for the purpose of valuing, marketing, promoting or selling any material portion of the Collateral; the initiation of any action to take physical possession of or to exercise dominion or control over (other than cash dominion) any material portion of the Collateral; the notification of all or substantially all account debtors to make payments to Lender in respect of Accounts comprising Collateral; or the commencement of any legal proceedings or actions against or with respect to any material portion of the Collateral.

10. Each Creditor shall immediately affix a legend to the instruments evidencing the Subordinated Debt stating that the instruments are subject to the terms of this Agreement. No amendment of the documents evidencing or relating to the Subordinated Debt shall directly or indirectly modify the provisions of this Agreement in any manner which might terminate or impair the subordination of the Subordinated Debt.

11. Subject to Section 9 hereof, this Agreement shall remain effective for so long as the Lender has any obligation to make disbursements or credit extensions to Borrower under the Senior Debt Documents or Borrower owes any amounts to Lender under the Senior Debt Documents. If, at any time after payment in full of the Senior Debt, any payments of the Senior Debt must be disgorged by Lender for any reason

 

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(including, without limitation, the Bankruptcy of Borrower), this Agreement and the relative rights and priorities set forth herein shall be reinstated as to all such disgorged payments as though such payments had not been made, and each Creditor shall immediately pay over to Lender all payments received with respect to the Subordinated Debt to the extent that such payments would have been prohibited hereunder. At any time and from time to time, with notice to Creditors but without Creditors’ consent, Lender may take such actions with respect to the Senior Debt as Lender, in its sole discretion, may deem appropriate, including, without limitation, terminating advances to Borrower, increasing the principal amount as allowed herein, extending the time of payment, increasing applicable interest rates, renewing, compromising or otherwise amending the terms of the Senior Debt Documents, and enforcing or failing to enforce any rights against Borrower or any other person. No such action or inaction shall impair or otherwise affect Lender’s rights hereunder.

12. Creditors hereby consent to the incurrence by the Borrower of the Senior Debt.

13. This Agreement shall bind and benefit any successors or assignees of each Creditor and any successors or assigns of Lender. This Agreement is solely for the benefit of Creditors and Lender and not for the benefit of Borrower, Holdings, Group or any other party. Creditors further agree that if Borrower is in the process of refinancing a portion of the Senior Debt with a new lender, and if Lender makes a request of Creditors, Creditors shall agree to enter into a new subordination agreement with the new lender on substantially the terms and conditions of this Agreement.

14. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

15. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Jurisdiction shall lie in the State of California. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES. If the jury waiver set forth in this Section is not enforceable, then any dispute, controversy or claim arising out of or relating to this Agreement or any of the transactions contemplated herein shall be resolved by judicial reference pursuant to Code of Civil Procedure Section 638 et seq. before a mutually acceptable referee or, if none is selected, then a referee chosen by the Presiding Judge of the California Superior Court for Santa Clara County, provided this provision shall not restrict any party from seeking to enforce

 

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any prejudgment remedies.

16. This Agreement represents the entire agreement with respect to the subject matter hereof, and supersedes all prior negotiations, agreements and commitments. Creditors are not relying on any representations by Lender or any of the Zosano Group in entering into this Agreement, and each Creditor has kept and will continue to keep itself fully apprised of the financial and other condition of the Zosano Group. This Agreement may be amended, modified, or terminated, and the observance of any term of this Agreement may be waived, with respect to all parties to this Agreement (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Lender and a majority in interest of the Creditors based on amount of the outstanding Subordinated Debt, provided, however, that no such amendment, modification or waiver shall be effective to the extent such amendment, modification or waiver adversely affects the rights of any Creditor in a manner different from the consenting Creditors (other than differences related to the different principal amounts of the Subordinated Notes) without the consent of each such differently affected Creditor.

17. In the event of any legal action to enforce the rights of a party under this Agreement, the party prevailing in such action shall be entitled, in addition to such other relief as may be granted, all reasonable costs and expenses, including reasonable attorneys’ fees, incurred in such action.

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

“Lender”
HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation
Signature:  

/s/ Ben Bang

Print Name:   Ben Bang
Title:   Senior Counsel
“Borrower”
ZOSANO PHARMA, INC.
Signature:  

/s/ Vikram Lamba

By:  

Vikram Lamba

Title:  

CEO

“Holdings”
ZP HOLDINGS, INC.
Signature:  

/s/ Vikram Lamba

By:  

Vikram Lamba

Title:  

CEO

[C REDITOR S IGNATURE P AGE F OLLOWS ]

 

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“Creditors”    
BMV DIRECT SO LP     BMV DIRECT SOTRS LP
By:  

BioMed Realty, L.P.,

its general partner

    By:  

BioMed Realty Holdings, Inc.,

its general partner

Signature:  

/s/ Kevin M. Simonsen

    Signature:  

/s/ Kevin M. Simonsen

By:  

Kevin M. Simonsen

    By:  

Kevin M. Simonsen

Title:  

VP, Real Estate Legal

    Title:  

VP, Real Estate Legal

NEW ENTERPRISES ASSOCIATES 12,

LIMITED PARTNERSHIP

     
By:  

NEA Partners 12, Limited Partnership,

its general partner

     
Signature:  

/s/ Louis S. Citron

     
By:  

Louis S. Citron

     
Title:  

Chief Legal Officer

     

 

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EXHIBIT A

CREDITORS

BMV DIRECT SO LP

BMV DIRECT SOTRS LP

NEW ENTERPRISES ASSOCIATES 12, LIMITED PARTNERSHIP

 

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Exhibit 10.38

THE SECURITIES REPRESENTED BY THE NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED, RESOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH SECURITIES ACT AND APPLICABLE LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. HOLDERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

BY ITS ACCEPTANCE OF THIS FIRST AMENDMENT TO SECURED PROMISSORY NOTE, HOLDER AND ANY SUBSEQUENT HOLDER HEREOF AGREES THAT THE NOTE, AS AMENDED BY THIS AMENDMENT, IS SUBJECT TO THE SUBORDINATION AGREEMENT (AS DEFINED BELOW).

FIRST AMENDMENT TO SECURED PROMISSORY NOTE

This First Amendment to Secured Promissory Note (this “ Amendment ”) is executed as of June 3, 2014 by and between ZP Holdings, Inc., a Delaware corporation (the “ Company ”), and BMV Direct SOTRS LP, a Delaware limited partnership (“ Holder ”), and amends that certain Secured Promissory Note in the principal amount of Eight Million Five Hundred Fifty Six Thousand Five Hundred Thirty-Three Dollars ($8,556,533), dated April 26, 2012, executed by Company in favor of BioMed Realty Holdings, Inc., a Maryland corporation ( BMR Holdings ”), and assigned by BMR Holdings to Holder pursuant to the Note Assignment dated December 18, 2012 (“ Existing Note ”). Capitalized terms not otherwise defined herein shall have the same meaning as in the Existing Note. The Existing Note, as amended by this Amendment, shall be referred to herein as the “ Note.

This Note is subject to that certain Subordination Agreement, dated of even date herewith (the “ Subordination Agreement ”), by and among Hercules Technology Growth Capital, Inc., a Maryland corporation (“ Hercules ”), Company, Zosano Pharma, Inc., a Delaware corporation (“ Zosano ”), and Holder, a copy of which is on file at the principal office of Zosano and which is being entered into pursuant to that certain Loan and Security Agreement of even date herewith between Hercules and Zosano (the “ Loan Agreement ”).


NOW, THEREFORE, in consideration of Holder’s agreement to enter into the Subordination Agreement and the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree to amend the Existing Note as follows:

1. Interest Rate . The Interest Rate shall be amended to be a floating interest rate equal to the greater of (a) 12.05%, or (b) 12.05% plus the “prime rate” as reported in The Wall Street Journal minus 5.25%.

2. Definitions .

(a) The definition of the term “ Permitted Indebtedness ” is hereby amended by adding the following subsection (f):

“; and (f) the Senior Indebtedness, and extensions, refinancings, modifications and amendments of the Senior Indebtedness, provided, however, that, except as set forth in Section 11 of the Subordination Agreement, no such extension, refinancing, modification or amendment shall have the effect of increasing the principal amount of the Senior Indebtedness, and provided, further, that, except as set forth in Section 11 of the Subordination Agreement, any refinancing of the Senior Indebtedness shall be for a term not exceeding the remaining term of the Senior Indebtedness, at an interest rate not exceeding the interest rate of the Senior Indebtedness, with the same amortization schedule as the Senior Indebtedness and otherwise on the substantially the same terms and conditions as the Senior Indebtedness.”

(b) The following definition is hereby added:

““ Senior Indebtedness ” means the Indebtedness of Zosano to Hercules Technology Growth Capital, Inc., a Maryland corporation (“ Lender ”) in the principal amount of $4,000,000 pursuant to the Loan and Security Agreement dated on or around June 3, 2014 between Zosano and Lender and any related agreements executed or delivered in connection therewith or pursuant thereto.”

3. Maturity Date . The Existing Note is hereby amended by adding the following at the end of the first sentence of Section 1 of the Existing Note and at the end of the first sentence of Section 2.1 of the Existing Note:

“; provided, however , that if any portion of the Senior Indebtedness remains outstanding on the Maturity Date, then the Company’s failure to pay any amount under this Note during the time period from the Maturity Date through the date that the Senior Indebtedness is paid in full shall not constitute an “Event of Default” under this Note or a violation or breach hereof, and shall not cause interest to accrue hereunder at the Default Rate (provided that this Note shall continue to accrue interest at the Interest Rate during such period).”

 

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4. Representations and Warranties of Company . All representations and warranties of the Company set forth in the Existing Note are remade as of the date of this Amendment and are true and correct in all respects, except that the representations and warranties made in the first two sentences of Section 4.11 of the Existing Note are qualified by reference to the Senior Indebtedness and the Subordination Agreement.

5. Representations and Warranties of Holder . All representations and warranties of Holder set forth in the Existing Note are remade as of the date of this Amendment and are true and correct in all respects.

6. Assignment . Holder may not assign the Note without first having the assignee thereof become a party to the Subordination Agreement.

7. Events of Default . Section 8.1 of the Existing Note is hereby amended to delete clause (f) thereof in its entirety and replace it with the following:

“(f) The Company defaults under the Senior Indebtedness or any Indebtedness that constitutes Subordinated Indebtedness, the effect of which default is to cause, with the giving of notice, if required, such Indebtedness to become due prior to its stated maturity, or such Indebtedness is declared to be due and payable or is otherwise required to be prepaid (other than by a regularly scheduled required prepayment or as a mandatory prepayment), purchased or defeased prior to the stated maturity thereof.”

8. Default Rate . The Default Rate (which, for the avoidance of doubt, is in lieu of and not in addition to the Interest Rate) shall be amended to be an interest rate equal to the lesser of (a) the Interest Rate plus 5% per annum, or (b) the maximum rate permitted by applicable law.

9. Termination of Amendment . This Amendment shall remain in effect so long as the Senior Indebtedness remains outstanding. Upon the repayment in full of the Senior Indebtedness, this Amendment shall terminate and be of no further force or effect, and the terms and conditions of the Note shall revert to those terms and conditions set forth in the Existing Note.

10. Effect of Amendment . Except as expressly modified by this Amendment, the Existing Note shall remain unmodified and in full force and effect.

11. Counterparts . This Amendment may be executed in two or more counterparts (including by facsimile or PDF copy), each of which shall be deemed an original and all of which together shall constitute one instrument.

(Signature Page Follows)

 

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The parties have executed this First Amendment to Secured Promissory Note as of the date first written above.

 

COMPANY:     HOLDER:
ZP HOLDINGS, INC.     BMV DIRECT SOTRS LP
      By:   BioMed Realty Holdings, Inc.,
By:  

/s/ Vikram Lamba

      its general partner
Name:   Vikram Lamba      
Title:   CEO     By:  

/s/ Kevin M. Simonsen

      Name:   Kevin M. Simonsen
      Title:   VP, Real Estate Legal
      Address:   17190 Bernardo Center Drive
        San Diego, CA 92128
ZOSANO :       Attn: Corporate Legal
ZOSANO PHARMA, INC.      
By:  

/s/ Vikram Lamba

     
Name:   Vikram Lamba      
Title:   CEO      

SIGNATURE PAGE TO FIRST AMENDMENT TO SECURED PROMISSORY NOTE

Exhibit 10.39

ZOSANO PHARMA CORPORATION

INDEPENDENT DIRECTOR AGREEMENT

(Troy Wilson)

This Independent Director Agreement (this “ Agreement ”) dated as of June 23, 2014 (the “ Effective Date ”), is made by and between Zosano Pharma Corporation, a Delaware corporation formerly named ZP Holdings, Inc. (the “ Company ”), and Troy Wilson (the “ Director ”).

WHEREAS, the Company desires to engage the Director as a member of the Board of Directors of the Company (the “ Board ”) and the Director desires to serve as a member of the Board.

NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein the parties hereby agree as follows:

1. Services .

(a) The Company hereby retains the Director and the Director hereby agrees to perform such consulting and advisory services relating to the Field of Interest (as defined in Section 12(j)) as the Company may request and as set forth in Schedule A (the “ Services ”).

(b) The Director agrees to make himself available to render the Services, at such times and locations as may be mutually agreed, from time to time as requested by the Company. Except as provided in Schedule A , the Director may deliver the Services over the telephone, in person or by written correspondence.

(c) The Company acknowledges that the Director has obligations to provide services to other Persons (collectively, “ Other Clients ”) and that the Director must take such obligations into account when scheduling meetings or calls with the Company. The Director acknowledges that the Company has the right to terminate this Agreement in accordance with Section 4 if the Director is not able satisfy the Company’s reasonable requests for meetings and calls.

(d) The Director agrees to devote his best efforts to performing the Services. The Director shall comply with all rules, procedures and standards promulgated and made known to the Director from time to time by the Company with regard to the Director’s access to and use of the Company’s property, information, equipment and facilities.

2. Compensation . The Company shall (i) pay the Director a consulting fee as provided in Schedule A , (ii) grant the Director an option to purchase shares of the common stock, $0.0001 par value per share, of the Company (“ Common Stock ”) as provided in Schedule A and (iii) reimburse the Director for business expenses as provided in Schedule A .

3. Independent Contractor . In furnishing the Services, the Director understands that he will at all times be acting as an independent contractor of the Company and, as such, will not be an employee of the Company (nor will the Director be an employee of (i) Zosano Pharma,


Inc., a Delaware corporation and wholly owned subsidiary of the Company (“ Opco ”), (ii) Zosano, Inc. a Delaware corporation and majority owned subsidiary of the Company (“ Shell ”), or (iii) ZP Group LLC, a Delaware limited liability company and indirect, wholly owned subsidiary of the Company (the “ LLC ”; Opco, Shell and the LLC are sometimes collectively referred to herein as the “ Subsidiaries ” and each as a “ Subsidiary ”)) and will not by reason of this Agreement or by reason of his Services to the Company be entitled to participate in or to receive any benefit or right under any of the Company’s or any Subsidiary’s employee benefit or welfare plans. The Director also will be responsible for paying all withholding and other taxes required by law to be paid as and when the same become due and payable. The Director shall not enter into any agreements or incur any obligations on behalf of the Company or any Subsidiary.

4. Term . The Director may terminate this Agreement at any time and for any reason or for no reason. The Company may terminate this Agreement by removing the Director as a director in accordance with the laws of the State of Delaware.

5. Exceptions to this Agreement . The Company acknowledges that (i) the Director is now or may become an employee, consultant or director of Other Clients, and (ii) the Director is now or may become a party to agreements with Other Clients relating to the disclosure of information, the ownership of inventions, restrictions against competition and/or similar matters. The Director represents and agrees that the execution, delivery and performance of this Agreement does not and will not conflict with any other agreement, policy or rule applicable to the Director. The Director will not (i) disclose to the Company or to any Subsidiary any information that he is required to keep secret pursuant to an existing confidentiality agreement with Other Clients or any other third party, (ii) use the funding, resources, facilities or inventions of Other Clients or any other third party to perform the Services, or (iii) perform the Services in any manner that would give Other Clients or any other third party rights to any intellectual property created in connection with the Services.

6. Confidential Information . While providing the Services to the Company and for five (5) years thereafter, the Director shall not, directly or indirectly, use any Confidential Information (as defined below) other than pursuant to his provision of the Services by and for the benefit of the Company, or disclose to anyone outside of the Company any such Confidential Information. The term “ Confidential Information ” as used throughout this Agreement shall mean all trade secrets, proprietary information and other data or information (and any tangible evidence, record or representation thereof), written or oral, whether prepared, conceived or developed by a Director or employee of the Company (including the Director) or of any Subsidiary or received by the Company from an outside source, which is in the possession of the Company or any Subsidiary (whether or not the property of the Company or such Subsidiary) and which is maintained in secrecy or confidence by the Company or such Subsidiary. Without limiting the generality of the foregoing, Confidential Information shall include:

(a) any idea, improvement, invention, innovation, development, concept, technical data, design, formula, device, pattern, sequence, method, process, composition of matter, computer program or software, source code, object code, algorithm, model, diagram, flow chart, product specification or design, plan for a new or revised product, sample, compilation of information, or work in process, or parts thereof, and any and all revisions and

 

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improvements relating to any of the foregoing (in each case whether or not reduced to tangible form); and

(b) the name of any customer, supplier, employee, prospective customer, sales agent, supplier or consultant, any sales plan, marketing material, plan or survey, business plan or opportunity, product or development plan or specification, business proposal, financial record, or business record or other record or information relating to the present or proposed business of the Company or any Subsidiary.

Notwithstanding the foregoing, the term Confidential Information shall not apply to information which the Company or any Subsidiary has voluntarily disclosed to the public without restriction, which has otherwise lawfully entered the public domain or which becomes available to the Director on a non-confidential basis from a third-party source that is entitled to disclose it to the Director.

The Director acknowledges that the Company and the Subsidiaries from time to time have in their respective possession information (including product and development plans and specifications) which is claimed by others to be proprietary and which the Company or the applicable Subsidiary has agreed to keep confidential. The Director agrees that all such information shall be Confidential Information for purposes of this Agreement.

The Director agrees that all originals and all copies of materials containing, representing, evidencing, recording, or constituting any Confidential Information, however and whenever produced (whether by the Director or others), shall be the sole property of the Company or the applicable Subsidiary, as the case may be.

7. Company Inventions . Director agrees that all Confidential Information and all other discoveries, inventions, ideas, concepts, products or formulas, or any new uses therefor or improvements thereon, or any new designs or modifications or configurations of any kind, or works of authorship of any kind, including, without limitation, compilations and derivative works, whether or not patentable or copyrightable, conceived, developed, reduced to practice or otherwise made by the Director during the term of this Agreement, either alone or with others, and related to or arising out of: (i) the Field of Interest; (ii) the Services; or (iii) Confidential Information, whether or not conceived, developed, reduced to practice or made on the Company’s or any Subsidiary’s premises (collectively, “ Company Inventions ”), and any and all services and products which embody, emulate or employ any such Company Inventions or Confidential Information, shall be the sole property of the Company and all copyrights, patents, patent rights, trademarks and reproduction rights to, and other proprietary rights in, each such Company Invention or Confidential Information, whether or not patentable or copyrightable, shall belong exclusively to the Company. The Director agrees that all such Company Inventions shall constitute works made for hire under the copyright laws of the United States and hereby assigns and, to the extent any such assignment cannot be made at the present time, agrees to assign, to the Company any and all copyrights, patents and other proprietary rights he may have in any such Company Invention, together with the right to file and/or own wholly without restrictions applications for United States and foreign patents, trademark registration and copyright registration and any patent, or trademark or copyright registration issuing thereon.

 

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8. Director’s Obligation to Keep Records . The Director shall make and maintain adequate and current written records of all Company Inventions, and shall disclose all Company Inventions promptly, fully and in writing to the Company immediately upon development of the same and at any time upon request.

9. Director’s Obligation to Cooperate . The Director will, during or after the term of this Agreement, upon request of the Company, execute all documents and perform all lawful acts which are reasonably necessary or advisable to secure the Company’s rights hereunder and to carry out the intent of this Agreement. Without limiting the generality of the foregoing, the Director will assist the Company in any reasonable manner to obtain for its own benefit patents or copyrights in any and all countries with respect to all Company Inventions assigned pursuant to Section 7, and the Director will execute, when requested, patent and other applications and assignments thereof to the Company, or Persons designated by it, and any other lawful documents deemed necessary by the Company to carry out the purposes of this Agreement, and the Director will further assist the Company as reasonably necessary to enforce any patents and copyrights obtained, including testifying in any suit or proceeding involving any of said patents or copyrights or executing any documents deemed necessary by the Company, all without further consideration than provided for herein. It is understood that reasonable out-of-pocket expenses of the Director incurred at the request of the Company under this Section 9 will promptly be reimbursed by the Company and that in the event that the Director is required to devote more than a de minimis amount of time to assisting the Company under this Section 9 subsequent to the term of this Agreement, the Director will be compensated by the Company at his then current per diem rate for Services.

10. Indemnification . The Company and the Director shall enter into an Indemnification Agreement providing for indemnification of the Director in his capacity as a director, to the maximum extent permissible under applicable law, such Indemnification Agreement to be in substantially the form provided to the Company’s other outside directors.

11. Nonsolicitation . During the term of this Agreement and for a period of one (1) year after the termination of this Agreement, the Director shall not (i) solicit, encourage, or take any other action which is intended to induce any employee of, or consultant to, the Company or any Subsidiary (or any other Person who may have been employed by, or may have been a consultant to, the Company or any Subsidiary during the term of this Agreement) to terminate his or her employment or relationship with the Company or such Subsidiary in order to become employed by or otherwise perform services for any other Person, or (ii) solicit, endeavor to entice away from the Company or any Subsidiary or otherwise interfere with the relationship of the Company or any Subsidiary with any Person who is, or was within the then-most recent 12-month period, a client or customer of the Company or any Subsidiary.

12. Miscellaneous .

(a) Entire Agreement . This Agreement and the documents referred to herein constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, between the parties with respect to such subject matter.

 

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(b) Assignment . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder, except as otherwise expressly provided herein and shall not be assignable by operation of law or otherwise.

(c) Amendments and Supplements . This Agreement may not be altered, changed or amended, except by an instrument in writing signed by the parties hereto.

(d) No Waiver . The terms and conditions of this Agreement may be waived only by a written instrument signed by the party waiving compliance. The failure of any party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of or non-compliance with this Agreement shall be held to be a waiver of any other or subsequent breach or non-compliance.

(e) Governing Law . This Agreement shall be governed by, and construed and enforced in accordance with, the substantive laws of the State of Delaware, without regard to its principles of conflicts of laws.

(f) Notice . All notices and other communications hereunder shall be in writing and shall be deemed given if delivered by hand, sent by facsimile transmission with confirmation of receipt, sent via a reputable overnight courier service with confirmation of receipt requested, or mailed by registered or certified mail (postage prepaid and return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice), and shall be deemed given on the date on which delivered by hand or otherwise on the date of receipt as confirmed:

To the Company:

Zosano Pharma Corporation

34790 Ardentech Court

Fremont, CA 94555

Attn: President and Chief Executive Officer

To the Director at the address set forth beneath his signature below.

(g) Remedies . The Director recognizes that money damages alone would not adequately compensate the Company in the event of breach by the Director of his obligations set forth in Sections 6, 7, 8, 9, 11 and 12, and the Director therefore agrees that, in addition to all other remedies available to the Company at law, in equity or otherwise, the Company shall be entitled to injunctive relief for the enforcement thereof. All rights and remedies hereunder are cumulative and are in addition to and not exclusive of any other rights and remedies available at law, in equity, by agreement or otherwise.

(h) Survival; Validity . Notwithstanding the termination of the Director’s relationship with the Company (whether pursuant to Section 4 or otherwise), the Director’s

 

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covenants and obligations set forth in Sections 6, 7, 9, 11 and 12 shall remain in effect and be fully enforceable in accordance with the provisions thereof. In the event that any provision of this Agreement shall be determined to be unenforceable by reason of its extension for too great a period of time or over too large a geographic area or over too great a range of activities, it shall be interpreted to extend only over the maximum period of time, geographic area or range of activities as to which it may be enforceable. If, after application of the preceding sentence, any provision of this Agreement shall be determined to be invalid, illegal or otherwise unenforceable by a court of competent jurisdiction, the validity, legality and enforceability of the other provisions of this Agreement shall not be affected thereby. Except as otherwise provided in this Section 12(h), any invalid, illegal or unenforceable provision of this Agreement shall be severable, and after any such severance, all other provisions hereof shall remain in full force and effect.

(i) Construction . A reference to a Section or a Schedule shall mean a Section in or Schedule to this Agreement unless otherwise expressly stated. The titles and headings herein are for reference purposes only and shall not in any manner limit the construction of this Agreement which shall be considered as a whole. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.” Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of names and pronouns shall include the plural and vice-versa.

(j) Certain Definitions .

Field of Interest ” shall mean the discovery, development or commercialization of transdermal delivery technology.

Person ” shall mean an individual, a corporation, an association, a partnership, an estate, a trust and any other entity or organization.

(k) Counterparts . This Agreement may be executed in one or more counterparts, all of which together shall constitute one and the same agreement.

*****

 

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IN WITNESS WHEREOF, the parties have caused this Independent Director Consulting Agreement to be executed as an agreement under seal as of the date first written above.

 

ZOSANO PHARMA CORPORATION
By:  

/s/ Vikram Lamba

Name:   Vikram Lamba
Title:   Director, President and CEO
DIRECTOR:

/s/ Troy Wilson

Troy Wilson
Address:   c/o Wellspring Biosciences LLC
  11119 N. Torrey Pines Road
  Suite 125
  La Jolla, CA 92037
  Fax No.: 858-500-8801


Schedule A

1. Description of the Services . The Director shall:

(a) Serve as a member of the Board of Directors, including attendance at meetings of the Board of Directors. The Company’s Board of Directors currently meets approximately 12 times per year (with approximately four (4) of such meetings in person), however, this rate may vary as determined by the Board of Directors.

(b) Provide guidance on preclinical and clinical research and development plans, regulatory and commercialization strategy, competitive therapies and technologies, and business development. The Director and the Company will be flexible regarding these commitments in light of the Company’s needs and the Director’s other professional obligations and commitments.

2. Compensation .

(a) During the term of this Agreement, the Company shall pay the Director an annual consulting fee of $25,000, to be paid in monthly installments of $2,083.33 each, in arrears, with one such installment payable on the last day of each one-month period following the Effective Date.

(b) Promptly after the Effective Date, the Company shall grant to the Director, under the Company’s 2012 Stock Incentive Plan, a nonstatutory option (the “ Option ”) to purchase 113,207 shares of Common Stock (the “ Option Shares ”) at a purchase price per share equal to the fair market value of the Common Stock (as determined by the Board of Directors) on the date of the grant. The Option shall be subject to vesting requirements as follows: 2.0833% of the Option Shares shall vest on the first monthly anniversary of June 20, 2014 and an additional 2.0833% of the Option Shares shall vest at the end of each one-month period thereafter, so that 100% of the Option Shares shall be fully vested on June 20, 2018; provided, however , that 100% of the Option Shares shall become vested immediately prior to a Change in Control. For purposes hereof, “ Change in Control ” means (i) the sale, lease, exchange, transfer or other disposition of all or substantially all of the assets of the Company and Opco, or (B) any merger, consolidation or other business combination that results in the holders of the outstanding voting securities of the Company immediately prior to such transaction beneficially owning or controlling less than a majority of the voting securities of the surviving entity immediately thereafter.

(c) The Director shall be reimbursed for all reasonable, appropriate or necessary travel and other out-of-pocket expenses incurred in the performance of his duties hereunder upon submission and approval of written statements and bills in accordance with the then regular reimbursement procedures of the Company, including, without limitation, travel and lodging expenses incurred in traveling to and from the Company’s offices to render the Services and to attend meetings of the Board of Directors. In the event that the Director performs services on behalf of Other Clients during a trip in which he also provides Services on behalf of the Company, he shall equitably allocate the costs of such trip among the Company and such Other Clients.

 

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Exhibit 21.1

ZP Holdings, Inc.

List of Subsidiaries

 

Name of Subsidiary

  

State of Incorporation or Organization

Zosano Pharma, Inc.    Delaware
Zosano, Inc.    Delaware
ZP Group LLC    Delaware

Exhibit 23.1

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT

We consent to the inclusion in this Form S-1 Registration Statement of Zosano Pharma Corporation (formerly known as ZP Holdings, Inc.) of our report dated May 13, 2014, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern with respect to our audits of the consolidated financial statements of Zosano Pharma Corporation as of December 31, 2013 and 2012 and for the years then ended, which report appears in the Prospectus, which is part of this Registration Statement. We also consent to the reference to our Firm under the heading “Experts” in such Prospectus.

/s/ Marcum LLP

Marcum LLP

San Francisco, CA

June 23, 2014